It is well established in labour law that the termination of an employee’s contract does not amount to a dismissal in terms of The Labour Relations Act. However, there are certain instances where the termination of an employees’ contract may result in a dismissal, more specifically, the use of automatic termination clauses.
Automatic termination clauses are clauses that automatically terminate a fixed-term contract upon the occurrence of a specific event, for example, the completion of a project for a client or the termination of the employment relationship between the employer and its client. Such clauses have placed our courts in a rather precarious position, on one side balancing the rights of employees to fair labour practices in line with the Labour Relations Act, and on the other side upholding the laws of contract in a commercial sphere.
Danielle Ivy Nel in “The validity of automatic termination clauses in employment contracts” is of the view that any provision that automatically terminates the employment contract results in the circumvention of the protection of the Labour Relations Act.
In a decision by the labour appeal court in the case of Enforce Security Group v Fikile & Others (DA24/15)  ZALCD 2, employees were hired under contract with the specific purpose of fulfilling a contract between Enforce and its client. The contracts of the employees had automatic termination clauses to the effect that if the employment relationship between Enforce and its client terminated, then the contract between Enforce and its employees would automatically terminate. The client then gave notice of the termination to Enforce, which resulted in Enforce terminating its contract with its employees. The matter proceeded to the CCMA, was then referred to Labour Court and then the Labour Appeal Court. The Employees representatives, in short, argued that they were dismissed due to the invalidity of the automatic termination clauses. The argument from the employer (Enforce) was that the termination of the contracts did not constitute a dismissal in line with Section 186 of the Labour relations Act, as the proximate cause of the cancellation was due to the client of the employer cancelling the contract between the parties (Employer and Client), which in turn triggered the automatic termination clauses in the contracts between the employer and its employees. Further that the automatic termination clause does not go against the protection afforded by the Labour Relations Act.
The Court agreed with the reasoning of the employer, stating that the employer had not taken any action to trigger the automatic termination clause. Further that it was clearly the client of the employer that had terminated the contract between the parties (client and employer), and that this, in turn, was the proximate cause which had triggered the automatic termination clauses of the contracts between the employer and its employees, and thus no dismissal had occurred. The Court further stated that there had been a termination of the contract upon the occurring of a specific event, namely the terminating of the contract between the client and the employer, was allowed as per the Labour Relations Act. However, the Court further averred that each case must be decided on its own merits.
Coetzer in “Automatic termination Clauses – Fair or unfair?” is of the view that the decision in the above case creates a divided line of reasoning along two views in regard to automatic termination clauses. The first is where such clauses are triggered by a third party (not the employer) which is permissible and will not be regarded as a dismissal by our Courts. The Second Is where an employer triggers the automatic termination clause, which in line with previously decided cases may result in the relying of an automatic termination clause being deemed a dismissal.
It is strongly advised that prior to exercising automatic termination, clauses employers consider the circumstances surrounding each case and the role they have played, which resulted in the triggering of such clauses. Employers should also consider the purpose of the fixed-term contract, more specifically whether the fixed-term contracts are being legitimately used, or being used to negate the protection afforded to employees in terms of the Labour Relations Act. Lastly, employers must take into consideration the justifiability of the use of fixed-term contracts in line with section 198B of the Labour Relations Act.
Article by: Krian Rathinam
Dispute Resolution Official – Durban