Author: Nicole Ross

Bodies Corporate: Before You Sequestrate to Recover Arrears…

Written by Nicole Ross on June 28, 2021. Posted in Debt Recovery, Insolvency / Liquidation, Property.

“Bankruptcy – a fate worse than debt” (Anon)

One of a Body Corporate’s fundamental duties is to collect monthly levies from the scheme’s members, and to take robust action to recover any arrears. As with any other creditor/debtor relationship however, trying to recover debt can be an exercise in frustration and delay, and the more recalcitrant the debtor, the greater the temptation to “go straight for the jugular” by applying to sequestrate the debtor’s estate.

You will have to show that the sequestration is to the advantage of creditors as a whole – not just to you – but that isn’t the only consideration. You will be throwing good money after bad if you end up having to pay a “contribution to the costs of sequestration”.

The recent case of a sectional title Body Corporate, which perhaps thought that it was protected from this particular danger because of its statutory preferences for recovery of arrear levies prior to transfer, illustrates the danger.

But before we get to the facts and the outcome of that case let’s have a quick look at the general principles involved.

What is a “contribution to costs” and who has to pay it?

If you want to share in the net proceeds of an insolvent estate, you must formally prove your claim at a meeting of creditors convened by the trustee of the insolvent estate. If you don’t do that, you wave goodbye to any possible dividend and will be writing off the debt.

On the other hand, if you decide to prove your claim you may be at risk of having to pay into the estate as well as writing off the debt – talk about adding insult to injury! That danger arises if the costs of sequestrating the estate exceed the funds in the estate available to pay them. In that event the trustee of the insolvent estate will recover a “contribution to costs” from proved creditors – including you if your claim was proved as above.

The special danger of being the “petitioning creditor”

The creditor who applies for the debtor’s sequestration is – as “the petitioning creditor” – liable to contribute to the shortfall even without proving a claim. In other words, unlike other creditors, you cannot protect yourself from contributing to costs by holding back the claim – you are “deemed” to have proved it. That’s why, although applying for sequestration can be an excellent way of recovering debt from a recalcitrant debtor, it is essential to first consider the danger of contribution.

How “secured creditors” can protect themselves

Also relevant to our story is that a creditor holding security (such as a bond over the insolvent’s property) must prove its secured claim in order to be paid out the net proceeds of its security. A secured creditor can, if it suffers a shortfall after being paid out those net proceeds of its security, also share in the “free residue” of the estate. The “free residue” is the net proceeds of all unencumbered assets available for distribution to creditors. The secured creditor’s share in this event will be based on the “concurrent” portion of its claim, in other words it is now a concurrent creditor.

This is where the danger comes in because any contribution payable is payable in the free residue by concurrent creditors. A secured creditor can largely protect itself from this danger by “relying on the proceeds of its security” to satisfy its claim. By doing so it waives its concurrent claim for the shortfall, but equally it no longer has to contribute along with the other proved (or petitioning) concurrent creditors. It will now only have to contribute when there are no other such creditors, or when other contributors are unable to pay their share.

The case of the Body Corporate that sequestrated to recover arrears – and paid the price

Let’s see how those principles were applied in a recent Supreme Court of Appeal (SCA) case –

The owner of two sectional title units, bonded to separate banks, was unable to pay his levies. The Body Corporate sequestrated his estate, and his two units were sold. Only the two banks proved claims.
This was where the Body Corporate’s statutory protection for arrear levies came in. No transfer can be registered in the Deeds Office until all rates and taxes (and levies in the case of Bodies Corporate and Homeowners Associations) have been paid in full. Thus the arrear levies were paid in full to the Body Corporate by the transferring attorneys. “Done and dusted” thought the Body Corporate, but it was not to be.
There was a shortfall in the insolvent estate, and the trustee tried to recover the resultant contribution from the two banks (the bondholders) who had proved their claims in the estate.
The banks objected, arguing that because they had relied on their security in proving their claims, they were not liable to contribute (as above). The Body Corporate, they argued, was as the petitioning creditor liable for the contribution despite not having proved its claim.
The Body Corporate on the other hand argued that it could never be liable for a contribution. Although it was indeed the petitioning creditor, it had never proved a claim against the estate and the arrear levies had been paid to it in full, as required by law, before transfer of the properties.
To cut a long story short, the dispute wound its way through our courts and ended up in the SCA, which, after a detailed examination of the relevant law, held the Body Corporate as petitioning creditor to be solely liable for the full amount of the contribution to costs (R46 663.16).

Bodies Corporate beware!

The Court’s reasoning in reaching this conclusion will be of great interest to the lawyers amongst us, but the bottom line for Bodies Corporate is this – if you sequestrate to recover arrears, you could well end up carrying the full brunt of any contribution to costs.

So perhaps take advice on whether you can/should rather use other debt collection processes, including perhaps applying to the CSOS (Community Schemes Ombud Service) to order and enforce payment of the arrears.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

Your Website of the Month: How to Plan and Hold Virtual Board Meetings

Written by Nicole Ross on June 28, 2021. Posted in Business, Website of the Month.

Virtual meetings are here to stay. Make the most of them with “Optimising the virtual boardroom: A guide to planning and executing virtual board meetings” from Nasdaq Governance Solutions on Moneyweb.

Learn how to –

“Build a virtual board table” (“creating a virtual seating arrangement” and so on),
“Mitigate meeting day glitches” (we’ve all wasted time on fiascos!), and
“Keep it confidential” (paramount).

11 POPIA Questions to Ask Yourself Before 30 June 2021

Written by Nicole Ross on May 27, 2021. Posted in Business, Information Technology Law / Cyberlaw, Property.

Note: This is a complex topic and there is no substitute for tailored professional advice. What is set out below is of necessity no more than a simplified summary of some practical highlights.

You and your business are at substantial risk if you aren’t fully compliant with POPIA (the Protection of Personal Information Act) on 1 July 2021.

The clock is ticking! Have a look at the Information Regulator’s Countdown Clock here to see exactly how many days (and hours, minutes, and seconds!) you have left.

Be ready! Be compliant! Ask yourself these eleven questions –

Does POPIA really apply to us?
As soon as you in any way “process” (collect, use, manage, store, share, destroy and the like) any personal information relating to a “data subject” (suppliers, customers, members, employees and so on – whether individuals or “juristic persons” such as corporates and the like), you are a “responsible party”.The formal definition of a responsible party is “a public or private body or any other person which, alone or in conjunction with others, determines the purpose of and means for processing personal information” – very few businesses and organisations will fall outside that net. Equally you are unlikely to fall under exemptions such as that applying to information processed “in the course of a purely personal or household activity”.But don’t panic –. compliance is easily attainable for most businesses, particularly if you are a smaller operation with little in the way of sensitive personal information. Answer the questions below to get a feel for areas you need to concentrate on now.
What risks do we run if we don’t comply with POPIA?
If a data subject suffers any loss as a result of your breach of POPIA, the subject (or the Regulator at the request of the subject) can sue you for damages and you will be liable even if your breach was unintentional and not negligent. You also face criminal prosecution, penalties and administrative fines for some breaches.
Have we registered our Information Officer/s?
You must register your Information Officer (“IO”) with the Information Regulator – go to the Regulator’s Online Portal for the online and PDF versions of the registration form, plus the email address for support enquiries and a link to the Search page. The IO is responsible (and liable) for all compliance duties, working with the Regulator, establishing procedures, and the like. You are automatically your business’ IO if you are its “Head” i.e., a sole trader, any partner in a partnership, or (in respect of a “juristic person” such as a company) the CEO, MD or “equivalent officer”. You can “duly authorise” another person in the business (management level or above) to act as IO and you can designate one or more employees (again management level or above) as “Deputy Information Officers”.
Do we have a list of all personal information we hold, and how and why we hold it?
Make a full list of all the personal information you hold/process, whether physically or in electronic form. Then evaluate it against the test that, to collect and “process” personal information lawfully, you need to be able to show that you are acting safely, lawfully, and reasonably in a manner that doesn’t infringe the data subject’s privacy.You must show that “given the purpose for which it is processed, it is adequate, relevant and not excessive”. Data can only be collected for a specific purpose related to your business activities and can only be retained so long as you legitimately need to (or are allowed to) keep it for that purpose.
What security measures do we have in place?
You must “secure the integrity and confidentiality of personal information in [your] possession or under [your] control by taking appropriate, reasonable technical and organisational measures to prevent … loss of, damage to or unauthorised destruction of personal information … and unlawful access to or processing of personal information.”You are at great risk of liability and penalties if you suffer any form of data breach from a risk that is “reasonably foreseeable” unless you can prove that you took steps to “establish and maintain appropriate safeguards” against those risks. If you haven’t already done so, brainstorm with your team all possible internal and external vulnerabilities (physical as well as electronic) and address them.
Do third parties hold/process personal information for us?
If third parties (“operators”), hold or process any personal information for you, they must act with your authority, treat the information as confidential, and have in place all the above security measures. Further restrictions apply if the third party is outside South Africa.
Do we know what to do if we suffer a breach?
Any actual or suspected breaches (called “security compromises” in POPIA) must be reported “as soon as reasonably possible” to both the Information Regulator and the data subject/s involved.
Do we do any “direct marketing” and if so do we comply with all requirements?
Most businesses don’t think of themselves as doing any “direct marketing”, but the definition is wide and includes “any approach” to a data subject “for the direct or indirect purpose of … promoting or offering to supply, in the ordinary course of business, any goods or services to the data subject…”. So for example, emailing or WhatsApping your customers about a new product or a special offer will put you into that net.If your approach is by means of “any form of electronic communication, including automatic calling machines, facsimile machines, SMSs or e-mail”, you must observe strict limits. Whilst you can as a general proposition market existing customers/clients in respect of “similar products or services” (there are limits and recipients must be able to “opt-out” at any stage), potential new customers can only be marketed with their consent, i.e., on an “opt-in” basis. They can be approached only once for that consent so keep a record of everyone you have asked.
Does our website use cookies and if so do we have a cookie notice and policy in place?
As countries around the world ramp up their privacy laws, we will all see many more examples of “cookie notices” on websites we visit. You may wonder how your own website should be configured, and the short answer is that if it uses cookies (almost all do), POPIA very likely applies despite the fact that there is no specific mention of cookies in the current legislation. Bottom line – to be on the safe side, have a cookie notice and policy in place. Keep yours simple and user-friendly.
Do we have a privacy policy and a POPIA manual in place?
POPIA – unlike PAIA (the Promotion of Access to Information Act) – doesn’t require you to have a POPIA manual in place but in larger businesses it is certainly a good idea to prepare one.However you should certainly have a privacy policy in place. Make sure that everyone in your organisation is aware of it and of how critical it is to comply with it at all times.
Is our staff team ready?
Check that everyone in your business understands your compliance plan and their own individual roles and responsibilities in it. Make sure that nothing falls through the cracks – assign specific tasks to specific staff members.

Bodies Corporate and Homeowners Associations – how POPIA affects you

Bodies Corporate and Homeowners Associations (HOAs) fall into the POPIA compliance net and should be asking themselves the questions above.

In assessing what personal information you hold, how and why you hold it, and who you are sharing it with, remember to include not only scheme owners and HOA members but also your auditors, attorneys, managing agents, the CSOS (Community Schemes Ombud Service), security service providers and the like.

If you have gate security in the form of visitor registers, scanning of licence plates and driver’s licences and so on, be ready to address questions around having lawful reason for collection and retention of all the personal information you are gathering in this manner.

When Bond Clauses Sink Sales

Written by Nicole Ross on May 27, 2021. Posted in Property.

“Before anything else, preparation is the key to success” (Alexander Graham Bell)

You sell your house, give the signed sale agreement to your attorney, and wait to get paid out as soon as the property is transferred in the Deeds Office. What could possibly go wrong?

Quite a bit as it turns out, but perhaps the most frequent “sinker of sales” is a failure by one party or the other to meet a “suspensive condition” (often also referred to as a “condition precedent”).

As our courts have put it “a suspensive condition suspends the operation of all obligations flowing from a contract until occurrence of a future uncertain event. If the uncertain future event does not occur, the obligations never come into operation.” In other words, there is no binding sale at all until all suspensive conditions have been met.

The bond clause

A very common suspensive clause in property sale agreements, where the buyer cannot pay the purchase price in cash, is the “bond clause” making the sale subject to the buyer obtaining a “bond approval” from a financial institution (usually a bank). The bank loans the money to the buyer against the security of a mortgage bond over the property.

The bond clause is of course an essential escape route for you if you are a buyer needing to raise a loan. As a seller on the other hand you want the clause tightly drawn to stop the buyer using it as an excuse to pull out of the deal if the dreaded “buyer’s remorse” should set in after the sale.

For both parties it is essential to ensure that the clause is properly drawn to reflect clearly and correctly what you are both agreeing to. Preparation is key here! Our law reports are replete with bitter and expensive disputes over bond clauses, many of them avoidable had the parties proactively sought legal assistance before signing the sale agreement.

What should be in the bond clause?

In broad terms a bond clause will provide that the sale agreement is suspended until the bank approves the bond, and that the agreement will lapse if approval is not given by the date and in the amount specified in the clause.

Beyond that, make sure that there are no grey areas around what the deadline is or around what exactly will constitute “bond approval”. What format must it be in? Is it enough that an approval is granted, or must it be communicated to the seller before deadline? Is the bank’s offer to the buyer subject to the National Credit Act and if so on what basis can the buyer reject the offer? Is it enough to specify that the bond approval should be on the bank’s “usual terms and conditions”? What if the buyer rejects a reasonable offer from the bank in order to get out of the sale? And so on…

As a seller, if you are concerned about your buyer not being able to raise the required finance, consider adding a “72-hour clause” to the sale (ask your attorney for advice on this).

As a buyer, consider specifying the maximum interest rate at which you will accept the bank’s offer of a loan, or you could find yourself tied to unaffordable bond repayments.

Each case will be different, and our courts will always look at the specific wording of each particular case. So make sure the clause is specifically tailored to protect both parties in your respective circumstances.

Amending or waiving the bond clause

What if the buyer can’t get an offer from a bank by due date or in the required amount or (if the buyer specified a maximum interest rate as suggested above) at the required interest rate?

If that happens, the parties can agree to vary the agreement – perhaps to give the buyer more time to raise the bond, or to change the amount of the bond. Just remember that that must be done in a written, signed agreement before the due date. After the due date the whole agreement will have lapsed and there will be no contract left to amend.

Alternatively as a buyer, you have the option to “waive” the bond condition. You can do so unilaterally (i.e., without the seller’s agreement), provided again that the agreement hasn’t already lapsed, and provided that nothing in the agreement prevents such a waiver.

Importantly, you can only waive a suspensive condition where it is for your “exclusive benefit”. A bond clause will usually qualify in that it is normally there purely to protect you from being tied to an agreement you cannot afford – but perhaps avoid any possible doubt by specifying that in the clause.

Dismissed: The Butcher Who Went to Work With COVID-19

Written by Nicole Ross on May 27, 2021. Posted in Employment and Labour Law.

“The facts of this case are indeed extraordinary. They are indicative of the need for more to be done at both the workplace and in our communities, in ensuring that employers, employees, and the general populace are sensitised to the realities of this pandemic, and to further reinforce the obligations of employers and employees in the face of, or event of an exposure to COVID-19” (extract from judgment below)

The COVID-19 pandemic has exposed both employers and their employees to a whole new slew of risks. One of the more serious is the danger of infected employees coming to work and by doing so endangering the lives of not just their colleagues, but also customers and anyone else unfortunate enough to come into contact with them.

A new Labour Court decision confirms that our courts will not hesitate to act decisively where employees disregard health and safety protocols.

The butcher who tested positive but went to work

An Assistant Butchery Manager employed by a national butchery business, despite testing positive for COVID-19, reported for duty for three days, walked around the workplace without a mask, and even hugged a colleague with a heart condition.
He was charged with gross misconduct and negligence, firstly for not disclosing that he had been tested for COVID-19 and was awaiting the results, and thereafter for endangering the lives of his colleagues by failing, after receiving a positive test result, to self-isolate, to follow the workplace health and safety protocols, and to adhere to social distancing.
The employer had constantly reminded all employees of its COVID-19 policies, procedures, rules, and protocols. Moreover the employee was a member of his workplace’s “Coronavirus Site Committee” responsible for putting up posters throughout the workplace, informing all employees what and what not to do in the event of exposure or even if they suspected that they may have been exposed to COVID-19, and the symptoms they must look out for.
Dismissed, the employee approached the CCMA (Commission for Conciliation, Mediation and Arbitration) which although finding him guilty held that the dismissal was substantively unfair and that the employee should instead be reinstated retrospectively, without back-pay, and a final written warning placed on his record.
On review to the Labour Court it upheld the dismissal as being substantively fair, commenting that “[his] conduct was not only irresponsible and reckless, but was also inconsiderate and nonchalant in the extreme. He had ignored all health and safety warnings, advice, protocols, policies and procedures put in place at the workplace related to COVID-19, of which he was fairly aware of given his status not only as a manager but also part of the ‘Coronavirus Site Committee’.”
He had acted dishonestly, had caused “monumental harm, anxiety and strain” to his co-employees and their immediate families, as well as to his employer’s operations, he had shown no contrition, and his conduct had rendered unsustainable the trust and working relationship with both his employer and his fellow employees.

The Court’s warning to employers

The Court also rapped the employer over the knuckles for allowing business to continue as usual in a deadly pandemic without social distancing, allowing “mask-less ‘huggers’” to walk around on the shop floor, despite “having all of these fancy COVID-19 policies, procedures and protocols in place”.

As the Court put it “…the facts of this case in my view clearly compels the need for serious introspection by the applicant and all other employers in the light of the above questions posed, in regard to whether existing health and safety measures and protocols in place are being taken seriously by everyone affected. It is one thing to have all the health and safety protocols in place and on paper. These are however meaningless if no one, including employers, takes them seriously.” (Emphasis supplied).

Can You Change Your Marital Regime After Marriage?

Written by Nicole Ross on May 27, 2021. Posted in Family Law.

“A journey is like marriage. The certain way to be wrong is to think you control it” (John Steinbeck)

One of the most important decisions you must make before you marry is what “marital regime” (“matrimonial property system”) you want to apply to your marriage.

To recap, you have three choices –

Marry in community of property: This is the default in South Africa if you don’t sign an antenuptial contract (“ANC”) before you marry. All your assets and liabilities (with a few specific exceptions) are pooled in one joint estate. It’s probably not the best choice for most couples – you don’t for example want to be lumbered with a poor credit record (and a bank rejecting your bond application for example) or even with a sequestration application because of a spouse’s debts. But as the old saying goes, “it depends…”
Marry out of community of property with accrual: The most popular option with couples these days, under this regime you keep as your own separate property whatever you brought into the marriage, but in the event of divorce or death you share equally in any subsequent “accrual” (growth in asset value built up during the marriage). You must specify accrual in your ANC, otherwise “without accrual” (as below) will apply.
Marry out of community of property without accrual: As the name suggests, under this regime you have your own separate estates, and there is no sharing of accrual. The best choice for some couples in some cases, but probably not for most.

“Oops, we made the wrong choice; what now?”

A surprising number of couples tie the knot without any thought for the legal consequences, and only later do they learn that because they had no ANC they are married in community of property with all that that entails.

Or perhaps they did think it through but made the wrong choice at the time. For example, you could find yourself needing to improve your personal credit record, perhaps after applying to a bank for a mortgage bond and being rejected because of your spouse’s debts.

The good news is that all is not lost – you can still change regimes with a “postnuptial contract”. The bad news is that we are talking an expensive application to court here, and there are various requirements which may frustrate your application.

A court order is essential

The Matrimonial Property Act specifically allows a married couple to “jointly apply to a court for leave to change the matrimonial property system, including the marital power, which applies to their marriage”.

You will have to satisfy the court of three things, namely that

there are sound reasons for the proposed change;
sufficient notice of the proposed change has been given to all the creditors of the spouses; and
no other person will be prejudiced by the proposed change.

The couple who didn’t get court authority

A couple had married out of community of property excluding accrual.
Thereafter, the wife drew up an agreement as “an ‘insurance policy’, to allay her fears of insecurity in the event of a divorce”. The husband agreed to set aside his marriage contract, specifying that his wife was entitled to half of his estate.
After some hesitation the husband signed this agreement, but critically it was never sanctioned by a court as required and was merely handed to friends for safekeeping.
During subsequent divorce proceedings, the wife was forced to abandon her main claim (that the agreement was valid and binding) precisely because of her failure to obtain a court order as set out above.
She also tried another tack, namely that the agreement was enforceable as an agreement “in anticipation of divorce”. This was rejected by the Supreme Court of Appeal on the facts, finding that the parties had had a “normal marital relationship” after the signing of the agreement, and that the wife had accordingly failed to prove that divorce “was in the parties” contemplation when the agreement was concluded”.
The Constitutional Court cemented her defeat in this regard by refusing its leave for her to appeal the SCA decision.

Ask your lawyer before you marry which marital regime is best for you. And if you didn’t do that, or if you change your mind later, you must ask a court to authorise your change of regime.

Your Website of the Month: Teamwork Tips from My Octopus Teacher

Written by Nicole Ross on May 27, 2021. Posted in Website of the Month.

“So, you thought that My Octopus Teacher was there to teach us about cephalopods; its real message is about the value of teamwork and what we can achieve if we work together.”

Read “Teamwork Tips from My Octopus Teacher” on the Catalyst website, and watch an interview with the movie’s director, for some thoughts on “the power of collaboration, shared passion and purpose”.

Landlord Liable for a Tragic “Freak” Flood Drowning

Written by Nicole Ross on April 25, 2021. Posted in Delict and Civil Claims, Property.

“Nature has the ability to spring a surprise when least expected” (extract from the judgment below)

A recent High Court decision dealing with the tragic drowning of a toddler highlights once again the legal dangers faced by property owners who let out accommodation to the public.

This particular case related specifically to a Holiday Let on a guest farm and a natural disaster in the form of a flood, but of course any loss however caused could lead to your visitors/guests suing you.

And weather-related disasters – think storms, floods, wildfires and the like – will almost certainly increase in both frequency and intensity if climate change predictions hold true.

A “freak” flood and a tragic drowning

It should have been an idyllic holiday on a riverbank. A family booked a week’s vacation in one of three chalets built by a farmer on the banks of a river. The family was particularly attracted by the fact that this was the closest chalet to the river, with a wooden balcony from which the children could fish.
The family arrived in fair weather but a violent storm and heavy rains in the river’s catchment area led to overnight flooding when the river burst its banks. They awoke at midnight to flooded rooms, struggled to escape from the chalet and were unable to save their toddler, who was swept away and drowned in the flood (according to media reports at the time, he was torn from his father’s arms whilst his father and an older brother clung to a tree in the raging flood).
The family sued the farmer as owner of the farm, chalet and guest house business. They also claimed against his wife, but this part of the claim failed as she was married to the farmer out of community of property, and had merely assisted him with bookings and administration.
As regards the farmer as property owner, although he denied any element of “wrongfulness” (unlawfulness), the Court found that he had built the chalets in a dangerous area, known to experience occasional flooding, and therefore had a legal duty to ensure that they were safe for use by members of the public.
The owner also denied any negligence. The flood, he said, was a “freak of nature” and not foreseeable, no such event having been experienced for over 40 years. He had built the chalet 6m above the normal river level and 2.8m over the high water mark pointed out to him by the previous owner.
Expert evidence was that the year in question had seen a normal rainfall pattern and that the day in question experienced “high but not abnormal” rainfall. The chalet was built in the “dangerous area” of a 100-year flood line area with no escape route nor flood warning mechanism. Such floods, the expert said, could be expected once every 17-18 years.
Critically, the Court found on the evidence that the possibility of heavy flooding was “foreseeable” and that the owner’s failure to take steps to protect chalet occupants rendered him liable.
The owner also argued that the family had no right to sue because of disclaimer notices which he said were at the farm entrance warning visitors that they entered at their own risk. He also claimed to have taken reasonable steps to warn occupants of the danger of flooding. On its assessment of conflicting evidence however the Court found that even if there were warning and indemnity notices as claimed, the owner had not proved that they were brought to the family’s attention. In any event, said the Court, it would in this case be unjust and unfair to deny the family its claim.
The owner is accordingly liable for whatever damages the family can prove.

Property owners – protect yourself!

From a practical point of view you will want to pro-actively investigate any potential risks, manage them, warn your guests/tenants about them and make sure they know how to protect themselves should Mother Nature suddenly spring one of her nasty surprises.
The legal side to all that of course is that you should always be able to show that you have taken reasonable steps to protect your guests from all foreseeable risks.
Comply also with all building and safety regulations – not doing so immediately puts you in the wrong.
Take advice on the use of indemnity/disclaimer/exemption notices on your website, all advertising materials, booking platforms etc, also on the premises themselves and in your contracts. Bear in mind that there are limits to their effectiveness particularly where the Consumer Protection Act or constitutional considerations apply.
Insurance – make sure you are covered for any claims of this nature, and that you comply fully with any requirements imposed on you by the insurers.

Most important of all, take professional advice specific to your circumstances!

Employers: Beware the “Casual Worker” Myth!

Written by Nicole Ross on April 25, 2021. Posted in Employment and Labour Law.

Employees in South Africa enjoy strong protections under a raft of laws such as the Basic Conditions of Employment Act (BCEA), the Labour Relations Act (LRA) and the Employment Equity Act (EEA).

Failure to comply with these Acts, whilst perhaps tempting to many employers struggling financially in these hard times, is not only unfair to employees (many of whom are in equally dire straits), but also an extremely risky business from a legal perspective. The CCMA (Commission for Conciliation, Mediation and Arbitration) and our courts take a dim view of employers flouting these laws, and offenders will pay heavily for doing so.

So, what is a “casual worker”?

A commonly held and dangerous myth is that you don’t have to worry about these laws when employing “casual workers”. That is perhaps a hangover from the pre-1997 definition of “casual labourers” as those who worked for 3 days or less per week.

However, that definition fell away with amendments to the BCEA in 1997, since when we have had no defined concept of “casual worker” or “casual employee”. What counts now is that employees who work for you for less than 24 hours per month are excluded from core BCEA protections – those relating to contracts, hours of work, overtime pay, leave, sick leave, termination and so on (the prohibitions against employment of children and forced labour still apply).

There is nothing to stop you using terms like “casual employee” or “casual worker” but bear in mind that they have no legal effect – what counts is that anyone working for you for 24 hours or more per month, no matter how you refer to them, falls under the BCEA’s provisions.

What about independent contractors and excluded employees?

Turning now to anyone working for you for more than 24 hours per month (outside the strict ambit of this article perhaps but relevant for context and comparison) –

The BCEA’s protections are limited in the cases of certain employees, such as those earning over a specified threshold, senior management, some sales staff, employees of smaller businesses, specific employees like National Defence Force members and so on, with Ministerial “sectoral determinations” also applying in some sectors.
“Independent contractors” have no employee protections (they are explicitly excluded from the definitions of “employee” in the BCEA, the LRA and the EEA), with the vital qualification that they must genuinely be non-employees. As far as labour law considerations are concerned, there are presumptions to overcome, criteria to consider and requirements to meet, and you cannot get away with disguising an employer/employee relationship as an employer/contractor one (no matter what your contract says). A related but separate issue is that SARS will hold you liable to withhold PAYE unless the relationship meets its own specified criteria. This is a complex subject on its own, with many grey areas and pitfalls, so specific professional advice is essential in any doubt.

Companies: Are Restraints of Trade Valid in a Time of Covid?

Written by Nicole Ross on April 25, 2021. Posted in Business, Company / Corporate / Compliance, Employment and Labour Law.

“For him to be forced out of a career of choice to start working in a different field at a time when many businesses are closing down, retrenchments and lay-offs being commonplace and individual[s] doing everything possible to survive and cope with the health and economic devastating effects of the covid 19 pandemic, is plainly unreasonable and contrary to public policy and constitutional values” (extract from judgment below)

Consider this unhappy (but not unlikely) scenario: For whatever reason, you part ways with your fellow director/shareholder (or perhaps a key employee), who goes off immediately to join (or found) the opposition.

Now you have a major problem – he/she was privy to all your trade secrets and confidential information and they are now being used to compete against you. Your business could be crippled.

Using the time-tested restraint of trade clause

An effective and time-tested way of protecting your business from such a risk is to insist on all directors, shareholders and key employees signing restraint of trade agreements from the start. Such restraints are usually included as clauses in employment contracts and/or (less commonly) in shareholder agreements.

However, it is vital to word the restraint clause correctly if it is to stand up to legal scrutiny. Although our law has long recognised the right of businesses to enforce this type of contract so as to protect their “proprietary and protectable interests”, and although in general we are held by the law to the agreements that we conclude, there is always a balance struck with the employee’s constitutional rights to be economically active and to earn a living.

As the High Court put it recently: “It is settled law that restraints of trade are valid and binding and, as a matter of principle, enforceable unless, and to the extent that, they are contrary to public policy because they impose an unreasonable restriction on the former employee’s freedom to trade or to work. It is also settled that the onus of establishing that the restraint of trade is unreasonable falls on the former employee.”

A common mistake – going “too wide”

The most common mistake businesses make is to word the restraint of trade too widely (in one or more of type of activity, geographical area or time period). No matter how tempting it may be to do so, that is courting disaster. The wider the clause is, the greater the chances of a court holding it either totally invalid or only partially enforceable. Rather word your clauses tightly and defensibly.

Two recent High Court decisions illustrate both this principle, and the potential impact of the Covid-19 pandemic on our courts’ approach to the questions of reasonableness and time periods.

The impact of the pandemic on the “reasonableness” test

A director, shareholder and employee of a company specialising in media and advertising solutions resigned as both director and employee after a breakdown in relations, the company owing him R1.2m in short-paid salary. He however retained his shareholding.
He was subject to restraints of trade (in both his employment and shareholder agreements) which prohibited him from working for a competitor, and from sharing confidential information and trade secrets with them, for 18 months in any of 29 African countries.
He nevertheless joined a direct competitor (active in 2 of the 29 African countries) and acted in breach of the restraint by contacting customers and business associates. When sued in the High Court for enforcement of the restraint clauses, his main defence was that they were unreasonable and prevented him from earning a living.
The Court confirmed the need to consider all the relevant circumstances, not only at the time a restraint is entered into, but also at the time that the business tries to enforce its restraint. In this case, the company’s attempts at enforcement encompassed the period March to July 2020 – a time of strict lockdowns and economic turmoil.
The upshot – the Court rejected the company’s suggestion that the ex-director could remain economically active in another field for which he was qualified, commenting: “For him to be forced out of a career of choice to start working in a different field at a time when many businesses are closing down, retrenchments and lay-offs being commonplace and individual[s] doing everything possible to survive and cope with the health and economic devastating effects of the Covid-19 pandemic, is plainly unreasonable and contrary to public policy and constitutional values”. The restraints were rejected as unenforceable.

The impact of the pandemic on time periods

Another recent High Court decision saw the Court reducing a 2-year restraint, on sales employees who resigned in March and April 2020 respectively, to 14 months.

In doing so the Court took what it considered to be a reasonable base period in the circumstances of 12 months and added 2 months “to compensate for the lockdown period”, also commenting that “…I am aware that our society is living in strange times. The COVID-19 pandemic has played havoc with, inter alia, our economy. Businesses have been prevented from operating and the ability of the applicants to appoint and train new salespersons will undoubtedly have been blunted by the state of the economy. This is of some relevance when considering the length of the period of restraint…”.

So – are restraints of trade valid in times of pandemic and upheaval?

Neither decision means that restraints are necessarily unenforceable or only partially enforceable during times of economic turmoil and high unemployment. Each case will be decided on its own merits, but in assessing whether your own restraint clauses will be considered reasonable and enforceable, they are clearly factors to be borne in mind.