3 Insights to fixed-term employment contracts

THREE INSIGHTS TO FIXED-TERM EMPLOYMENT CONTRACTS

WHEN DOES A FAILURE TO RENEW A SHORT-TERM CONTRACT BECOME DISMISSAL?

Fixed-term employment contracts are as the name implies, an employment contract concluded to commence on a specified date and shall terminate on another determined or specified date.

At what point then, does an employer use this type of contract inappropriately and what are the consequences in such instances?

The Labour Relations Act, 66 of 1995 (LRA) specifies certain instances where there can be reasonable usage of a fixed-term contract such as the temporary replacing of an employee who is on maternity leave or the duration for the completion of a particular project being limited.

It is therefore appropriate to employ a person on a fixed-term basis if the employer has a fixed-term need.

The LRA provides in Section 186 (1) (b) (i) that an employee who was employed on a Fixed-Term contract can be deemed to be dismissed if the employee reasonably expected the employer to renew the contract on the same or similar terms but the employer renews on less favourable terms or fails to renew it.

TACIT RENEWAL AND WHEN A REASONABLE EXPECTATION OF RENEWAL IS ESTABLISHED

It was held in the Labour Court that should an employer permit an employee to continue working beyond the expiry of a fixed-term contract, the contract is deemed to have been tacitly renewed on the same terms and conditions, but for an indefinite period. (Owen and Others v Department of Health, KwaZulu-Natal (2009) 30 ILJ 2461 (LC).

In Gubevu Security Group (Pty) Ltd v Ruggiero NO & others (2011) 20 LC, an employee continued to work a month after the fixed-term period had concluded. She was informed that the month would serve as her notice period after which there would not be renewal of her contract. The court interpreted the tacit renewal to be on the same or similar terms as the previous contract (being three months) but found that the terms of the fixed-term contract could not give rise to an expectation of indefinite employment.

This implies that an employee can have reasonable expectation for the fixed-term contract to be renewed on the same or similar terms or a renewal for an indefinite period according to the circumstances.

The Labour Court in SA Rugby (Pty) Ltd v Commission of Conciliation Mediation and Arbitration 2006 27 ILJ 1041 (LC), held that the notion of a reasonable expectation calls for an objective inquiry to determine whether the facts proved would lead a reasonable employee to expect renewal. Facts relevant to that inquiry include:

• terms of the employment contract;
• the past practice of renewals;
• the nature of the work;
• the reason for fixed term; and
• any assurances that the contract would be renewed

The Labour Court held that the employer is obliged to inform the employee of the intention to not renew the contract before expiry of the fixed term. It was further held that a clause in the employment contract which automatically terminates the contract upon conclusion thereof cannot override a change in circumstances which would give rise to a reasonable expectation for renewal on part of the employee.

It is unfortunate that many an employer or employee are not aware of the effects of either failing to renew a fixed-term contract or continuously renewing such a contract and how doing so could play a role in creating an expectation of renewal.

JUSTIFIABLE REASONS FOR ENTERING INTO A FIXED-TERM CONTRACT OF EMPLOYMENT

Section 198B of the LRA requires that there be a justifiable reason for entering into the employment relationship on a fixed term basis longer than three months, rather than on a permanent basis. Section 198B (4) sets out some justifiable reasons for entering into a fixed term contract of employment. The reasons may include:

• the appointment of the employee to perform specific project related tasks or duties; and
• the performance of seasonal work, on completion of which the employee’s duties are not expected to be further required.

These were tested in a matter which came before the Commission for Conciliation, Mediation and Arbitration (CCMA). In Loliwe v Hanover Cleaning Services – (2019) CCMA, Loliwe was employed as a general worker for about three years on a series of monthly fixed-term contracts, which were repeatedly renewed. However, when the last contract was not renewed, and Loliwe claimed that his employment had simply ended, he claimed that he had been unfairly dismissed. The CCMA found that Loliwe had become permanently employed by virtue of section 198B of the LRA, which deems employees employed on fixed-term contracts earning below a stipulated amount for longer than three months to be indefinitely employed.

Although he had entered into a number of monthly fixed-term contracts, these contracts did not specify the dates of commencement and termination of the relevant terms. The renewals were also not linked to one of the justifiable reasons required under section 198B. Loliwe had, therefore, been dismissed and the CCMA ordered him to be reinstated on an indefinite or permanent basis.

It is therefore important that an employer enters into fixed-term employment contracts which meet the requirements of the LRA.

Where a fixed-term contract has already been concluded, the employer should take into account that renewal of a fixed-term contract is also required to be justifiable in terms of section 198B of the LRA. Should the renewal(s) not be linked to a justifiable reason, an employee may claim to have been dismissed upon the end of the period where the terms are not renewed.

For employees, it is important to know at what point you could claim to have a reasonable expectation of your fixed term contract being renewed. Important factors which are considered include:

• where there is a past practice of renewals;
• the nature of the work; and
• the reasons for the contract being for a fixed-term, as opposed to permanent..

CONCLUSION

At Pagdens Attorneys we assist with the drafting of fixed-term employment contracts as well as contracts of employment on a permanent basis. We further assist individuals and entities with all labour law matters. Should you require any assistance, please do not hesitate to contact us at info@pagdens.co.za or 041 502 7200 or https://www.pagdens.co.za/contact/.

This article is for general information should not be used or relied on as legal or other 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 an attorney for specific and detailed advice. Errors and omissions excepted (E&OE)