Fixed term contracts and when they can be extended

9th May 2019

We recently had an arbitration at the CCMA based on section 198B of the Labour Relations Act 66 of 1995, as amended (the LRA). Section 198B of the LRA deals with fixed term contracts for employees earning below the earnings threshold. The Government Notice No. 531, which was published in the Government Gazette 37795 dated 1 July 2014, determined that the threshold is currently R205 433.30 per annum. The Labour Relations Amendment Act of 2014 (“the Amendment Act”) which became effective on 1 January 2015, introduced stricter provisions in relation to fixed term employment contracts.

Section 198B(2) of the LRA states the following:

(2) This section does not apply to—
(a) employees earning in excess of the threshold prescribed by the Minister in terms of section 6 (3) of the Basic Conditions of Employment Act;
(b) an employer that employs less than 10 employees, or that employs less than 50 employees and whose business has been in operation for less than two years, unless—
(i) the employer conducts more than one business; or
(ii) the business was formed by the division or dissolution for any reason of an existing business;
and
(c) an employee employed in terms of a fixed term contract which is permitted by any statute, sectoral determination or collective agreement.

Only once it has been determined that the above sub-section does not apply to the client’s circumstances, will section 198B be applicable. The employer may nevertheless still be able to show that there is a justifiable reason for the employment being fixed. The onus is thus on the employer to prove that a justifiable reason exists to place his/her employees on fixed term contracts for longer than 3 months or successive fixed term contracts for longer than 3 months. Section 198B(3) and (4) of the LRA provides a list of instances where this will be allowed:
(3) An employer may employ an employee on a fixed term contract or successive fixed term contracts for longer than three months of employment only if—
(a) the nature of the work for which the employee is employed is of a limited or definite duration; or
(b) the employer can demonstrate any other justifiable reason for fixing the term of the contract.
(4) Without limiting the generality of subsection (3), the conclusion of a fixed term contract will be justified if the employee—
(a) is replacing another employee who is temporarily absent from work;
(b) is employed on account of a temporary increase in the volume of work which is not expected to endure beyond 12 months;
(c) is a student or recent graduate who is employed for the purpose of being trained or gaining work experience in order to enter a job or profession;
(d) is employed to work exclusively on a specific project that has a limited or defined duration;
(e) is a non-0citizen who has been granted a work permit for a defined period;
( f ) is employed to perform seasonal work;
(g) is employed for the purpose of an official public works scheme or similar public job creation scheme;
(h) is employed in a position which is funded by an external source for a limited period; or
(i) has reached the normal or agreed retirement age applicable in the employer’s business.

Employers and employees should be cautious when discussing the renewal of a fixed term contract or when discussing the prospect of such an employee being appointed on a permanent basis. Discussions like this could lead to an employee having a legitimate expectation of renewal, which in itself has legal implications for the employer. Please note that we have an article on this topic on our website as well, which is titled “Failure to Renew a Fixed Term Contract.”

Employers should also take notice of section 198B(5) of the LRA which states:
(5) Employment in terms of a fixed term contract concluded or renewed in contravention of subsection (3) is deemed to be of indefinite duration.

If the employee believes that there is no justification for fixed term employment and that he/she has become permanent in terms of section 198B, and the employer then enforces the expiry date of the fixed term contract or even offers the employee a new fixed term contract, the employee could challenge this at the CCMA or relevant bargaining council and refer a dispute for conciliation and possibly arbitration. In terms of section 198D(1) and (3) of the LRA an employee or employer can also refer any dispute about the interpretation or application in terms of section 198B within 6 months after the act or omission has occurred.

An employee can then also refer an unfair dismissal dispute within 30 days of the date of dismissal if the employee had a reasonable expectation that his/her fixed term contract would be renewed or that he/she would have been employed on a permanent basis, in this regard section 186(1)(b) of the LRA should be considered:
“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;

At these proceedings, the employer may then be called upon to prove, to the satisfaction of the arbitrator, that fixing the employee’s employment was justified. This can be a heavy burden to carry in circumstances where the employer purposely keeps staff on fixed term contracts so as to avoid making them permanent. In other words, if one of the listed exceptions do not clearly apply, this could become a serious problem for the employer.

We always urge our clients to have an open and honest discussion about their fixed term contracts, either with their employees or with their employers, about the prospects of renewal of their fixed term contract or the prospects of being permanently appointed so as to avoid any unnecessary legal action. We also urge our clients to state clearly in their fixed term contracts if one of the exceptions in terms of section 198B(3) or (4) is applicable.

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