Introduction
South African labour law continues to evolve in ways that significantly affect job security, business transactions, and the use of fixed-term contracts. Two provisions of the Labour Relations Act 66 of 1995 (LRA) are particularly important in this regard: section 186(1)(b), dealing with expectations of renewal of fixed-term contracts, and section 197, governing the transfer of employees when a business is sold or transferred as a going concern.
Fixed-Term Contracts and the Risk of Dismissal Claims
In terms of section 186(1)(b) of the LRA, an employee may be deemed to have been dismissed if they reasonably expected their fixed-term contract to be renewed on the same or similar terms, but the employer fails to renew it or offers renewal on less favourable terms.
While repeated renewals may contribute to a reasonable expectation, the Labour Courts have made it clear that renewals alone do not automatically create permanent employment. Each case is assessed on its own facts, including the wording of the contract, the employer’s conduct, the availability of work, and whether employees were clearly informed of the temporary nature of their employment.
Employers who repeatedly rely on fixed-term contracts without proper justification risk unfair dismissal disputes at the CCMA or Labour Court.
Understanding Section 197: What Happens When a Business Changes Hands?
Section 197 of the LRA represents a fundamental shift from the historical position under South African common law, where the sale or transfer of a business resulted in the automatic termination of employment contracts and retrenchments. Since 1995, section 197 has ensured that when a business is transferred as a going concern, employees are automatically transferred to the new employer.
The cornerstone of section 197 is the continuity of employment. Employees transfer to the new employer on the same terms and conditions, with all rights and obligations intact. The new employer is automatically substituted in place of the old employer and inherits all employment contracts, accrued benefits, and existing disputes.
Protection of Terms and Conditions
Section 197(3) protects employees against adverse changes to their terms and conditions of employment following a transfer. The new employer may not offer employment on terms that are less favourable than those that applied before the transfer. Any unpaid wages, leave pay, or other accrued benefits must also be disclosed and transferred as part of the transaction.
Section 197(6): Contracting Out – With Strict Limits
Although section 197 provides for automatic transfer, section 197(6) allows a limited exception. The old employer, the new employer, and the affected employees may agree to terminate employment as part of the transfer process. However, this option is subject to strict legal requirements.
Key obligations include:
- Meaningful consultation with affected employees, similar to the process required under section 189 of the LRA;
- No-fault termination, based on operational requirements rather than employee conduct or performance; and
- Payment of severance pay in accordance with section 41 of the Basic Conditions of Employment Act.
Any agreement under section 197(6) must be entered into voluntarily and in good faith. Employers may not unilaterally exclude employees from the transfer or selectively choose which employees to retain.
Labour Court Warning: Njokweni v MTN (2023)
The Labour Court’s decision in Njokweni and Others v Mobile Telephone Networks (2023) serves as a strong warning to employers. When MTN took over a call centre operation, it attempted to offer employment to only some of the employees and imposed relocation conditions. The Court held that section 197 applied automatically and that MTN could not pick and choose which employees to transfer.
The employees were found to have been unfairly dismissed, resulting in a substantial back-pay order. The judgment reinforces that failure to comply with section 197 can carry serious financial and reputational consequences.
Conclusion
Sections 186(1)(b) and 197 of the LRA play a critical role in protecting employees against unfair labour practices while balancing the operational needs of employers. Fixed-term contracts must be used carefully, and business transfers must be managed in strict compliance with section 197.
Employers are encouraged to obtain legal guidance when renewing fixed-term contracts or engaging in business transfers. Employees should seek advice where their continued employment is affected by non-renewal or the sale or outsourcing of a business.
For further assistance, consult an attorney at SchoemanLaw Inc.
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