Fixed Term Contracts of Employment under the Amended Labour Relations Act

The Labour Relations Act has been amended as of 1 January 2015.

It is a well-known and widespread practice for employers to structure contracts of employment in such a way that the permanence of the contract is avoided. For example an employer may keep renewing a contract with a duration of 6 months over and over, which in itself can create a permanent contract. The employer can also save money with fixed term contracts by denying the employee the opportunity of pension and/or provident fund benefits and also medical aid benefits, and in the event of retrenchments, the employee on a fixed term contract can be deprived of severance pay.

Employers need to be aware of the new Section 198B of the LRA:

a ‘fixed term contract’ means a contract of employment that terminates on—

(a)        the occurrence of a specified event;

(b)        the completion of a specified task or project; or

(c) a fixed date, other than an employee’s normal or agreed retirement age, subject to sub-section 3 of the LRA.

SUB-SECTION 3 OF THE LRA

In terms of subsection 3 of the LRA, 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

SUB-SECTION 4 OF THE LRA

Subsection 4 of the Act lists justifiable reasons for fixing the term of an employment contract which are the following:

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-citizen 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.

The effect of Employment in terms of a fixed term contract concluded or renewed in contravention of subsection (3) is deemed to be of indefinite duration, which means that the benefits of a fixed term contract are lost.

3 REQUIREMENTS FOR FIXED TERM CONTRACTS

For fixed term contracts to be enforceable there are three main requirements that have to be met:

  1. Firstly, the nature of the work must be for a limited duration or there must be some other justifiable reason for fixing the term of the contract.
  2. Secondly, the fixed term contract must be in writing.
  3. Thirdly, the contract must specify the justifiable reason.

The onus is on the employer to prove that there is a justifiable reason and that the term of the contract has been agreed.