Fixed-term contracts of employment are contractual agreements concluded between employers and employees which terminate by operation of law after a pre-determined date has been reached or upon completion of a certain project. Furthermore, the nature of the work for which the employee is employed on a limited-duration contract must be of a temporary nature.
Employers have previously been cautioned in respect of the legal implications of the incorrect use of fixed-term contracts. Some examples of these prohibited practices are:
1) where employees work for a period exceeding three months on a fixed-term contract without a justifiable reason;
2) where an employee has been working on a project-based fixed-term contract and continues working on another project after the completion of the project without a new contract; or
3) the premature termination of a fixed-term contract.
We have received some inquiries in relation to the legal position of fixed-term contracts with regard to the lockdown and how the lockdown affects these contracts, which were entered into prior to the commencement of the lockdown. Employers should note that the operational circumstances of the business, as a result of the COVID19 lockdown, does not in itself justify the termination of limited-duration contracts prematurely, unless the contract specifically provides for such termination.
Where the termination of the contract is based on a pre-determined date, and this date falls within the period of the lockdown, the contract will terminate on the date specified in the contract. There is no requirement to notify the employee of the termination of the contract unless the contract provides that the employer will serve such notice on the employee. It is, however, recommended that notice of termination be served on the employee regardless of the contractual provisions.
Where the termination is based on the completion of a specific project and the project was not concluded prior to the commencement of the lockdown period, the lockdown effectively suspends the employment relationship pending the completion of the lockdown period and the employment relationship will commence after the lockdown is lifted.
An area of legal uncertainty exists where the lockdown is uplifted, but the employer is unable to commence operations as a result of financial, or other, constraints. Does the “suspension” of the contract, as a result of the lockdown, continue notwithstanding the employer now being responsible for the non-continuation of work? It is submitted that, under these circumstances, the employer should continue to claim benefits from the applicable relief fund for the duration of the fixed-term contract, subject to the maximum claim period, currently being 3 months.
Where projects have been lost as a result of the lockdown, one needs to consider the provisions of the employment contract. Some employers may be under the erroneous impression that they are relieved from their responsibilities in terms of the contract. This is not necessarily the case. Where the contract contains an automatic-termination clause in terms of which the contract terminates automatically upon a certain event, for example, the employer losing the contract, employers can rely on such clause to terminate the contract. Should the contract not include an automatic-termination clause, the employer could embark on a retrenchment procedure which will explore possible alternatives to dismissal for operational reasons. The provisions of the contract will determine the options available to the employer.
Should an employer need to sign additional fixed-term contracts or extend the period of a fixed-term contract, the employer should advise employees, in writing, that the extension of the contract period does not imply permanent employment.
In conclusion, the lockdown may not have had a significant effect on fixed-term contracts other than temporarily suspending the employment relationship. The employer will just need to investigate how the lockdown has affected these contractual relationships and take action accordingly in order to mitigate liability.