Introduction
The use of fixed-term employment contracts in South Africa has evolved significantly following legislative changes brought about by the Labour Relations Amendment Act of 2014 (LRAA), which took effect on 01 January 2015. These amendments were designed to provide greater protection to employees, ensure compliance with fair labour practices, and prevent the misuse of fixed-term contracts by employers attempting to circumvent the responsibilities of permanent employment.
The legislative changes, encapsulated under section 198B of the Labour Relations Act (LRA), have drastically changed the landscape of fixed-term contracts, imposing stricter requirements on employers and protecting employees against exploitation.
In this article, we unpack the amendments, discuss their implications for fixed-term contracts, and provide a comprehensive guide for employers to navigate this complex regulatory framework.
The Purpose of the Amendments to the Labour Relations Act
The amendments to the LRA were aimed at achieving several key objectives:
- Protecting employees: The amendments prevent the misuse of fixed-term contracts to deny employees the rights and benefits of permanent employment.
- Encouraging compliance: By increasing legislative obligations, employers are encouraged to adhere to fair labor practices and align their practices with the spirit of the law.
- Regulating disguised employment relationships: The amendments ensure that contracts structured as temporary arrangements are not used to mask what is effectively a permanent employment relationship.
It is important to note that these changes do not affect an employee’s right to challenge a fixed-term contract based on a reasonable expectation of renewal.
Scope of the Amendments
The provisions of section 198B of the LRA apply only to specific circumstances. The following employers and contracts are excluded from these requirements:
- Employees earning above the threshold of R205,433.30 per annum, as set by the Minister of Labour.
- Employers with fewer than 10 employees, which are typically small businesses.
- Start-up companies with fewer than 50 employees that have been in operation for less than two years unless the business was formed by splitting or dissolving an existing company.
- Fixed-term contracts explicitly permitted by statute, sectoral determination, or collective agreement.
Additionally, the provisions of the amendments only apply to fixed-term contracts exceeding three months in duration. Contracts shorter than this period remain unaffected by these changes.
Key Requirements for Fixed-Term Contracts Under Section 198B
- Contracts Must Be in Writing
Employers are required to formalise all fixed-term contracts in writing, clearly outlining the terms and conditions of the employment relationship. This includes the duration of the contract and any specific conditions or events upon which it will terminate.
- Limited Duration of Work
A fixed-term contract must be linked to a specific event, task, or project with a defined end date, or it must terminate on a specific date other than the employee’s normal or agreed retirement age. The nature of the work must justify the use of a fixed-term contract as opposed to a permanent appointment.
- Justifiable Reasons for Fixed-Term Periods
Employers must demonstrate a reasonably justifiable basis for concluding a fixed-term contract. While the LRA provides examples of justifiable reasons (e.g., project-based work, replacing an absent employee, or seasonal work), this is not an exhaustive list. Each contract must be assessed individually to ensure its justification aligns with the nature of the work.
- Equal Treatment of Employees
Employees engaged in fixed-term contracts for longer than three months are entitled to be treated no less favorably than their permanent counterparts who perform the same or similar work. Any differences in treatment must be objectively justified.
- Severance Pay for Long-Term Fixed-Term Contracts
Employees who have been employed on fixed-term contracts for longer than 24 months are entitled to severance pay upon termination unless they are offered permanent employment at the end of the fixed-term period. Severance pay is calculated at one week’s remuneration for every year of service.
Implications for Employers
- Non-Compliance and Risk of Permanent Employment
If an employer fails to meet the requirements outlined in section 198B, the employment relationship may be deemed permanent by default. This means that:
- If the fixed-term period is not supported by a justifiable reason, the employee may be considered a permanent employee.
- Termination of the contract in such circumstances may amount to unfair dismissal, exposing the employer to legal liability.
Employers must, therefore, take care to ensure that every fixed-term contract is appropriately justified and documented.
- Risk of Creating a Reasonable Expectation of Renewal
As highlighted in Owen and Others v Department of Health, KwaZulu-Natal, employees may claim unfair dismissal if they reasonably expected the renewal of their fixed-term contract, but the employer failed to renew it. Factors such as past practices, verbal assurances, or conduct suggesting ongoing employment can contribute to a reasonable expectation of renewal.
Employers are advised to:
- Clearly state in the contract that renewal is not guaranteed.
- Communicate intentions not to renew the contract in advance, to avoid creating surprise or disputes.
- Equal Treatment Obligations
Employers must ensure that fixed-term employees receive the same wages, benefits, and access to opportunities as their permanent counterparts. For instance, fixed-term employees should have access to internal job postings and career development opportunities.
Legislative Protections for Employees: Case Law Highlights
Case law demonstrates the courts’ and CCMA’s willingness to protect employees from the misuse of fixed-term contracts:
In this case, an employee was employed for over three years on a series of monthly fixed-term contracts. The CCMA found that the contracts did not meet the requirements of section 198B and declared the employee a permanent employee. The employer was ordered to reinstate the employee on an indefinite basis.
This case emphasised the importance of providing reasonable notice of non-renewal and ensuring that fixed-term contracts include express provisions stating that no expectation of renewal is created.
The court ruled that verbal statements and actions by the employer can create a reasonable expectation of renewal, even when not explicitly stated in the contract. Employers must avoid making statements or taking actions that suggest indefinite employment.
Best Practices for Employers
To comply with the LRA and avoid disputes, employers should:
1. Conclude Written Agreements: Ensure that all fixed-term contracts are in writing and include specific, legally justifiable reasons for the fixed-term nature of the employment.
2. Avoid Repeated Renewals: Minimise rolling over fixed-term contracts, as this can create a reasonable expectation of permanence.
3. Provide Equal Treatment: Treat fixed-term employees the same as permanent employees regarding wages, benefits, and opportunities.
4. Communicate Clearly: Inform employees in advance if their contract will not be renewed and avoid making promises or statements that could imply ongoing employment.
5. Review Contracts Regularly: Assess whether fixed-term contracts meet the requirements of section 198B and consult legal advisors to ensure compliance
Conclusion
The amendments to South African labour law under the Labour Relations Amendment Act of 2014 were introduced to curb the abuse of fixed-term contracts and protect employees’ rights. While fixed-term contracts remain a valuable tool for addressing temporary staffing needs, employers must comply with the strict requirements of section 198B of the LRA. Failure to do so could result in significant legal and financial consequences, including findings of unfair dismissal or the automatic conversion of contracts to permanent employment.
Employers are advised to seek specialised labour law advice and adopt best practices to ensure their fixed-term employment contracts are both lawful and fair. By doing so, they can protect their businesses while fostering a compliant and ethical workplace.
For personalised employment law advice tailored to your needs, consult an attorney at SchoemanLaw.
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