FIXED TERM CONTRACTS OF EMPLOYMENT: Can they be terminated prematurely?

It is important, as a departure point, to understand the difference between permanent and fixed-term employment. The key elements of a permanent employment relationship are continuity and certainty. This is regarded as the norm. i.e. typical or standard employment relationships and our labour laws are largely premised on these relationships. Employment relationships which deviate from this norm are referred to as atypical or non-standard employment relationships, which commonly include casual labour, independent contractors, part-time employees and fixed-term employees.

Permanent or indefinite contracts of employment continue for an unspecified period and may be terminated for a lawful reason only, which would include fair dismissal of the employee, resignation by the employee, mutual termination of the employment contract by the contracting parties, the employee reaching retirement age, and the death of the employee.

Fixed-term contracts are typically entered into for a specific duration (defined by time), for a specific purpose (for a particular project or until the occurrence of a specified event) and would ordinarily expire either with the effluxion of the agreed time or upon the purpose for which it had been entered into being fulfilled. Lawful reasons for early termination of a fixed-term contract will include fair dismissal in terms of the Labour Relations Act, 1995, or termination through mutual agreement by the parties.

The common law position is that fixed-term contracts of employment cannot be prematurely terminated unless there is repudiation or a material breach of the contract by either party. In other words, the employee may resign before the date of termination, or if the employee is found guilty of serious misconduct and dismissed, he/she would be in breach of the contract. Such contracts may provide for the right of early termination but this is not an inherent feature thereof and accordingly requires specific stipulations in the document itself.

Our courts have found that where the terms of the employment contract specifically make provision for premature termination, such termination is lawful. The problem is, however, that if an employer terminates a contract in accordance with its termination clause, but without complying with labour legislation, the employee may not have a claim under the contract, but the employer may still be exposed to a claim under the Labour Relations Act, which requires the termination of employment to be both procedurally and substantively fair.

It would therefore be prudent for employers to ensure that their fixed-term contracts with employees contain a provision permitting the early termination of the contract. Such a clause should make express provision for premature termination of the contract, without affording the employee recourse either under the contract or under the LRA.

Due cognisance should be taken of the following provisions of the LRA regarding fixed-term contracts:

  • Section 186 (1) (b) provides that one of the definitions of a dismissal is that an employee reasonably expected the employer to renew a fixed-term contract of employment on the same or similar terms, but the employer offered to renew it on less favourable terms, or did not to renew it at all;

When a fixed-term contract is continuously renewed by the employer after the expiry of each term, the employee may develop a right to expect that the employer to continue renewing the contract. This means that the contract will be deemed to have been tacitly renewed on the same terms, except that the relationship will now be of permanent duration. Our courts have identified a number of factors which will be taken into account in determining whether an employee has a right of reasonable expectation, which is not exhaustive and other relevant factors may accordingly also be considered.

  • I.t.o. section 198B (3) read with sections 198B(4) and 189(5) of the LRA, an employer may employ an employee on a fixed-term contract or successive fixed-term contracts for longer than 3 months only if either the nature of the work is of limited or definite duration, or the employer can demonstrate a justifiable reason for the longer term, as listed in section 198B(4), which is not a closed list. If an employer fails to meet the requirements of section 198B(3), the employee is deemed, i.t.o. section 189(5), to be employed indefinitely.

Please note that if a fixed-term employee, compensated under the legal threshold, is offered a renewal of his/her contract, such an offer must be in writing and provide the reasons for such renewal.

Please also note that a fixed-term employee, compensated under the legal threshold, who is employed for longer than 2 years shall be entitled to severance pay on termination of employment or alternative employment, if possible. Severance pay includes one week’s compensation for each completed year of the contract.

If a fixed-term contract stipulates an end date, the employer is not legally required to give notice of termination when it comes to an end, but it is always advisable to do so.

Before employers consider using fixed-term contracts as shortcuts, they should carefully consider whether the shortcuts they use will lead them to the CCMA or bargaining council. Due to the fact that distinguishing between legal and illegal use of fixed-term contracts can be tricky, employers are advised to obtain advice from a reputable labour law expert before utilizing such contracts.

We trust that the above information will assist you to better understand the law applicable to fixed-term contracts.

The contents and suggestions contained in this article are for information purposes only and should you require any assistance or wish to obtain detailed legal advice with regard to any particular issue or matter mentioned herein, please contact us at:

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