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Terminating fixed-term contracts a headache

Ivan Israelstam

 

Until the new labour laws being currently discussed are implemented it will be easy to appoint 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 recent 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.

 

This decision is most surprising because, where the job of a fixed-term employee genuinely becomes redundant what is the employer required to do? Did the Court expect the employer to keep the employee on its books and, despite the absence of work, continue to pay the employee for four years until the contract expired?

 

Labour law gives an employer the right to retrench for good reason. 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
  • no employer should enter into or terminate a fixed-term contract before consulting with a labour law expert.
  •  

To book for our seminars on NEW CHANGES AND DANGERS IN LABOUR LAW in Cape Town (9 March), Durban (15 March) and JHB (20 April) please contact Ronni via (011) 782-3066, 0845217492 or This email address is being protected from spambots. You need JavaScript enabled to view it. .

Ivan Israelstam is the Chief Executive of Labour Law Management Consulting. He may be contacted on (011) 888-7944 or 082 852 2973 or via e-mail address: This email address is being protected from spambots. You need JavaScript enabled to view it. . Website address: www.labourlawadvice.co.za

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