The case of Kaltwasser v Isambulela Group Administrator (Pty) Ltd (unreported Labour Court case, case number: JS 635/10 & JS 359/11) illustrates why contracts of employment should always be given meticulous consideration.
The employee was employed by a risk management company, Isambulela Group Administrator (Pty) Ltd (Company), which was owned by two of the employee's good friends. The parties had such a close relationship, that one of the employer's directors, Mr Holtzhauzen (Holtzhauzen), told the employee to "draft the contract and bring it back" for their signature. Despite this show of good faith, what ultimately transpired was that one of the directors sent the employee one of the Company's pro forma contracts for him to consider.
The employee amended the remuneration clause and deleted the restraint of trade and then returned the contract to the employer. The employee did not, however, disclose that he had made material changes to the contract. Accordingly, Holtzhauzen signed the contract of employment on the incorrect understanding that the employee had merely inserted his personal details and other minor particulars relating to the commission formula.
The working and personal relationship between the parties eventually broke down. Following this degeneration, the employee instituted unfair labour practice proceedings against the Company, which proceedings are unrelated to the contractual claim that forms the basis of this article. It was only during these separate proceedings in the CCMA, that the employee's unilateral amendments to the contract of employment came to light. These amendments had the effect of entitling the employee to annual salary increases.
The employee then instituted further proceedings in the Labour Court claiming this entitlement, which entitlement was disputed by the Company. In defending the employee's claim, the Company relied on the contractual defence of justus error (a reasonable mistake), arguing that the employee unilaterally altered terms of the contract of employment without the Company's knowledge.
To be successful in raising the defence of justus error, a party has to prove that:
- The mistake was material and renders the contract void. In order to prove this, the party seeking to avoid liability under the contract must show that it would not have entered into the contract if it had realised the mistake; and
- The mistake was reasonable.
In this instance, the employee relied on the maxim of caveat subscriptor (let the signatory beware), arguing that the Company cannot escape the consequences of its negligence. The Company argued that Holtzhauzen would never have signed the contract had he been aware of the amendments to the standard form contract.
The Labour Court held that the employee knew that Holtzhauzen, acting on behalf of the company, would never have signed the contract had it known about the amendments. Thus, the Court found in favour of the employer. However, the Court cautioned that the outcome could have been different if the employee had drawn up his own contract instead of using the Company's standard form of contract.
The vital lesson employers should take from this case, is to ensure that they draft and finalise contract of employments. In the event that the employee wishes to raise comments in respect of the contract, such variations should still be reviewed by the employer. By exercising this caution, employers will eliminate the risk of an employee unilaterally varying the material terms of their employment contract.