The purpose of this article is to highlight the rationale and justification for entering into a fixed-term contract whilst comparing the stark differences between a fixed-term contract as opposed to a probationary clause in an employment contract. These two concepts are often misinterpreted or misunderstood by employers, and it is vital that the legal context of these two varying concepts is understood.

As discussed in previous articles in this series, entering into a fixed-term employment contract can have many benefits to the parties, provided that it is entered into properly and for lawful reasons. The Labour Relations Act 66 of 1995 (hereafter referred to as the Act) prescribes a closed list of acceptable reasons for entering into a fixed-term contract exceeding a period of three months, with an employee earning under the earnings threshold.

Where an employee is employed on a fixed-term basis for a period exceeding three months, with no justification as provided for by the Act, that employee will be deemed a permanent employee, and the termination of such a contract may amount to an unfair dismissal.

This was evident in the 2019 case of Loliwe v Hanover Cleaning Services. In the said case, the employee was employed as a general worker for approximately three years on monthly fixed-term contracts, which were repeatedly renewed.

When his last contract was not renewed, the employee claimed he was dismissed, and the CCMA agreed with him, citing that he had become a permanent employee by virtue of Section 198B of the Act and ordered that he be reinstated. The reasoning is that he was earning under the earnings threshold and was employed for a period exceeding three months. The said contracts were not linked to any one of the justifiable reasons as contained in the Act.

Unfortunately, many employers are often under the impression that a probation period can be utilised as a means to inadvertently justify entering into a fixed-term contract with an employee or as a means to place the employee on a “fixed-term” type of contract. The rationale is often that, because the probation period was only set for three months, should the employer not wish to continue with employment, the employer may merely terminate the contract due to the apparent effluxion of the three months. This is wholly incorrect, and employers are warned against adopting such practices.

Probation is not a justifiable reason to enter into a fixed-term contract of employment, and to this end, it is essential to distinguish between the two. Clause 8 of the Code of Good Practice of the Act deals specifically with probation which states that the purpose of the probation is to allow the employer to evaluate the employee’s performance before confirming the appointment. It goes further to state that probation should not be used for purposes not contemplated by this Code to deprive employees of permanent employment status.

A fixed-term contract conversely is entered into as it will terminate on the occurrence of a specified event, the completion of a specified task or project or on a fixed date. Therefore, its purpose is entirely different from that of probation and can therefore not be used as a substitution therefor.

An example of this is in Venter v Vereeniging Abattoir (Pty) Ltd v Midland Group (2014) 35 ILJ 2318 (CCMA) the Commissioner found that the employer had disguised the employee’s probation period as a fixed-term contract, which was in contravention of the Labour Relations Act 66 of 1995. The Commissioner found further that the employer was not entitled to use a fixed-term contract to evade the provisions of the LRA as that would undermine the purpose of the Act. In the case, the Commissioner held that “the whole purpose of the legislation would be undermined if employers were allowed to evade the provisions of the Act relating to probation by contracting out of the Act.”

Therefore, should an employer use a fixed-term contract as a substitute for probation and subsequently circumvent the provisions of the Act relating thereto, that practice will amount to an unfair dismissal, and the employer would, in all likelihood, face an adverse outcome should the matter be heard at the CCMA.

Article by: Ilze Erasmus
Dispute Resolution Official – Port Elizabeth