Failure to Renew a Fixed Term Contract

Our firm recently had a client approach us who is a teacher. In 2017 he was appointed on a fixed term contract for 6 months. After the initial 6 months our client’s fixed term contract was extended for another 6 months. When the school year started in 2018 he was put on the teaching roster and he even attended the first preparation meeting of the new school year. Thereafter our client was informed that he now had to apply for the permanent position. He was obviously shocked as all the previously mentioned factors had led him to believe that he was now permanently employed.

He eventually attended the interview, however a bursary holder was appointed over our client. Prior to approaching our firm the client referred the matter to the ELRC as an automatically unfair dismissal dispute, however he should have referred it as a dispute based on the failure to renew his fixed term contract. The client thereafter approached us in order to assist him at the CCMA, as the matter has since evolved into an unfair discrimination dispute, as explained below.
The Labour Relations Act 66 of 1995, as amended (“the LRA”), recognises the need for protection against an unjustified termination of a fixed term contract where the employee has a reasonable expectation of renewal on same or similar terms. The definition of “employee” in South African Labour legislation is broad in order to include various forms of employment relationships, including those employed by fixed term contract.

Section 186(1) (b) of the LRA states the following: 
  “Dismissal” means that—(b) an employee employed in terms of a fixed term contract of employment reasonably expected the employer—(i) to renew a fixed term contract of employment on the same or similar terms but the employer offered to renew it on less favourable terms, or did not renew it; or(ii) to retain the employee in employment on an indefinite basis but otherwise on the same or similar terms as the fixed term contract, but the employer offered to retain the employee on less favourable terms, or did not offer to retain the employee;

This section deals with the reasonable expectation of an employee, on a fixed term contract, to have such a fixed term contract renewed. The Constitutional Court in Zungu v Premier of the Province of Kwa-Zulu Natal and Others [2018] ZACC 1 found that the definition of a dismissal in Section 186(1) (b) of the LRA includes non-renewal of an employment contract where there is a legitimate expectation of the contract being renewed.

A fixed term contract is defined in Section 198B of the LRA as a contract which runs from one specified date to another specified date. Upon the second date being realized, the contract, and thus the employment relationship, is terminated. The “fixed term” element can also be specified as the completion of a specific project, the actual date of completion of which, is uncertain. The danger in fixed term contracts comes when the employer continues to renew the contract every time it expires. This is commonly referred to as “rolling over” the contract. The LRA was amended to include that fixed term contacts cannot be renewed after 3 months, unless one of the exceptions in Section 198B (3) and / or (4) applies. It should also be noted that Section 198B only applies to employees who earn below the threshold, as prescribed by the Minister. Currently the threshold is an annual earning of R 205 433.30. It should also be noted that in terms of section 198B (5) if a fixed term contract of employment is concluded or renewed in contravention of subsection (3) the employment is deemed to be of indefinite duration.

If the employer fails to renew a fixed term contract, but allows the employment relationship to continue, then the employee has the right to expect that the relationship is now permanent and such an employee has the right to claim any benefits provided by the Company, such as pension, medical aid etc.

Dr John Grogan states in his book, “Dismissal, Discrimination and Unfair Labour Practices 2nd edition”, that failure to renew a fixed term contract does not automatically terminate the employment relationship, even if the employee does not claim a reasonable expectation of renewal. If the employer permits the employee to continue working after the date on which the contract would otherwise have expired, the contract will be deemed to have been tacitly renewed on the same terms, except that the contractual relationship is now of indefinite duration. Once this happens, the only way in which the contract can be terminated is by ordinary dismissal or by employee’s resignation.

In Malandoh v SA Broadcasting Corporation (1997) 18 ILJ 544 (LC), the court held that to determine whether the non-renewal of a fixed-term contract constitutes a dismissal depends on the circumstances including, but not limited to, the number of previous renewals. However, if a contract clearly states that the contract is temporary in nature, or if sufficient notice is given for the termination thereof, the termination will not be regarded as a dismissal.

In SA Rugby (Pty) Ltd v CCMA & Others (2006) 1 BLLR 27 (LC), the court held that for the employee’s expectation to be reasonable there must be an objective basis for the creation of his expectation, apart from the subjective perception of the employee. The objective test in these circumstances is therefore whether a reasonable employee in same or similar circumstances would have expected the contract to be renewed on same or similar terms. An employee may therefore have a legitimate expectation if a promise of renewal had been made or if there had been a practice in the workplace of renewing fixed term contracts. The legitimate expectation has now been replaced by the reasonable expectation.

In SA Bank of Athens Ltd v Cellier NO & others (2009) 30 ILJ 197 (LC), it was held that where the employer repeatedly renewed a fixed-term contract, the weight to be attached to the practice probably increases in proportion to the number of successive contracts the parties have concluded. However, the mere fact that a fixed-term contract has been renewed a number of times does not in itself indicate the existence of a reasonable expectation of renewal, except if statute determines otherwise – the question is what the employer said to the employee at the time of concluding the contract or thereafter, and the motive for terminating the relationship. The court also found that the mere fact that the fixed term contract made provision for the negotiating of the possible renewal of the contract does not in itself mean that there is a reasonable expectation for renewal.

Some guidance from the courts suggest that the terms of the contract, the past practice of renewals, the nature of employment, reason for the fixed term contract, any assurances that the contract would be renewed and a failure to give reasonable notice of non-renewal, are important factors to be taken into account when determining if the dismissal was procedurally fair or not.

Employers are advised to communicate the fixed contract period to the employee and to not create an impression of possible contract renewal, unless that is their intention. There is the possibility of an unfair dismissal claim against employers if they fail to communicate this, resulting in a reasonable expectation of contract renewal.