Are there dangers for employers in using limited duration contracts?

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Where the job itself is permanent it is dangerous to employ staff on anything but a permanent contract. This is firstly because the Labour Relations Act provides for fixed-term employees to have a reasonable expectation of renewal of their contracts at the expiry date. Secondly, case law has gradually narrowed those circumstances under which an employment agreement can legitimately be accepted as a limited duration contract.

In the case of NUMSA obo Majoro and others vs Purple Moss 1309 t/a Kopano Thermal Insulation (2008, 4 BALR 342) the six employees of Purple Moss, the labour broker, were placed at a client on limited duration contracts. After a strike the client informed the labour broker that it no longer required the services of the six labour broker employees. The labour broker therefore gave its six employees notice invoking a clause in the employment contract effectively allowing the contract to terminate automatically when the client no longer required the services of the worker.

The  trade union alleged that these terminations were unfair because:

  •  The employees had been told that their temporary employment was for six months (even though the contracts they signed had not mentioned this) and that thereafter they would become permanent employees. 
  • After termination of the workers’ employment other employees were employed in their place. 
  • The employees had been required to sign the fixed-term contracts without being allowed to read them first. 
  • Their letter of termination did not refer to the limited duration nature of their contract and gave no reason for the termination. 

The employer contended that the termination constituted not a dismissal but an agreed termination of a contract as a result of a circumstance envisaged at the outset in the employment contract. Those circumstances were that the client had decided that it no longer required the services of the employees.

The arbitrator assigned by the Metal and Engineering Industry Bargaining Council (MEIBC) found as follows:

  •  Sections 4 and 5 of the Basic Conditions of Employment Act (BCEA) prohibit the provisions of an employment contract from diminishing an employee’s rights granted by any law. 
  • The MEIBC regulations require limited duration contracts to specify the end date of the contract. 
  • Section 29(1)(m) of the BCEA requires limited duration contracts to specify the end date of the contract. In fact I believe that the arbitrator has exaggerated here as this section merely requires that, where employment is for a “specified period” the contract must contain the date when the employment is to terminate. The section does not say that all limited period employment contracts must have end dates. That is, the BCEA does not prohibit employment contracts where the end of the contract is determined by an event instead of a specific date.

However, the arbitrator goes on to state that it is not right for employment contracts to contain agreements as to the end of the contract unless the end date is specified in the contract. She argues that this reduces the employment security of the employee who, due to the uncertainty as to the end date of the employment, is unable to manage his/her financial affairs properly or to know whether to seek alternative employment or not.

The arbitrator deemed the limited duration clauses in the employees’ contracts to be invalid. She deemed the employees to have been employed permanently and deemed the termination of their employment to be unfair! This finding followed on a similar decision made by the Labour Court in the case of SACCAWU and others vs Primeserv (2007, 1 BLLR 78). The arbitrator in the Purple Moss case found the dismissals to be unfair and ordered the employer to pay each employee compensation equal to 12 months remuneration.

The key finding of the arbitrator was that, where a limited duration contract does not specify an end date, the employees are deemed to be permanent.

 In the light of the above employers need to:

  • Re-look at their limited duration employment contracts, 
  • Proceed with great caution where they are unable to insert specific end dates into such contracts, and
  • Get advice from a reputable labour law expert especially where they need to find out how to word limited duration contracts in circumstances where they are unable to specify end dates.

BY   Ivan Israelstam, Chief Executive of Labour Law Management Consulting. He may be contacted on (011) 888-7944 or 0828522973 or on e-mail address: [email protected]. Go to: www.labourlawadvice.co.za

To buy our e-Book, WALKING THE NEW LABOUR LAW TIGHTROPE please go to www.labourlawadvice.co.za

 

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