It’s vital for both employers and employees to understand the practical and legal differences between permanent and fixed term employment arrangements.
What is a fixed term contract?
A fixed term contract is a temporary employment arrangement with a specified start date and an agreed end date. This could be a fixed end date or a reference to a specified task or project reaching completion, or to a specified event. Importantly, you must be able to prove that your employee agreed to the end date.
A standard contract of employment, by contrast, is for an unlimited period and ends only when your employee resigns, or reaches retirement age, or is lawfully dismissed or retrenched by you.
Any employer tempted to misuse a fixed term contract in order to dodge the many legal protections given to a full-time employee should think twice – our courts do not look kindly on attempts to prejudice employees by disguising the true nature of an employment relationship.
The basic requirements
The contract (and any renewal contracts) must be in writing and must state the reasons justifying the stated fixed term.
The protections
The Labour Relations Act (LRA) provides a range of protections to fixed term employees. Let’s address them under two main headings.
Firstly, the “reasonable expectation of renewal” protection that applies to everyone
Simply put, you could face an unfair dismissal claim (with all that that entails) if you give the employee reason to believe that the contract will be renewed or converted to full-time employment.
That’s because – and this applies to all fixed term contracts in that none of the exclusions listed below apply here – the LRA says the termination of a fixed term contract is seen as a “dismissal” if:
- The employee “reasonably expected” you to either renew the fixed term contract on the same or similar terms, or to convert the contract into indefinite employment (again, on the same or similar terms), and you didn’t do so.
Anything could land you in hot water here, with particular risk areas being things like continual renewal of fixed term contracts without justification, verbal or implied reassurances of renewal, a workplace culture of renewing contracts etc. To be on the safe side, consider giving your employee specific written notice of non-renewal in good time. Every scenario will be different here, so in some instances you may be advised that multiple contract renewals are justified, in others that they aren’t – specific legal advice is essential, and the bottom line is that professionally drawn contracts and clear communication are critical.
Secondly, other protections that apply only to certain employees
These additional protections do not apply in any of these exceptions:
- The employee earns more than the earnings threshold set by the Basic Conditions of Employment Act (currently R261,748.45 per year or R21,812.37 per month).
- You employ less than 10 employees.
- You employ less than 50 employees in a business that is less than two years old (and that hasn’t been formed by dividing or dissolving an existing business).
- The fixed term contract is permitted “by any statute, sectoral determination or collective agreement.”
The three-month limit, and the need for justification
You can only use a fixed term contract (or successive contracts) for over three months if:
- The work involved is of limited or definite duration, or
- You are able to prove a justifiable reason for fixing the contract’s term, with the LRA specifically mentioning situations such as:
- Covering another employee’s absence (on maternity leave perhaps)
- Addressing a temporary increase in work not expected to last over 12 months
- Providing work experience to students and new graduates
- Specific projects of limited or defined duration
- Seasonal work
- Positions funded externally for a limited period
- An employee who has reached retirement age
Watch out here! If you employ someone on a fixed term contract for more than three months without complying with the above, the contract is automatically deemed to be a full employment contract of unlimited duration.
Other things to watch
- Equal treatment after three months: Even if you have justification for exceeding the three-month limit, you must then treat the employee no less favourably than a permanent employee in the same position, unless again you have justification for different treatment.
- Right to apply for vacancies: Fixed term employees must have the same access to apply for vacancies as permanent employees.
- Retrenchment pay if a project exceeds 24 months: Any project-specific fixed term employee who is employed for over 24 months must, when the contract ends, be paid a week’s remuneration for every completed year of the contract or offered other employment (with you or another employer) on the same or similar terms.
A properly drawn employment agreement that both protects your interests and complies with the law is essential – and we’re standing by to help you.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.
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