The Pitfalls to Avoid During the Implementation of Fixed-Term Contracts

In terms of Section 198B(1) of the Labour Relations Act (LRA), a fixed-term contract is defined as “a contract of employment that terminates on the occurrence of a specified event, the completion of a specified task or project or which terminates on a fixed date as set out in the contract”. 

These types of contracts can be used in various industries and for several reasons ranging from seasonal work requirements to completion of specific project timelines.

According to Section 198B (3)(a) and (b) of the LRA, an Employer may employ an Employee on a fixed-term contract or successive fixed-term contracts for longer than three (3) months only if –

(a)                The nature of the work for which the Employee is employed is of a limited or definite; 

or

(b)               The Employer can demonstrate any other justifiable reason for fixing the contract term.

The incorrect implementation of fixed-term contracts in the workplace may leave the Employer vulnerable to several pitfalls that often arise during the termination or non-renewal of fixed-term contracts. 

One such pitfall is the expectations created and attached when fixed-term contracts are renewed and extended, and the Employee works beyond the contract’s expiration.

In the case of SA Rugby (Pty) Ltd v CCMA & others (2006) 1 BLLR 27 (LC), the Labour Court held that for an Employee to establish a reasonable expectation of renewal of a contract, the employee was required to establish the following:

1. A subjective expectation that the Employer would renew the contract on the same or similar terms;

2. That the expectation must have been reasonable; and

3. The Employer did not renew the contract or offered to renew it on less favourable terms.

Once it has been proven that an expectation was created, the Court then looked at the following factors in the determination of whether this expectation was reasonable or not by considering the following:

1. The terms of the contract;

2. Any past practice of renewal of such contracts;

3. The nature of employment and the reason behind entering the contract for a fixed term;

4. Any assurances that the contract would be renewed; and

5. Any failure to give reasonable notice of non-renewal of the contract.

The onus in determining the reasonable expectation of renewal lies solely on the Employee, as stated in the recent case of Majambe v University of South Africa (2023) 7 BALR 770 (CCMA). 

In this matter, the Applicant was employed by the Respondent as a consultant and had entered two (2) consecutive fixed-term contracts.

The Applicant was contractually obligated to motivate why her contract should be renewed. 

The Applicant failed to do so, stating that the Respondent had a workplace culture for renewing fixed-term contracts, which the Employer disputed. 

The Commissioner noted that Section 186(1)(b) of the LRA’s sole purpose was to avoid the exploitation of Employees employed on a fixed-term basis. 

Still, the Employee had to prove that they subjectively expected a renewal of their contract and that the expectation was reasonable.

“Hope” as the expectation that their contract would be renewed was insufficient to prove a subjective expectation of renewal. 

The Applicant’s contract explicitly stated that they should not have such an expectation. 

Despite a previous renewal, the Applicant must have realised there was a real risk that their contract would not be renewed again if they did not provide motivation.

The Employee’s claim that several of their colleagues had their contracts renewed was backed by no details of the circumstances. 

Accordingly, the Applicant failed to show that their alleged expectation of renewal was reasonable. 

The failure to inform the Employee that the contract would not be renewed was irrelevant since the Employee had failed to prove that they were dismissed. 

Ultimately, the Commission lacked jurisdiction to arbitrate the dispute, and the Commission subsequently dismissed the matter.

Although Employers may issue fixed-term contracts in circumstances of project-based contracts, for instance, which would warrant employment for a specific period, Employers should tread carefully to avoid circumventing the provisions stipulated in the LRA. 

Employers should avoid creating the impression that these types of contracts would be renewed on similar or more favourable terms, thereby limiting any disputes that may arise during the termination of such contracts.

By Riyaadh Vally