The use of a fixed-term contract to regulate the termination of an employment relationship, is legally acceptable and can be used where the nature of the employee’s work is for a limited duration or for a specific project. Employers sometimes include an automatic termination clause, whereby the fixed-term contract automatically terminates upon the occurrence of a specific event – usually the termination of the project with the client of the employer.
It is essential to consider Section 198B of the Labour Relations Act (LRA), as it clearly defines and limits the circumstances where it is permissible for a fixed-term agreement to provide for termination, which are as follows:
- On the occurrence of a specified event.
- On the completion of a specified task or project.
- On a fixed date.
If a contract itself is not a legitimate fixed-term contract, an automatic termination clause will also not be valid.
That employers should be careful and precise when implementing fixed-term agreements or automatic termination clauses, was recently brought to light in the case of Piet Wes Civils CC and another v AMCU (2018) 12 BLLR 1164 (LAC). The service contracts between the employers and a mining company came to an end, upon which the contracts with employees were automatically terminated as well. The trade union representing the employees (AMCU), claimed that the employees had become permanently employed by virtue of Section 198B of the LRA, and if the contractors wanted to terminate the employment of their workers, they should retrench them.
The matter was decided at the Labour Appeal Court (LAC). The court noted that Section 198B of the LRA defines a contract of limited duration and prohibits fixed-term employment for longer than 3 months unless the nature of the work performed is of limited duration or the employer provides a justifiable reason, among which is that the employee is employed to work on a specific project.
Employers renewing or extending fixed term contracts must do so in writing. In this case the employers failed to do so with most of the employees, so they were all deemed to have become permanent employees. This was viewed as a significant shortfall in justifying automatic termination as it is linked to a fixed-term agreement. It was further found that since the contract duration was merely linked to the “supply of work contracts”, it cannot be construed as termination on the occurrence of a “specified event”, “the completion of a specific task or project” or on “a fixed date”, as required by Section 198B(1) of the LRA. The contract did not adequately limit the possibility that future contracts may still be supplied by the employer’s clients. The employer was not in a position to enforce automatic termination of the contracts. The employees were entitled to be consulted before they were dismissed for operational needs. The employees were reinstated until that was done.
As illustrated above, the interpretation and valid application of an automatic termination clause is not always clear-cut and employers should be mindful when adopting such clauses. While fixed-term contracts may automatically expire on the occurrence of an event, the term ‘event’ must be given a narrow interpretation to maximise protection of job security and the Constitutional right to fair labour practices. Automatic termination provisions must be interpreted to determine whether it is permissible. It should only be enforced in cases where the employees only worked on a specific task or project. As held by case law justifying the automatic termination clause, it is important to establish that the ‘event’ causing the termination of contract, was triggered by a third party and that the employer is not the proximate cause of the termination of employment.
The merits of each case would have to be assessed to determine whether the automatic termination clause is valid or not, as it may be subject to an employee’s right to challenge the termination as an unfair dismissal.
ABOUT THE AUTHOR
Jan Oosthuizen is a SEESA Labour legal advisor in Pretoria. He obtained his LLB degree from the North-West University and completed his articles of clerkship at Braam Swart & Partners in George, before starting his career at SEESA in 2015.