A fixed-term contract is a contract designed to be for a specific period or until the completion of the project for which the specific contract was entered. Fixed-term contracts come to a natural end at the time stipulated in the contract or at the arrival of a specific event.

A frequently asked question is whether a fixed-term contract may be terminated before the specified termination date in the contract. The common law rule is that such a contract may not be terminated for any other reason than material breach or repudiation of the contract by the employee.  Examples of the common law position include when the employee resigns before the date of termination or if the employee is found guilty of serious misconduct and dismissed, which will then place the employee in breach of the contract.

Terminating a fixed-term contract on a contractual basis does not constitute a dismissal because the contract simply expires. Upon expiration, the parties are released from their duties and obligations.  Automatic termination of a fixed-term contract depends on the circumstances of the employer.  The contract must be a fixed-term contract, whether the term is fixed for a particular period or terminates upon the project’s conclusion.

If a contract can be terminated on notice from either side, it is not a fixed-term contract in the true sense of the word, and its premature termination will not constitute a breach if the normal requirements of the notice are satisfied. Therefore, premature termination of a fixed-term contract by an employer constitutes a dismissal as contemplated in terms of section 186(1)(a) of the Labour Relations Act No 66 of 1995.

In Enforce Security Group v Mwelase and 46 others (DA 24/15) (2017) ZALAC 9, the Court provided clarity on the application of fixed-term eventuality contracts and affirmed that section 186(1) clearly defined instances that bring about the termination of employment which would be regarded as dismissal. It reiterated the fact that employment contracts can be terminated in a number of ways that do not constitute dismissal as defined in section 186(1) of the LRA, and one such example would be a fixed-term contract entered into for a specific period or upon the happening of a particular event. Once the event agreed to by the parties materialises, there would ordinarily be no dismissal.

In the Enforce case, the employee’s contracts were fixed on the termination of the service provision contract by the employer’s client, which meant that the continued existence of their contracts depended on the continued existence of the service provision contract. The Court held that where the employees were employed specifically for the service provision contract, the termination of that contract is a legitimate event that would by agreement give rise to automatic termination of the employment contracts. This would therefore constitute an automatic dismissal by operation of law and not an ordinary dismissal.

However, this will not have an automatic application, and it would be necessary to determine whether, in the circumstances, the automatic termination clause was intended to circumvent the fair dismissal obligations imposed on the employer by the LRA and the Constitution. The Court added that each case has to be decided on its own merits, taking various factors into consideration.

In situations where employees’ contracts terminate on the date stipulated in the contract or upon the occurrence of a specific event, they will have no remedy under the LRA unless they can prove that they had a ‘reasonable expectation’ that the contract would be renewed.

Prior to the amendments of the LRA, employees earning below the earnings threshold were not entitled to any statutory payments at the end of their fixed-term contracts.

The amendments in terms of section 198B(10)(a) of the LRA now provide that employees on fixed-term employment contracts are entitled to a payment of one week’s remuneration for every completed year of the fixed-term contract, subject to the terms of an applicable collective agreement.

This payment falls due to the employee where the employee earns below the earnings threshold, has been employed for a fixed term to work exclusively on a specific project that has a limited or defined duration, and the term of the contract exceeds two (2) years.

If all these requirements have been met, the employee is entitled to the payment upon contract termination. Contrary to the position in respect of other severance payments provided for in the LRA and BCEA, this provision does not require employers to consult with affected employees about the amount of severance due. However, it does provide for the possibility that a collective agreement may overrule this statutory protection.

Therefore, it is clear that the termination of a contract of employment upon the occurrence of a specific event is permitted by the LRA, and the operation of such clauses does not automatically render the termination of the employment contract a ‘dismissal’ for the purposes of the LRA. The courts have highlighted that each case should be determined on its own merits and that a range of factors such as the precise wording of the clause and the content of the contract of employment impact the final assessment of each case.

It is also essential for employers to ensure that employment contracts contain express and unambiguous provisions stating that an employee’s employment with the employer and its duration is entirely time-specific, dependent on the term of the employer’s contract with its client/s, or the happening of specified events such as cancellation of services by a client.

While the amendments relating to fixed-term employment offer all employees on fixed-term contracts in respect of unfair dismissal, workers earning below the threshold are likely to find refuge in the additional protection provided to them in section 198B, as was discussed in a previous article in this series.

Article by: Jodi-Leigh Erasmus
Dispute Resolution Official – Port Elizabeth