What are the implications of an obvious mistake in a signed employment contract?

Question

My brother was recently employed full time in a very specialized (and sensitive) job in South Africa for a company based in the US. There are less than 300 people in the world suited for his job.

His employer was so anxious to get him to sign the contract that things were rushed a little it seems. My brother signed the contract he had been given (already signed by the employer) and noticed that the salary they had agreed on per year, was stated in the contract as the salary per month.

My brother, informed the employer and an amendment to the contract was signed.

Due to the nature of the job, very advanced notice (minimum 6 months) is required by both parties for terminating the contract.

What would the implications be if an employee were to refuse signing an amendment and insist on what was stated in the original signed contract, even if he/she knows it's a mistake?

Answer 1

What would the implications be if an employee were to refuse signing an amendment and insist on what was stated in the original signed contract, even if he/she knows it's a mistake?

The contract is voidable unless the employer's subsequent conduct reinforces its legitimacy. The employee's attempt to take advantage of something he knew was a mistake contravenes the covenant of good faith and fair dealing on which contracts are premised. South African contract law is not an exception to this:

The law of contract underpins private enterprise in South Africa and regulates it in the interest of fair dealing.

The employer can resort to records of prior communications between the parties to prove that the stated compensation was intended as yearly, not monthly.

Even if those records are not available in a judicial dispute, the employee would have a hard time persuading a court that the salary that was agreed upon is 12 times --or exceeds by a factor of 12-- the market rate for a job position of similar type.

Answer 2

What would the implications be if an employee were to refuse signing an amendment and insist on what was stated in the original signed contract, even if he/she knows it's a mistake?

If the employee maintains that the original contract is correct, the employee would be entitled to be paid at the higher rate.

The employee has received a clear and unambiguous offer. The employee may well have thought “WOW! That is so much better than I thought it would be. I better accept it right away.” If so, there has not been a mutual mistake, merely a unilateral one by the employer - contracts are not correctable for unilateral mistake.

One of the fundamental rules of contract law is: if a contract term is in writing and is unambiguous then what that writing says is what the parties agreed - this is known as the plain meaning rule. This can, of course, be overcome by the parties agreement but you are hypothesising a situation where one party does not agree.

There may be loads of documentation of the negotiations that the rate of pay would be R x. However, the company made an offer of R 12x, they employee accepted and the contract is made at a rate of R 12x. A mistake has been made by the employer and if the employee has taken advantage of that mistake they are legally entitled to do so. Except in the case of contracts of utmost good faith (like insurance contracts) parties have no obligation to the interests of the other before a contract is executed. After they have a contractual relationship they are obliged to act reasonably in the discharge of their obligations.

The case law on this is which raised two important points Smith v Hughes (1871) LR 6 QB 597 at p 606, 607 respectively:

1. An erroneous motive inducing a party to enter the contract is not a mistake:

an argument ... was pressed upon us, that the defendant in the present case intended to buy old oats, and the plaintiff to sell new, so that the two minds were not ad idem; and that consequently there was no contract. This argument proceeds on the fallacy of confounding what was merely a motive operating on the buyer to induce him to buy with one of the essential conditions of the contract.

Substitute the employer "intended to pay R x" and the employee "intended to accept R 12x" and you have a direct parallel.

If, whatever a man's intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other parties terms.

Here the employer has offered the terms - they are definitely conducting themselves such that a reasonable person would believe they assented to them.

The important thing to note here is that the word "mistake" in common usage as any sort of error does not necessary (and usually doesn't) amount to a legal "mistake" that would void a contract.