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Can you Justify your Fixed-term Contracts?

It is important for employers to ensure that they are able to justify the grounds for fixing a limited duration of employment and that there is full compliance with the relevant provisions of the LRA insofar as ensuring the protection of employees and avoiding any adverse orders of the Labour Court. By Zola Mcaciso and Samiksha Singh.

Since the implementation of the amendments to the Labour Relations Act (LRA) in 2015, there have been several interesting judgments dealing with the justification for concluding a fixed-term contract of employment.

One such case involved two employers, who contracted with their client to provide various services until 2021. The employers then contracted a number of employees, on fixed-term contracts of employment, in order to carry out these services to their client. The fixed-term contracts of employment included a clause which provided for automatic termination in the event that the commercial contract between the client and the employers prematurely terminated. By inclusion of this clause, the employers were of the view that these employment contracts constituted fixed-term contracts of employment.

During November 2016, the client terminated the commercial contracts with the employers by giving them one month’s notice. The employers then relied on the automatic termination clause in the fixed-term contracts of employment and terminated the employment relationship with their employees.    

The Union representing the employees, launched an urgent application to the Labour Court in terms of s189(13) contending that the employees were dismissed for operational requirements as envisaged by s189A of the LRA (retrenchments), and accordingly the employers were under an obligation to consult with the employees prior to termination of the employment relationship. In its application, the Union requested the Labour Court to order reinstatement, therefore forcing the employers to engage in consultation with the employees as envisaged in s189 of the LRA.

The employers argued that the employees were employed on fixed-term contracts, which was terminable on the occurrence of a specified event, namely the early termination of the commercial contract with their client, and as such s189 and 189A of the LRA was not applicable. The employers further argued that the fixed-term contracts of employment were governed by s198B of the LRA, which provides that employees may be employed on fixed term contracts or successive fixed-term contracts of employment for longer than three months if the nature of the work is for a limited duration or that the employer can demonstrate a justifiable reason for fixing the term of the contract.

The Labour Court found that the employers failed to demonstrate justifiable reasons as the fixed term contracts of employment were not for a specific project that had a limited duration. The client terminated its contract with the employers, which resulted in the automatic termination of the fixed-term contracts of employment. There was no evidence that a specific project had come to an end as envisaged by s198B of the LRA (being one of the justifiable reasons set out in the LRA).

The Labour Court reaffirmed the position that employers cannot terminate an employment contract at the behest of a third party as this undermines the employee’s right to fair labour practice entrenched in our Constitution. Consequently, the Labour Court ordered the reinstatement of the employees.

About the Authors: Zola Mcaciso and Samiksha Singh represent Cliffe Dekker Hofmeyrs Employment Practice.