Reasonable expectation of renewal of fixed term contracts

Johanette Rheeder

The issue concerning legitimate expectation is dealt with in terms of section 186(1)(b) of the Labour Relations Act 66 of 1995 (“the Act/LRA”) which includes a dismissal’ to mean that (b) employee reasonably expected the employer to renew a fixed-term contract of employment on the same or similar terms but the employer offered to renew it on less favourable terms or did not renew it.”

In NUMSA obo Mdhuli v Scaw Metals Group[1], the applicant employee was employed by the respondent on a MERSETA contract in terms of which the employee would be afforded on the job training to complete his apprenticeship. When the employee acquired his artisan’s qualification, he was told to leave. He claimed that he had been unfairly dismissed because he had not been given the required notice of termination, and was under the impression he would be permanently employed by the respondent by being allowed to continue working for 14 days after acquiring his qualification.

The commissioner noted that the contract required the respondent to train the employee until he qualified as an artisan. The applicant had been allowed to stay on for a while after he completed his training to enable the respondent to investigate whether there was a post for him. He was given 14 days’ notice after it was established that there was no suitable vacancy.

The commissioner noted further that the applicant was not seeking renewal of a fixed-term contract, but an order compelling the respondent to employ him indefinitely. That being the case, the employee could not be said to have been dismissed within the meaning of that term in section 186(1)(b) of the Labour Relations Act 66 of 1995, and the council lacked jurisdiction to arbitrate the dispute.

The application was dismissed.

In the case of NUMSA obo Mnyakeni v Janong Security Services CC[2] the employer renewed the fixed term agreement more than once. The commissioner confirmed that an expectation must be created which relies on the facts. The respondent employed the applicant employee on three successive fixed-term contracts, all identically worded. Each contract provided, inter alia, that the employee would acquire no expectation of permanent employment if the contract were to be renewed, and that non-renewal would not constitute a retrenchment. When the respondent indicated that the contract would not be renewed a fourth time, the employee claimed that he had been unfairly dismissed.

The commissioner found that, although the union had claimed that the employee’s contract had been terminated on notice, the dispute was really over whether the employee had a reasonable expectation that the contract would be renewed. The common law position that a contract concluded for a stipulated period expires at the end of that period has not been changed by legislation. In addition, to showing a subjective expectation that a contract will be renewed, an employee claiming a legitimate expectation for the renewal of a contract must adduce objective evidence of that expectation i.e. he must prove the existence of facts which, in the ordinary course, would lead a reasonable person to anticipate renewal. The clear basis for a legitimate expectation is if a promise of renewal had been made. In the present matter, there was no evidence of either and implied or express promise made by a person who had the authority to make such a promise.

The applicant may also have had a legitimate expectation if there had been a practice in the workplace of renewal. The applicant first testified that the respondent employed all other employees, some of whom had been employed for 17 years, on fixed-term contracts that were regularly renewed. The only statutory change is that employees who have acquired a reasonable expectation of renewal can claim to have been dismissed if that expectation is dashed. The onus of proving such an expectation rested on the employee. That onus would be discharged only if the circumstances would have induced a reasonable employee to believe that the contract would be renewed.

The employee had not been promised that his contract would be renewed. He relied rather on a claim that the respondent had retained some employees on short fixed-term contracts for as long as 17 years. That claim had not been proved. That the employee’s contract had been renewed twice before did not in itself create a reasonable expectation of renewal. Despite the absence of evidence from the applicant that the renewal of his contract on two occasions had created a reasonable expectation of renewal, his case was presented on the basis that he had expected a renewal because he had been appointed on three successive fixed-term contracts.

In SA Bank of Athens Ltd v Cellier NO & others (2009) 30 ILJ 197 (LC), it was held that, where the employer repeatedly renewed a fixed-term contract, the weight to be attached to the practice probably increases in proportion to the number of successive contracts the parties have concluded. However, the mere fact that a fixed-term contract has been renewed a number of times does not in itself indicate the existence of a reasonable expectation of renewal – the question is what the respondent said to the applicant at the time of concluding the contract or thereafter, and the motive for terminating the relationship. On the contrary, the contract expressly stated that the employee had no right to renewal, and the employee was aware of this provision. The commissioner found that the applicant had failed to prove a reasonable expectation that the contract would be renewed, and accordingly to discharge the onus of proving that he had been dismissed.

The application was dismissed.

In Peetz v Cash Paymaster Services[3] the procedure to cancel a fix term agreement was the topic of the dispute. The applicant, a project manager, was responsible for overseeing payments of social grants by the respondent. When he reached retirement age, he was retained on a series of fixed-term contracts, which were finally discontinued. He claimed that the respondent had effectively retrenched him without consultation. The respondent contended that when the Social Security Agency, to which it was contracted, had changed its retirement requirements, it had no option but to retire the applicant. The applicant had accordingly not been dismissed.

The commissioner noted that the critical issue was whether the applicant had a reasonable expectation that his contract would be renewed. The more frequently the employer renews fixed-term contracts, the more likely it is that an employee will acquire such an expectation. The mere fact that the contract contains a clause saying that its renewal should not be construed as creating an expectation of renewal is not in itself sufficient to prove that the employee did not acquire a reasonable expectation. Other factors might include the nature of the employer’s business and the failure to give reasonable notice that the contract will not be renewed. Grogan points out that merely inserting a clause saying the employee should not develop any such expectation “is not conclusive proof” that the employee could not reasonably have expected the contract to be renewed, in itself. Other relevant factors might be the nature of the employer’s business, and the failure to give reasonable notice of non-renewal. The respondent’s reliance on the SSA’s change of policy would not have affected the employee’s expectation because the contracts had been repeatedly renewed after the respondent contracted with the agency. The applicant’s contract had been renewed for different periods six times in seven years, without a break in service. Given all these factors, the applicant’s expectation of a further renewal was reasonable. The employee had, accordingly, proved that he had been dismissed.

The commissioner held further that the respondent could not rely on the fact that the employee had reached the normal retirement age because it had continued to employ him beyond that age. The applicant was, accordingly, entitled at the very least to a hearing before his services were finally terminated. Grogan points out that where an employee had reached the retirement age and continued to work, in Botha v Du Toit Vrey & Partners CC (2005) 26 ILJ 2362 (LC) [also reported at [2006] 1 BLLR 1 (LC) – Ed], the court finds that “an employer is obliged to at least follow a fair procedure before terminating the eservices of an employee who has already worked beyond retirement age”.

If the respondent’s operational requirements had changed, he should have been consulted. The applicant’s dismissal was accordingly procedurally unfair.

The applicant was awarded compensation equal to three months’ remuneration.

In IDWU obo Mathebula & others v Band V Mining & Slabs[4], the applicant employees, all truck assistants, worked for the respondent on weekly fixed-term contracts for about eight months.

When their final contract was not renewed, they claimed they had been unfairly dismissed, pointing out that three of their former colleagues were still in the respondent’s employ. The respondent claimed that retaining employees on short duration contracts was necessary because work in the building industry fluctuates, and that the employees’ contracts were not renewed because of a slump in demand for residential property.

The commissioner noted that the issue to be determined was whether the employees indeed expected their contracts to be renewed and, if so, whether that expectation was reasonable. There was no doubt that the employees expected their contracts to be renewed, since this had been done on a regular basis for a lengthy period. The habitual renewal of the contracts also rendered their expectation reasonable. The employees had, accordingly, proved that the non-renewal of their fixed-term contracts constituted a dismissal. Since the respondent had failed to prove its claim that there was insufficient work for the employees and because the respondent had not consulted the employees, their dismissals were substantively and procedurally unfair. The Commissioner referred to the test to be the following:

In University of Cape Town v Auf Der Heyde (2001) 22 ILJ 2647 (LAC) [also reported at [2001] 12 BLLR 1316 (LAC) – Ed], Du Plessis AJA stated at 2654 B–C:

“In order to determine whether the respondent had a reasonable expectation, it is first necessary to determine whether he in fact expected his contract to be renewed or converted into a permanent appointment. If he did have such an expectation, the next question is whether, taking into account all the facts, the expectation was reasonable.”

In Dierks v University of South Africa (1999) 20 ILJ 1227 (LC) [also reported at [1999] 4 BLLR 304 (LC) – Ed], the Labour Court made it clear (at 1246D–H) that, in order for an employee to show that he/she had a reasonable expectation that his/her fixed term employment contract would be renewed, he/she must convince the court that there was an objective basis for the creation of the “reasonable expectation” aforementioned.

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