Due to a high interest in my recent post which discusses Freelance/ Independent Contractor contracts and the definition of an employee, I asked an expert in labour law, Dr. Lukas du Preez, to discuss fixed term contracts in a South African context and from a legal perspective.
Employers often ask me if it is still safe to employ people on fixed term contracts, given the amendments made to the Labour Relations Act (LRA) in 2015, which may see them in hot water. And employees often question the legitimacy of the habit of some employers to renew fixed term contracts on an indefinite basis – and quite rightfully so.
Read on to get insights and advice in this matter from Dr. Lukas du Preez, a well-known Specialist in South African Labour Law with over 30 years of experience (lightly edited):
There is a common (mis)perception that the utilisation of fixed term contracts for employees was totally prohibited with the introduction of the Labour Relations Amendment Act, 1995 (“LRA”) with effect from 1 January 2015 (which became operative from 1 March 2015). This is not correct: employment of an employee on a once-off fixed term contract of less than 3 months, is not prohibited at all in terms of the new legislation.
But, it depends…
Where employees are however employed on fixed term contracts extending beyond a period of 3 months, protection for such employees is legislated : in such case, the use of fixed term contracts is strictly regulated for those who earn below the threshold level as promulgated from time to time. (This is currently set at ZAR 205 434 p.a. or ZAR 17 116 p.m, cost to company).
However, and even if an employee earns below the threshold, employers may freely use fixed term contracts without limitation if one or more of the following applies: an employer that employs less than 10 employees, or an employer that employs less than 50 employees and whose business has been in operation for less than two years (unless the employer conducts more than one business or the business was formed by the division or dissolution for any reason of an existing business).
(Questionable) renewal of fixed term contracts
Apart from the above exceptions, in general an employee may only be employed on a fixed term contract or successive fixed term contracts for longer than 3 months, if the work is of limited duration or if the employer can demonstrate a “justifiable reason” for fixing the term of contract. An employee employed for a longer period than 3 months is deemed (subject to the exclusions referred to below) to be employed for an indefinite period and must be treated “on the whole not less favourably” than an indefinite employee doing the same or similar work (Sections 198B (8) of the LRA, 1995).
Renewal must be in writing and must state the reason relating to the nature of work or the justifiable reason relevant to renewal. Justifiable reason includes inter alia (without excluding other possible reasons):
- Replacement of another employee temporarily
- A temporary increase in volume of work for a period
of less than 12 months;
- Students employed for the purpose of
- Work exclusively done on a genuine and specific project of limited or defined duration;
- Employment of non-citizens with a work permit for a
- Seasonal work;
- Public work schemes;
- A position funded by an external source for a
- An employee employed on a fixed term contract after
reaching retirement age.
Employment in terms of a fixed term contract concluded or renewed in contravention of the above provisions will be regarded as permanent employment with two important consequences: firstly, the employee’s remuneration and conditions of service must not be less favourable than those for other similar permanent employees (unless there is a “justifiable reason” for differentiation), and subsequent non-renewal of a fixed term contract, will meet the same consequences as any other dismissal.
Justifiable reason includes that the different treatment is a result of the application of a system that takes into account—
(a) seniority, experience or length of service;
(c) the quality or quantity of work performed; or
(d) any other criteria of a similar nature.
Note: Part-time employees, (defined as somebody who is remunerated wholly or partly by reference to the time worked where this is less hours than a comparable full-time employee) similarly also enjoy legal protection.
When fixed term is deemed permanent: legal consequences
It is clear from the above-mentioned provisions that a carefully structured policy in respect of the use of fixed term contracts should be adopted by employers in order to avoid compensation- and/or reinstatement awards against them in respect of fixed term employees who legally are in fact deemed permanent employees.
Another problem for employers is that section 186(1) of the LRA, 1995 also provides that where there is a reasonable expectation by an employee that his/her fixed term contract would be renewed ( e.g., due to a past practice of renewal), and the employer fails to live e up to this expectation, it would be regarded as the dismissal of such employee.
So, if you renewed the fixed term contract of an employee on past occasions, but subsequently don’t renew the contract, this could be regarded as an unfair dismissal with all the implications related to this.
Does all of this now mean that employers can no longer use fixed term contracts?
Not at all! Most businesses cannot properly function unless they use fixed term-or temporary employees necessitated by operational requirements and seasonal-or business needs. On the other hand, fixed term contracts should not be misused by employers as a scapegoat only to avoid the increased costs of permanent employment: this is exactly what the 2015- amendments to the LRA, 1995 intended. A fair balance should be drawn between protection of employees on the one hand, and the operational needs for fixed term contracts on the other hand.
In conclusion, it is clear that there is no total prohibition on fixed term contracts for employees: those employees earning above the legally established threshold (ZAR 205 000 p.a. cost to company at the time of writing) are totally excluded from the protective provisions. Furthermore, employees below this threshold, may still in fact be employed on a temporary contract (even with lesser conditions of service that permanent employees) for a period of less than 3 months.
The moment the employer extends the fixed term contract for a period longer than 3 months however, such employer needs to be able to prove that the work is of limited duration, or must be able to forward a justifiable reason for doing so: this will be easy to in many instances, for example fixed term employment in the absence of permanent employees, seasonal employees, increased work load, project work and work funded from outside etc.
There is thus clearly scope for the employer to still use fixed term contracts legally within the ambit of the above-mentioned provisions.
Employers should however take care, even if there is a justifiable reason for extending a fixed term contract, to ensure that once they do not renew again, no reasonable expectation could be substantiated by the employee (for example repeated past renewals!). In order to protect the employer in this regard, it is suggested that an appropriate policy and procedure (focused on proper prior consultation to avoid expectations), should be followed when fixed term contracts are not renewed.
And what about Labour Brokers ( “Temporary Employment Services” or “TES”)?
There is also the perception that labour brokers have been totally banned by the 2015 legislation. This is not correct: the aim of the legislator was to enhance the regulation of this matter and avoid misuse, without an outright ban in this regard.
So labour brokers (“TES”) may still be used, but their operation has been severely curtailed since 2015: supplying temporary employees to clients, is defined as work not exceeding 3 months and as a substitute for an employee who is temporarily absent or work performed in a category described in the collective agreement or published by the Minister (these are very limited conditions).
If these conditions are not met, the employee working for client, is deemed to be the employee of such client on an indefinite basis (unless there is a justifiable reason, e.g. an expected increase of work in the next 12 months/seasonal work/specific project) . Such employees must also be treated on a whole not less favourably than employees of the client performing the same or similar work (again, unless the difference can be justified).
It is thus clear that TES should be treated with utmost care in the future. The matter of TES and the interpretation or the 2015- provisions in this regard, were subject to extensive litigation: the first court cases on the issue decided (not surprisingly!) that TES employees are indeed deemed to be employees of the client after 3 months.
In conclusion, both the utilisation of fixed term (temporary) employees, as well as using TES (Labour Brokers) are still allowed by SA legislation. Employers should take care however to implement strict policies in this regard to meet legal requirements, avoid misuse and most important: to avoid costly litigation!
If you need help with fixed term contracts, your relationship with Labour Brokers/TES, or any policy drafting, contact me for a non-obligatory quotation.
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