UNDERSTANDING FIXED-TERM EMPLOYMENT CONTRACTS
Updated: Sep 3
How we engage fixed term contracts has changed considerably in South Africa, with legacy permanent employment no longer meeting all the requirements of an influx South African labour market. Employers are favouring a more flexible approach to contracting employees, often provided for in a fixed term contract (FTC).
An FTC is an employment agreement where the length of the relationship is agreed for a fixed period and is explicit in the employment contract. The employee must be aware of the reasons why the appointment is for a fixed term and upon what event or date, the fixed term contract will expire. Legislative changes brought about by the Labour Relations Amendment Act 2014 (LRAA), which took effect on 01 January 2015, are encapsulated under section 198B of the Labour Relations Act (LRA). The amendments place significant restrictions on the use of non standard employees, including fixed term and part-time contracted employees.
Greater Protection
The amendments were designed to provide greater protection to employees by imposing stringent requirements on the employer and through this, protecting employees against exploitation. The amendments aim to prevent the misuse of fixed-term contracts, which denied the employee rights and benefits associated with permanent employment. In doing this, the amendments placed increased legislative obligation on the employer to ensure that contracts orchestrated as temporary arrangements are not used to disguise what is effectively a permanent employment relationship.
Section 198B does not apply to employees earning above the Basic Conditions of Employment Act of 1997 earnings threshold, however it includes employers with fewer than 10 employees, employers with fewer than 50 employees and operating for less than two years, unless the business is a split or continuation of an existing business and fixed-term contracts permitted by statute, sectoral determination, or collective agreement. Section 198B of the Labour Relations Act 66 of 1995 (LRA) regulates fixed term contracts and aims to protect below threshold employees who are employed on a fixed term basis for a period longer than three months.
Should an employer contract employees on a fixed term contract for longer than a period of three months without a justifiable reason. A justifiable reason refers to, the nature of the work is temporary or project-based work, temporary replacement of an employee and circumstances making it impractical to appoint permanently. Where none of these justifiable reasons apply, and the employee has been on an FTC for more than three months, the employee is deemed to be indefinitely employed.
Reasonable Expectation
On expiration of an FTC contract, the employee does not have a right to further employment (renewal of the contract or permanent employment). Employers must take care not to create a reasonable expectation that the FTC will be renewed. Recurrent renewals, verbal insinuations and promises, or conduct implying continuation of employment may result in the employee developing a reasonable expectation of renewal of the contract. In the event where the expectation is not met by the employer and the FTC is not renewed, the employee may claim that he/she has been dismissed unfairly resulting in an unfair dismissal dispute referred to the Commission for Conciliation, Mediation and Arbitration (CCMA).
Section 186(1)(b) of the LRA defines an unfair dismissal to include cases where an employee reasonably expected an FTC to be renewed on the same or similar terms, however the employer failed fulfil the expectation created. This is particularly risky if the employee has been on multiple consecutive contracts, or if the employer has implied whether directly or indirectly that continued employment was likely or guaranteed.
Probation Period
Probation is not a justifiable reason to contract employees on a fixed term. Employers may be under the impression that a probation period can be utilised as a means to inadvertently justify entering into a fixed-term contract with an employee. The reasoning is often that, because the probation period is set out for a “shorter” period, i.e. three months, that should the employer not wish to continue with employment, the employer can merely terminate the contract due to the apparent effluxion of the “probation period”. Conversely, an FTC, is entered in to subject to a justifiable reason and will terminate on the occurrence of a specified event, the completion of a specified task or project or on a fixed date.
The purpose, therefore, is entirely different from that of a probation period and can therefore not be used as a substitution, therefore. Probation is a period during which an employer can evaluate an employee’s performance before confirming the appointment. It is regulated by the Code of Good Practice: Dismissal (Schedule 8 of the LRA), which aims to ensure fair and consistent procedures for dealing with employees on probation. Probation should not be used to deny employees access to permanent employment status or to circumvent the dismissal procedures. If an employer dismisses an employee during or after probation without following due process, the dismissal may be deemed unfair.
Below threshold employees working under an FTC that extends beyond a three-month period, are entitled to equal treatment in the workplace. This principle is enshrined in Section 198B of the Labour Relations Act (LRA), which aims to prevent discrimination between fixed term and permanent employees when they perform similar work under comparable conditions. Unless the employer can provide a valid and objective justification for doing otherwise, employees on a fixed term contract must receive employment conditions that are no less favourable than those of permanent employees doing the same or similar work. This includes not only salary parity however includes access to employment-related benefits that contribute to overall workplace equity.
Severance Pay
If a fixed term contract has been in effect for more than two years, and the employment ends because the contract is not renewed, the employee may be entitled to severance pay equivalent to at least one week’s remuneration for every completed year of service. This entitlement closely mirrors the rules applied to when following the retrenchment process. It recognises that extended service under a fixed term arrangement may in practice resemble a more permanent employment relationship. This provision is governed by Section 198B of the Labour Relations Act which aims to protect employees who have rendered long-term service under temporary arrangements. There are however specific exceptions to this rule. If the employer makes a reasonable offer (documented) to renew the FTC or to convert the contract to a permanent employment arrangement, and the employee refuses this offer without a valid reason, the obligation then to pay severance may fall away. The employer must be able to demonstrate that the offer made to the employee in this instance was reasonable and made in good faith, and that the employee’s refusal was not based on justifiable grounds.
Fair Labour Practices
Under the Section 198B of the LRA regarding temporary employment arrangements, small businesses and startups may qualify for limited exemptions. A business employing fewer than 10 employees or a startup with fewer than 50 employees that has been in operation for less than two years, may be exempt from certain obligations that typically apply to temporary employment contracts. These provisions outlined by the LRA are designed to balance the regulatory burden on new or small businesses while still protecting employee rights. This exemption however is not absolute.
The business must not have been established purely for the purpose of avoiding legislative obligations. In the event where there is evidence that a larger company was intentionally fragmented into smaller entities to exploit these exemptions provided for in the legislation, the CCMA or Labour Court may intervene and set aside the exemption and enforce the standard legal framework. Smaller employers are obligated to adhere to fair and consistent labour practices. Fixed term contracts can be an effective tool for managing workforce flexibility in South Africa. They are especially valuable in industries where project-based work, seasonal demand, or limited-duration tasks make permanent employment impractical.
However, to use fixed term employment lawfully and responsibly, employers must ensure strict adherence to the provisions of the Labour Relations Act (LRA), particularly Section 198B, which regulates the use of these contracts for employees earning below a certain threshold. For more information, please contact
T: +27 (0)31 767 0625
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