Many employers employ workers on a fixed-term contract of employment (contract) for various reasons. It is easy and quick and there is still the misbelieve that fixed-term contracts may be ended by the employer at will. This is when the problem starts.
There are various reasons why an employer may want to terminate temporary contracts, one of which is retrenchment, in order to save the jobs of permanent employees.
There could be many reasons why an employer needs to terminate employment due to operational requirements (retrenchment), i.e.:
- A reduction in sales due to economic factors;
- Rationalisation to reduce surplus employees resulting from buy-outs (takeovers) or mergers. Note: Retrenchments for reasons related to a takeover as a going concern will be automatically unfair;
- Insolvency or losses caused by mismanagement or misappropriation of funds;
- The need for less employees due to technology and labour-saving initiatives;
- Old technology and equipment;
- Ineffective management systems;
- Increase in financial losses;
- Strikes and lock-outs that impact negatively on the employer;
- Avoiding labour legislation by contracting work out.
The aforementioned may not necessarily make retrenchments fair. The courts have in the past considered four factors in deciding whether retrenchment is fair or not:
- Was there a sufficient operational reason for the retrenchment or was the retrenchment a sham?
- Was a fair criterion used for choosing the employees to be dismissed or should other employees have been retrenched instead?
- Before deciding to retrench did the employer consult properly with the employees or trade union on measures to avoid or reduce the number of retrenchments as well as on numerous other issues related to the retrenchment?
- Did the employer give the employees or union all the information relevant to the retrenchment and to the consulting process?
Furthermore, terminating a fixed-term contract before its end date may be found to be unfair, unless provision is made for early termination. In the case of Buthelezi vs Municipal Demarcation Board (2005, 2 BLLR 115) the Labour Appeal Court found that retrenchment of an employee prior to the expiry of his/her fixed-term contract was unfair. In this case, Buthelezi had a five-year fixed-term contract with the Demarcation Board but was retrenched one year after commencement. Prior to retrenchment he was invited to apply for an alternative job but was unsuccessful. The Labour Appeal Court found that the employer did not have the right to terminate the fixed-term contract before its natural expiry date.
The Court’s decision means that:
- the terms and wording of fixed-term contracts need to be radically revised and include a term that the fixed-term contract may be terminated before it’s expiry date due to the employer’s operational requirements.
- terminating the contracts of temporary employees in a retrenchment exercise in order to save permanent jobs needs to be carefully considered and/or reviewed.
Terminating a fixed-term contract is not as easy as it seems. In addition, it has to be borne in mind that if a fixed-term contract is continuously rolled over or if the contract continues after its expiry date without any further agreement between the employer and employee, such an employee may force/demand permanent employment.