SYNOPSIS: A fixed term contract is a useful form of temporary employment for many employers. However, in order to mitigate the risks associated with fixed term contracts it is important to conduct regular reviews of those contracts.
South African employers are required to dismiss an employee for a fair reason (conduct, capacity or operational requirements) and in accordance with a fair procedure. It is usual for the termination provision of a fixed term contract to provide that that the employer is not obliged to give the employee notice of termination and that the contract will expire automatically on a defined date (known as the termination date) or upon completion of a particular project or task. There are employers who employ on a fixed term basis (either on one occasion or on several occasions in respect of the same employee) for the purpose of avoiding the dismissal provisions of the LRA.
This approach is not advisable for the following reasons:
Section 186 of the Labour Relations Act (“LRA”) defines “dismissal” to include circumstances where an employee has a reasonable expectation that:
· the employer would renew the fixed term contract on the same or similar terms; or o It is important to understand that section 186 of the LRA refers to a “reasonable” expectation and not a “legitimate” expectation, which has a completely different meaning in law.
· the employer offers to renew on less favourable terms; or
· the employer would retain the employee indefinitely on terms the same or similar to the fixed term contract but the employer offers to retain the employee or less favourable terms or not at all.
The effect of this section is that where an employer enters into a fixed term contract with an employee and the contract is not renewed (for whatever reason), the employee may refer an unfair dismissal dispute to the CCMA.
The employee will be required to prove the existence of a reasonable expectation.
What will constitute a reasonable expectation?
· Whether an employee has a reasonable expectation of renewal of a fixed term contract will depend on the facts. The fact that the employer renews the contract on several occasions will not necessarily lead the court to conclude that the employee’s expectation of renewal was a reasonable one.
· The employee will not succeed in the event that he simply alleges that he expected that the contract will be renewed.
· A provision in the contract of employment which provides that there is no expectation of renewal places a greater burden on the employee to prove that despite this provision there was a reasonable expectation of renewal.
· In the event that an employee of the employer, who possesses the necessary authority, informs the employee that the contract will be renewed, the employee may rely on this fact to support his claim of a reasonable expectation.
In January 2015, Section 198B of the LRA was introduced. It restricts the employment of employees who earn below R205 433.30 (the current earnings threshold) on a fixed term basis for a period of longer than 3 months to the following circumstances:
• the nature of the work for which the employee is employed is of a limited or definite duration; or
• the employer can demonstrate any other justifiable reason for fixing the term of the contract.
A justifiable reason includes the following:
• the replacement of an employee who is temporarily absent;
• employment on account of a temporary increase in the volume of work which is not expected to endure beyond 12 months;
• employment of a student or recent graduate where the purpose of employment is training and / or gaining work experience in order to enter a job or profession
• employment to work exclusively on a specific project that has a limited or defined duration;
• employment of a foreign national whose visa is valid for a defined period;
• employment to perform seasonal work;
• employment for the purposes of participating in any public job creation scheme;
• external funding for a limited duration;
• the employee reaching the normal or agreed retirement age.
Where an employer employs on a fixed term basis where the nature of the work is not limited and / or there is no justifiable reason, employment will be deemed to be indefinite in nature.
It is accordingly important to conduct a review of all current fixed term contracts in order to ensure compliance with section 198B as well ensure that the renewal of those contracts does not create a reasonable expectation of renewal.
A further question which arises in the context of fixed term contracts is whether or not an employer is permitted to terminate the fixed term contract prior to the termination date.
Employers are undoubtedly permitted to terminate a fixed term contract of employment in circumstances where the employee has repudiated the contract or committed a material breach of the contract of employment, i.e. where the employee has committed serious misconduct and / or where the employee’s performance is grossly inadequate. However, in the context of retrenchment, our courts have held that an employer is not permitted to terminate the fixed term contract in the absence of paying the employee for the remaining period of the contract.
*Jacqui Reed: Part a series of labour-related articles for healthcare establishments and practices by Jacqui Reed, an attorney specialising in corporate employment law and immigration law. Before establishing her own practice in 2017, Jacqui graduated from WITS School of Law and was employed at leading corporate law firms Webber Wentzel, Norton Rose and ENS Africa. She is also qualified as an advocate and served as a member of the Johannesburg Bar for four years.