13 March 2013
Conclusion of Employment Contract (cont'd)
Can I include a probationary period in the labour contract?
Yes. The maximum length of the probationary period you can impose on an employee will depend on the term of the labour contract. Where the term of a labour contract is more than three months but less than one year, the probationary period must not exceed one month. Where the term of a labour contract is more than one year but less than three years, the probationary period must not exceed two months. For fixed-term contracts of three years and above and non-fixed-term labour contracts, the probationary period must not exceed six months.
For labour contracts which expire upon completion of an agreed assignment, or labour contracts with a term of less than three months, no probationary period may be imposed.
Only one probationary period may be imposed by an employer on an employee even if the employee leaves and subsequently rejoins the employer.
Can I enter into an agreement separate to the labour contract for the employee to serve a probationary period?
No, the probationary period must form part of the term of the labour contract. If you attempt to enter into a separate agreement for a probationary period, then that agreement will be void and you will be regarded as having entered into a fixed-term contract with the employee. There will be no probationary period.
Can I require an employee to pay liquidated damages should the employee breach the labour contract?
Yes you can, but you must include the relevant clause in the labour contract beforehand and the agreed liquidated damages will only apply in the following two scenarios:
- When you provide training to your employee and have incurred special training costs, but the employee breaches his or her obligations to work for you for an agreed period of time, or
- When you have entered into a non-compete covenant with the employee and have paid the agreed amount of compensation to the employee on a monthly basis after the termination or expiry of the employment but the employee breaches his or her non-compete obligations
No other liquidated damages clause in a labour contract will be enforceable.
In terms of the amount of liquidated damages, how much would be appropriate?
Liquidated damages due to an employee's breach of service period obligations after training must not be more than the proportionate training costs for the remaining period the employee fails to serve.
While you can insert any amount for a breach of non-compete obligations, in practice when a dispute occurs the arbitrator or the judge will adjust the amount upon the employee's request if the agreed amount appears to the arbitrator or judge to be unreasonable. As such, we would recommend that the amount of liquidated damages is proportionate to the loss that the employer can demonstrate it would suffer as a consequence of the employee's breach.