On 20 August 2013, the Labour Relations Amendment Bill 2013 (“the Bill”) was adopted by the National Assembly and, as it presently stands, this Bill will have a significant impact on labour relations in South Africa.

One of the many aspects of our labour law that the Bill now seeks to regulate is fixed term contracts of employment which are at present, largely regulated by our common law read together with section 186 (1) (b) of the Labour Relations Act, Act 66 of 1995.

What is a fixed term contract of employment?

In terms of our common law, a fixed term contract of employment is a contract, the duration of which is determined in advance, by agreement between the parties, usually entered into because the task to be completed by the employee is a limited or specific one. The contract will remain in force either until a specific date or on the occurrence of a specific event. When the date arrives or the event occurs, the employment relationship between the parties will immediately terminate.

The termination of fixed term contracts of employment at the end of the stipulated period is not subject to the same notice requirements or requirements of substantive and procedural fairness as are applicable to the termination of permanent contracts of employment. An employer in such circumstances is also not obligated to pay a severance package to the employee at the termination of the fixed term contract of employment. In such cases, dismissal (as contemplated in the Labour Relations Act, Act 66 of 1995) will not have occurred.

There are many well established aspects of fixed term contracts of employment that make them a very useful tool for employers. For example, it is acceptable for an employer to appoint a person on fixed term basis if there is a good operational reason to do so. However, many employers utilise fixed term contracts of employment as a means to evade their statutory obligations in terms of the Basic Conditions of Employment Act, Act 75 of 1997, the Labour Relations Act, Act 66 of 1995, and the Employment Equity Act, Act 55 of 1998, and as such avoid obligations they would otherwise have towards permanent employees, particularly in regard to substantive and procedural fairness upon termination of employment.

The law as it presently stands

In order to prevent the abuse of fixed term contracts of employment by employers, section 186 (1) (b) was included in the Labour Relations Act, Act 66 of 1995. Section 186 (1) (b) in essence stipulates that failure to renew fixed term contracts, or their renewal on different terms, is now regarded as a form of dismissal but only when the employee has a reasonable expectation that the contract would be renewed on the same or similar terms.

The requirement that the termination of a fixed term contract will be regarded as a dismissal only when the employee reasonably expected it to be renewed, enables a court or arbitrator to examine the circumstances behind the non-renewal to establish whether the termination was merely a disguised form of dismissal at the instance of the employer. Although this enquiry goes beyond the normal principles of contract law, it is consistent with the idea that unfair dismissal is based not merely on the termination of the contract between the employer and employee, but also on the termination of the employment relationship. When a court finds that the termination of a fixed-term contract constitutes a dismissal, it is in effect saying that the employment relationship would have endured had it not been for the employer’s failure to renew the fixed term contract of employment.

In terms of section 186 (1) (b) of the Labour Relations Act, Act 66 of 1995, where an employer refuses or fails to renew a fixed term contract of employment on the same or similar terms, the court or arbitrator must establish whether the employee had a reasonable expectation that the fixed term contract of employment would be renewed on the same or similar terms. If an expectation is found to be present on an objective basis i.e. that any reasonable employee would in the circumstances have expected the fixed term contract of employment to be renewed on the same or similar terms, the failure or refusal to renew the fixed term contract of employment would constitute a dismissal.

Case law indicates that a number of circumstances favour acceptance of employees’ claims that they expected fixed-term contracts to be renewed. The two most obvious considerations are past practice and prior promise. Common sense indicates that the more frequently an employer has renewed a fixed term contract of employment in the past, the more reasonable is the employee’s expectation that the employer will continue to do so in the future. This is not to say that an employer is not permitted to renew a fixed term contract of employment; it merely becomes more likely that repeated renewals would reinforce the impression that the employment relationship has effectively become permanent, and also lend credence to the employee’s claims that he or she viewed the relationship as permanent. Most fixed term contracts of employment, if not all, will include the following clause or a variation thereof, namely “it is specifically recorded and agreed that the employee’s employment with the employer will not continue after the termination date and that the employee has no expectation of this employment agreement being extended or in any way reviewed after this date”. Such a clause will make no difference where the employer’s conduct creates the impression that the fixed term contract of employment will be renewed, particularly in the circumstances where the employer fails to renew the fixed term contract of employment but allows the employment relationship to continue. The employer’s conduct in these circumstances completely negates this clause, and the employee has every right to expect that the employment relationship has now become permanent. This means that the fixed term contract of employment will be deemed to have been tacitly renewed on the same terms and conditions as contained therein, save that the employment relationship will now be of a permanent duration. Once this happens, the employment relationship may only be terminated, in the absence of misconduct or incapacity, by the employee’s resignation, death, or dismissal.

The Labour Relations Amendment Bill, 2013

Whilst the Bill has been adopted by the National Assembly, it has not yet been promulgated and at this time it is not clear when the Bill will become effective. It is however expected that the Bill will be signed into law later this year.

 

The Bill has introduced a new section, section 198B, which deals with fixed term contracts of employment. This new section introduces the regulation of fixed term contracts of employment for employees who earn less than the threshold prescribed by the Minister in terms of section 6 (3) of the Basic Conditions of Employment Act, Act 75 of 1997. The current threshold is R205 433.30 per annum.

Section 198B does not apply to:

 

  1. Employees earning in excess of R205 433.30 per annum;
  2. An employer which employs less than 10 employees, or that employs less than 50 employees and whose business has been in operation for less than two years, unless: (a) the employer conducts more than one business, or (b) the business was formed by the division or dissolution for any reason of an existing business;
  3. An employee employed in terms of a fixed term contract of employment which is permitted by any statute, sectoral determination or collective agreement.

 

For the purpose of section 198B, a “fixed term contract” means a contract of employment that terminates on: (a) the occurrence of a specified event, (b) the completion of a specified task or project, or (c) a fixed date, other than an employee’s normal or agreed retirement age.

In terms of section 198B (3), “[a]n employer may employ an employee on a fixed term contract or successive fixed term contracts for longer than three months of employment only if-

 

  1. the nature of the work for which the employee is employed is of a limited or definite duration; or
  2. the employer can demonstrate any other justifiable reason for fixing the term of the contract.”

 

Section 198B (6) requires that an offer to employ an employee on a fixed term contract of employment (or to renew of extend such a contract) must be in writing and must state the reasons contemplated in section 198B (3) (a) and (b).

Some of the reasons which will be deemed to be justifiable reasons for utilisation of a fixed terms contract of employment are, if the employee:

 

  1. is replacing another employee who is temporarily absent from work;
  2. is employed on account of a temporary increase in the volume of work which is not expected to endure beyond 12 months;
  3. is a student or recent graduate who is employed for the purpose of being trained or gaining work experience in order to enter a job or profession;
  4. is employed to work exclusively on a specific project that has a limited or defined duration;
  5. is a non-citizen who has been granted a work permit for a defined period;
  6. is employed to perform seasonal work;
  7. is employed for the purpose of an official public works scheme or similar public job creation scheme;
  8. is employed in a position which is funded by an external source for a limited period; or
  9. has reached the normal or agreed retirement age applicable in the employer’s business.

 

Employers should not treat section 198B lightly. Failure to comply with the requirements of section 198B (3), in particular, will result in the fixed term contract of employment being deemed to be one of an indefinite period. Once this occurs, the employment relationship may only be terminated, in the absence of misconduct or incapacity, by the employee’s resignation, death, or dismissal. Accordingly all fixed term contracts of employment must record the justifiable reason for utilising a fixed term contract of employment.

A further complication in the mix is section 198B (10) which deals with the termination of a fixed term contract of employment when an employee is employed to work exclusively on a specific project that has a limited or defined duration. When such an employee is employed for a period exceeding 24 months, the employer must, subject to the terms of any applicable collective agreement, pay the employee, on expiry of the contract, one week’s remuneration for each completed year of the contract calculated in accordance with section 35 of the Basic Conditions of Employment Act, Act 75 of 1997. The payment of this severance will also apply to employees employed prior to the commencement of the Bill. This will have far reaching implications for employers in the construction and contract cleaning sectors where employment contracts are often linked to specific projects.

Conclusion

Bearing in mind that it is expected that the Bill will be signed into law later this year, it is imperative that employers carefully revise and align the structure and content of their existing fixed term contracts of employment, in accordance with the proposed amendments.

Should you require any assistance in navigating the requirements of the Bill and require any amendments to your existing fixed terms contracts of employment, we recommend that you consult our dynamic legal and labour consulting team.

Marc Humphries

Legal Advisor, Johannesburg