Retrenching Employees On Fixed-Term Contracts: Be Prudent Or Be Prepared To Foot The Bill

Retrenching Employees On Fixed-Term Contracts: Be Prudent Or Be Prepared To Foot The Bill

Recently, we have seen a number of labour statues being enacted in South Africa. Some of these statutes will impact significantly on labour cost and thus on the overheads of employers. Big corporations may continue unaffected by the increasing costs of labour but the same cannot be said about their smaller counterparts.

The National Minimum Wage Act 9, 2018 came into force on 01 January 2019. In view of the stringent requirements for the granting of exemptions from the payment of the minimum wages stipulates in the Act, it is conceivable that many employers will not qualify for the exemptions.

Consequently, these employers are likely to turn to retrench as an alternative. Employers are advised not to take the decision to retrench before considering the following critical issue. That is, before turning to retrenchment, it is imperative to first consider if the employee concerned has been engaged on a fixed-term contract. Should this be the case, the employee cannot be retrenched before the expiry of his fixed-term contract. In the case of Buthelezi v Municipal Demarcation (Buthelezi), the Labour Appeal Court (LAC) held that “there is no right to terminate such contract even on notice.”

Retrenching an employee in these circumstances would constitute an unfair dismissal, even if the employer has valid operational requirements for retrenching the employee. In the Buthelezi case, the employee had been employed on a fixed-term contract for 5 years, which was prematurely terminated by his employer based on its operational requirements. The LAC found that his dismissal was unfair. Since the employee has found employment elsewhere within 3 months of being dismissed, he was only awarded 3 months’ compensation, which amounted to the actual damages he suffered from the breach of his employment contract. Had the employee not been so fortunate to find employment within such a short period, his employer would have been required to fork out much more.

One way of getting around this problem is for employers is to include a specific clause in the employees’ fixed-term contract which expressly states that the contract may be prematurely terminated on the basis of the employer’s valid operational requirements.


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