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May an employer terminate a fixed term contract early?

 It is very east to employ a worker on the basis of a fixed-term contract. However, it is when you want to end the employment relationship that the pain begins.

 The employer’s need to terminate the contract could have a number of different reasons. For example, during a retrenchment exercise, the employer may need to terminate all temporary contracts, so that it may give preference to saving the jobs of the permanent employees.

 

There could be a variety of factors contributing to the need for operational requirement dismissals (retrenchment).

These include: 

  • Faulty or archaic equipment or technology, ineffective management systems, or underskilled/demotivated employees can reduce productivity, increase financial losses and affect jobs. 
  • Employers may need fewer employees due to labour saving devices or technology. 
  • A desire to evade labour legislation might result in the contracting out of work instead of giving it to employees. 
  • Bankruptcy or losses caused by mismanagement or misappropriation of funds.
  • Strikes and lockouts that weaken your company and chase customers and work away.
  • A drop in sales due to economic factors such as the strengthening of the Rand. 
  • Rationalisation to shed “surplus” employees resulting from buy-outs or mergers. Beware, retrenchments for reasons related to a takeover as a going concern will be automatically unfair.

 

However, the above factors will not automatically render a retrenchment fair. For example, the courts have traditionally taken into account four key factors when deciding whether a retrenchment is fair. Viz: 

  • Was there a sufficient operational reason for the retrenchment or was the retrenchment a sham? 
  • Was a fair criterion used for choosing the employees to be dismissed, or should other employees have been retrenched instead? 
  • Before deciding to retrench, did the employer consult properly with the employees or trade union on measures to avoid or reduce the number of retrenchments, as well as on numerous other issues related to the retrenchment? 
  • Did the employer give the employees or union all the information relevant to the retrenchment and to the consulting process?

 

However, a fifth factor has suddenly come to the fore. 

In the landmark case of Buthelezi vs Municipal Demarcation Board (2005, 2 BLLR 115) the Labour Appeal Court found that retrenchment of an employee prior to the expiry of his/her fixed-term contract was unfair. In this case Mr Buthelezi had a five-year fixed-term contract with the Demarcation Board, but was retrenched one year after commencement. Prior to retrenchment he was invited to apply for an alternative post but was unsuccessful. The Labour Appeal Court found that the employer did not have the right to terminate the fixed-term contract before its natural expiry date.

 

The Court’s startling decision means that: 

  • as regards retrenchment, a temporary employee with a fixed-term contract has stronger rights that a permanent employee;
  • the practice of terminating the contracts of temporary employees in a retrenchment exercise, as a means of saving permanent jobs needs to be urgently reviewed;
  • the terms and wording of fixed-term contracts need to be radically revised; and
  • no employer should enter into or terminate a fixed-term contract before consulting with a labour law expert.

 

It is clear that employees on fixed-term contracts are fairly well protected. When the new amendments to labour law are finalised many employees on fixed-term contracts will be able to force the employer to make them permanent.

 

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 observe our experts debating controversial labour law topics please go to www.labourlawadvice.co.za and click on the Labour Law Debate menu item.

 

 

 

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