Fixed term employment contract explained in full
On 1 January 2015, significant changes to South African labor law came into effect through the provisions of the Labour Relations Amendment Act of 2014 (LRAA). These amendments brought about important changes in the regulation of various employee categories, including those working through temporary employment services (labour brokers), part-time employees, and those employed under fixed-term contracts—this last group being the primary focus of the article. The amendments were aimed at providing better protection to employees, thereby strengthening the legislative responsibilities of employers.
The key legislative changes are outlined in section 198B of the Labour Relations Act (LRA), and the purpose of this article is to explore these changes and their impact on employers in relation to fixed-term contracts or a series of such contracts.
It is important to note that these legislative changes do not affect an employee’s right to challenge a fixed-term contract if there is a reasonable expectation of further renewal. Additionally, the amendments do not apply to all employers. Specifically, they do not apply to employers who meet the following criteria:
- Employees earning above the prescribed threshold of R205,433.30 per annum, as determined by the Minister.
- Employers with fewer than 10 employees.
- Start-up companies with fewer than 50 employees, in operation for less than two years.
- Fixed-term contracts that are allowed by statute, sectoral determination, or collective agreement.
Furthermore, the provisions apply only to fixed-term contracts that exceed a period of three months. Fixed-term contracts of less than three months are not subject to these changes.
Section 198B of the LRA introduces several requirements for fixed-term contracts. Firstly, such contracts must be in writing, meaning employers are obligated to establish a written agreement that outlines the terms and conditions of the fixed-term contract. The nature of the work should be limited to a specific duration, with the contract terminating upon the occurrence of a specified event, the completion of a specified task or project, or on a fixed date other than the employee’s normal retirement age.
Additionally, the contract must specify or justify the reason for the fixed-term period. The LRA provides a list of justifiable reasons for a fixed-term contract, though this list is not exhaustive. Therefore, each fixed-term contract must be evaluated individually to determine whether the fixed-term period is reasonably justifiable.
A critical aspect of these amendments is that if an employer fails to justify the fixed-term period, the employment relationship will be deemed permanent. If an employer terminates an employee’s contract in a manner that would typically be seen as a fixed-term termination but without a reasonable basis for the fixed period, the dismissal could be considered unfair, essentially treating the employee as a permanent employee.
Moreover, if an employee is on a fixed-term contract for more than three months, the employer must ensure that the employee is not treated less favorably than a permanent employee performing the same or similar work, unless there is a justifiable reason for the difference. Employees who work under a fixed-term contract for more than 24 months are entitled to severance pay upon the termination of the contract, unless they are offered permanent employment, in which case they would not be entitled to severance pay. Severance pay is calculated at one week’s compensation for each year worked.
In conclusion, the legislative amendments aim to regulate contracts that may be improperly classified as fixed-term contracts but are, in reality, permanent contracts. Employers who have a legitimate reason for using fixed-term contracts should not be adversely affected by these changes, as long as they comply with the requirements set out in section 198B of the LRA. It is important for employers to ensure they meet their legislative obligations and, if necessary, seek labor law advice regarding fixed-term employment contracts.