Fixed-term Contracts with Permanent Employees

Feb 16, 2022

Generally, an employer will enter into a fixed-term or limited duration employment contract for the person to complete a limited or specific task. The contract could also be linked to the availability of a job for a limited or specific period only. These contracts are a lawful form of employment.

Fixed-term contracts normally have a specific termination date on which the contract and the employment relationship end.  The expiry of the contract on the termination date does not generally constitute a dismissal so the employer does not have to follow any dismissal procedure before the contract ends. However, this is not always the case as can be seen below.

The improper use of fixed term contracts should be avoided.

5 Don’ts for fixed-term contracts

  • Do not enter into a fixed-term employment contract when the contract is not for the completion of a specific task or linked to the availability of a job for a limited time period.
  • Do not use fixed-term contracts as a type of probation to assess if the employee’s suitable for the job before he/she is hired permanently.
  • Do not use a fixed-term contract for continued employment.
  • Do not use a fixed-term contract to avoid labour law obligations to act fairly before an employee is dismissed.
  • Do not use a fixed-term contract to prevent employees from accruing long service, or as a way of getting around head count issues, where head office has placed a freeze on positions or advised that the company may only employ [x] number of permanent employees.

These are improper uses of a fixed-term contract. If a fixed-term contract is used for any of these reasons, the employer exposes itself to the risk of an unfair dismissal claim.

Employers must be careful if the real reason the employee is dismissed was not because the contract ended (i.e. he completed a specific task or the job was no longer available) but was for another reason, such as poor performance or misconduct. Employers cannot rely on the expiry of the contract to get rid of an employee. The case of SA Clothing & Textile Workers Union v Mediterranean Woollen Mills (Pty) Ltd (1995) 16 ILJ 366 (LAC) makes this clear.

There must be a good reason to enter into a fixed-term contract in the first place (e.g. to fill a position while someone is on maternity leave or to perform a short-term project).

Fixed-term contracts should not be “rolled over”. The employer should clarify how long it actually needs the services of the employee and reflect this in the contract.

An employer can still be guilty of an unfair dismissal even if there is a fixed-term contract.

Furthermore, employers must be careful not to create a reasonable expectation in the mind of the employee that he/she will continue to be employed after his/her contract has expired, on the same or similar terms. If this is the case, and the employer continue to employ him/her or offer to renew his/her contract on less favourable terms, the employer will be guilty of an unfair dismissal [186(b) of the Labour Relations Act (LRA)].  

The following instances must be avoided as it could create a reasonable expectation of continued employment

  • The continued availability of the particular job or position after the contract expires.
  • “Rolling over” or renewing the contract when it expires or allowing the employee to continue working when it expires.
  • Inconsistency, e.g. renewing some fixed-term contracts but not others.
  • Failure to give reasonable warning that the employer would not renew the fixed-term contract.
  • The suggestion that employment will be continuous due to the nature of the employer’s business (e.g. where the workflow of the business means the employee reasonably believes that the employer needs his services indefinitely).
  • A reasonable understanding on the part of the employee that the employer would renew his contract as  a result of things the employer have said or done (e.g. promising to send the employee on a training course after his contract expires).
  • An undertaking or agreement to renew the contract (e.g. the employer has provided that, on expiry, the contract may be renewed for a further period).
  • If the reason the employer has terminated the relationship does not relate to the fact that the work has come to an end.
  • If the contract is of a type that, although set out as a temporary contract, is designed to conceal a permanent relationship to avoid the employer’s obligations.

The courts will look at each case on its own merits. However, a reasonable expectation of renewal can develop or exist if the employer do not have the employee’s written confirmation that he had no expectation of renewal.

If the employer has not used a fixed-term employment contract correctly, the employee can claim that the job is in fact a permanent position and therefore entitled to be employed on a permanent basis.

If an employee can prove that the employer has dismissed him/her, the employer has to justify why the correct pre-dismissal procedure was not followed, as set out in the LRA (i.e. for misconduct, poor performance or ill health, or the employer’s operational requirements). The employer will have to prove that a fair procedure was followed before terminating the employee’s contract.

Invariably, this would not be possible as the employer would have relied on the expiry of the fixed-term contract to end the employment relationship.

If an employee performs a permanent role on a fixed-term contract (e.g. as a type of probation), the employer must not simply rely on the expiry of the contract to end the employment relationship if the employee has not performed satisfactorily. The employer must follow a fair substantive and procedural process, or could face an unfair dismissal claim.

Also refer Fixed-term Contracts of Employment – Consequences for Employers

Author:

Wallace Albertyn

Wallace Albertyn is a Senior Associate and Legal Advisor at LabourMan Consultants.

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