The use of fixed-term contracts, which regulate the termination of the employment relationship, are legally acceptable and can be used where the nature of the employee’s work is for a limited duration or for a specific project. The fixed-term contract should be in writing and should specify the reason for fixing the term of the contact.
Sometimes, an automatic termination clause is used by employers whereby the fixed-term contract automatically terminates upon the occurrence of a specific event – usually the termination of the project with the client of the employer. A question which then may arise, is under which circumstances will an automatic termination clause constitute a dismissal when the fixed term contract is terminated?
In Enforce Security Group v Fikile and Others (DA24/15)  ZALAC 9, (2017) 38 ILJ 1041 (LAC) the Labour Appeal Court had to decide this question. The court considered which factors should be taken into account when determining whether the contracting parties have contracted out the protection against unfair dismissal and consequently, when would a termination of the employment contract, as a result the enforcement of an automatic termination clause constitute a dismissal in terms of section 186 (1) (a) of the Labour Relations Act 66 of 1995?
In above mentioned case the Employer, a private security services provider who provides security officers to its various clients contracted to it, terminated the employment of 47 (forty seven) of his security officers posted at a specific client upon termination of the contract by the client the employer.
The employment contract included the following clause and was agreed upon and signed by the employees:
- The period of the employment would endure until the termination of the contract which currently exists between “CLIENT” or its successors (hereinafter referred to as the CLIENT) and the COMPANY.
- The Employee agrees that he/she fully understands that the Company’s contract with the Client might be terminated by the Client at any time and for any cause or might terminate through [e]ffluxion of time and that in consequence hereof the nature of the Employee’s employment with the company and its duration is totally dependent upon the duration of the Company’s contract with the Client/s and that the Employee’s contract of employment shall automatically terminate. Such termination shall not be construed as a retrenchment but a completion of contract…’
The Labour Appeal Court determined that the following circumstances should be considered when deciding if an automatic termination clause is valid:
- The precise wording of the automatic termination clause and the context of the entire agreement;
- the relationship between the fixed-term event and the purpose of the contract with the client;
- whether it is left to the client to choose and pick who is to render the services under the service agreement;
- whether the clause is used to unfairly target a particular employee by either the client or the employer;
- whether the event is based on proper economic and commercial considerations.
The Labour Appeal Court upheld the appeal by determining that the termination of the employment agreement, as a result of an automatic termination clause based on cancellation of the contract by the client, did not constitute a dismissal.
Employers should make sure that the wording of the automatic termination clause reflects the true intention of the contract; that the employees understand and agrees with the termination clause and that the clause is not merely there as a way to circumvent the fair dismissal obligations imposed by the employer by the Labour Relations Act.
Article by: Aletta Eksteen
Dispute Resolution Official – Cape Town