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Financial risk #2 labour relations act and fixed-term contracts

Labour relations act and fixed-term contracts

With all the uncertainties around funding, many non-profit organisations use fixed-term employment contracts to manage the risk of entering into long-term salary commitments that may not be matched by funding. It is therefore important to note that one of the most important changes to the Labour Relations Act (the Act), which came into effect on 1 January 2015, is the added protection  that the Act now gives to employees on fixed term contracts through a new section (198B) of the Act (subject to an exclusion for employees who earn more than the relevant threshold determined by the Minister from time to time – currently R205,433 per annum).

The Act defines a ‘fixed term contract’ as 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 at an employee’s normal or agreed retirement age.

The main impact of the revised legislation is that fixed term contracts for a period of longer than 3 months will only be enforceable if three main requirements have been met:

  • The work being done under the contract is of limited duration (or there must be some other “justifiable reason” [see below] for fixing the term of the contract).
  • The fixed term contract is in writing.
  • The contract specifies the ‘justifiable reason’ for employing the employee for a fixed term period of longer than 3 months.

The Act lists examples of “justifiable reasons” and some that may be relevant to the non-profit sector are:
o    Replacing another employee who is temporarily absent from work;
o    A temporary increase in work volume which is not expected to be sustained for more than 12 months;
o    Employing a student or recent graduate who is employed to undergo training or gain work experience;
o    Exclusive work on a specific project that has a limited or defined duration;
o    Employing a non-citizen who has been granted a temporary work permit;
o    Employing people on an official public works scheme or similar public job creation scheme;
o    Filling a position that is funded by an external source for a limited period;

If the employer, in the event of a dispute, fails to prove that the requirements mentioned above have been met, the employee will be regarded as having been employed on an indefinite (permanent) basis. In such circumstances, it is unlikely that the requirements of fair procedure (for such issues as misconduct, incapacity or operational requirements) would have been met and the potential adverse implications for the employer could be serious.

There are some further provisions aimed at protecting employees on fixed term contracts;

  • a person employed on a fixed term contract for longer than 3 months, may not be treated less favourably than someone employed on a permanent basis performing the same or similar work, unless there is a justifiable reason for different treatment.
  • employees on fixed term contracts must be given equal access to opportunities to apply for vacancies.
  • where an employee is employed on a fixed term contract exceeding 24 months, the employee would be entitled to severance pay upon termination.
  • where the employer has failed to renew a fixed term contract when there was a ‘reasonable expectation’ of such renewal (or where the employer offers to renew it on less favourable terms), the basis for an unfair dismissal claim has been extended to also include an expectation of indefinite employment. The onus to prove the expectation, however, remains on the employee.

Note that, if someone is employed for 3 months or less, the provisions above do not apply. However, employees on shorter fixed term contracts should continue to enjoy the protections that existed prior to the amendments. An employer may, for example, not abuse a fixed term contract by using it as a substitute for probation. Another example is where an employee works beyond the expiry date of the contract without signing a new agreement – the employee could still successfully argue that employment has become indefinite. Furthermore, the provisions relating to a ‘reasonable expectation’ of renewal or permanent employment may also be relied upon by these employees.

Please note that:
•    employers that employ less than 10 employees; and
•    employers that employ less than 50 employees and whose business has been in operation for less than two years

are generally excluded. Also, some businesses may be specifically excluded from the effect of these amendments by the provisions of another statute, sectoral determination or collective agreement.

In protecting the risk of building up the core organisational costs beyond a level that is sustainable, organisations may find themselves in disputes that are referred to the CCMA if fixed-term employment contracts are not drawn up in a way that reflects the provisions in the legislation (such disputes could include unfair dismissal, less favourable treatment etc.).

We encourage you to review current fixed-term contracts of employment, and the related practices, to ensure compliance.