There are many well established aspects of fixed term employment contracts that make them a very useful tool for employers. For example, it is acceptable for companies to appoint a person on a fixed-term basis if there is a good operational reason to do so. The fixed term terminates on the expiry date without the obligation to give notice.
The other side of that coin is that fixed-term contracts are often used as substitutes for a probation period, a practice that can expose employers to the ramifications of unfair dismissal.
The National Small Business Chamber (Sanlam Cobalt) published an article on 15 March 2012 that highlighted another pitfall of this practice. When an employee works beyond the contract’s expiry date without signing a new agreement then the employee would be regarded as being indefinitely or permanently employed.
This is based on section 186(1)(b) of the Labour Relations Act 66 of 1995, which makes provision for a situation where an employee has a reasonable expectation of renewal of a fixed term contract:
“on the same or similar terms but the employer offered to renew it on less favourable terms or did not renew it”.
These are important considerations that will help to distinguish between true fixed-term agreements and those that are used to circumvent probation or the laws relating to fair dismissals by purporting to be fixed-term agreements.
Notwithstanding the above in the recent case of University of Pretoria v CCMA & others  ZALAC 25, the Labour Appeal Court found that
“once an employee has established a reasonable expectation of a renewal of a fixed term contract, an obligation is created to renew this contract indefinitely on the same or similar terms, subject to a fair reason for refusing to do so. Therefore, once a contract has been renewed because there was a reasonable expectation of a renewal, taking into account the series renewal of the employee’s fixed term contract in the past, this expectation creates an obligation to renew indefinitely and, in this fashion, the obligation transforms so as to create a duty upon the employer to offer the employer a permanent contract”
Importantly though, according to Johannesburg-based Advocate Nel, contrary to the established interpretation of section 186, the Court further found that …“the words chosen by the legislature, absent an amendment to the legislation, cannot carry the burden of a reasonable expectation of a renewal of that which had previously governed the employment relationship, namely a fixed term contract which had previously been enjoyed, which had now expired and, by virtue of the factual matrix created, at best, a reasonable expectation of a renewal.”
The media has reported on many significant changes that have been made to the labour legislation passed on 22 March 2012, but there is still uncertainty about the full extent of the effects of the legislation.
Another consideration is that fixed term contracts can be deemed fixed-term or contractor or sub-contractor agreements, depending on how the agreements are structured. In this case, the Consumer Protection Act may apply. This means that the rights and duties set for suppliers and consumers must be noted and parties to these agreements must observe the provisions relating to early termination, among other issues.
We will continue to monitor the progress. Until the new legislation has been implemented, employers are still urged not to use fixed term contracts to avoid or circumvent their legal obligations and to consult with their attorneys before entering into agreements.