When may you use a Fixed Term Contract

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There are vast misapprehensions with regards to the appropriate and legally correct use of fixed term contracts which are also referred to as limited duration contracts.

Employers often mistakenly use fixed term contracts for the purposes of a probationary period and further to determine whether the Employee is a “fit” within their organisation. Employers implement fixed term contracts in an attempt to evade the accrual of benefits and hereby do not comply with their statutory obligations.

This has been redressed by the amendments made to Section 198 of the Labour Relations Act, which was promulgated in 2014. These amendments restrict and regulate the misappropriation of fixed term contracts.

Firstly, it is important to understand the nature and purpose of a fixed term contract. In terms of Section 198B (1), a fixed term contract is a contract which terminates on the occurrence of a specific event, or on completion of a specific task or project and lastly on a fixed date other than an Employee’s normal or agreed retirement date.

An Employee is deemed to be a permanent Employee should a fixed term contract exceed a three (3) month period without justification and prior agreement. A fixed term contract may exceed three (3) months only if there is a justifiable reason. In terms of Section 198B (4); the following are listed as justifiable reasons for employing on a fixed term basis- If the Employee;

  • is replacing another Employee who is temporarily absent from work;

  • is employed on account of a temporary increase in the volume of work which is not expected to endure beyond 12 months;

  • is a student or recent graduate who is employed for the purpose of being trained or gaining work experience in order to enter a job or profession;

  • is employed to work exclusively on a specific project that has a limited or defined duration;

  • is a non-citizen who has been granted a work permit for a defined period;

  • is employed to perform seasonal work;

  • is employed for the purpose of an official public works scheme or similar public job creation scheme;

  • is employed in a position which is funded by an external source for a limited period; or

  • Has reached the normal or agreed retirement age applicable in the Employer’s business.

These provisions however do not apply:

  • To Employees who earn more that the Section 6(3) BCEA threshold or;

  • Where the Employer employs less than 10 (ten) Employees, or;

  • If the Employer employs less than 50 (fifty) Employees, the business of the Employer has been conducting business for less than 2 (two) years.

  • However, and critically, where the Employer conducts more than one business, or where the business was established as a result of the dissolution or division of an existing business, the 50 (fifty) Employees exclusion does not apply.

  • In addition, the application of the Section may be excluded by way of collective agreement or sectoral determination.

Should the Company renew the Employees fixed term contract at least once, the expectation of permanent employment is created for the Employee, and he/she is then deemed permanent. This is also referred to as the contract “Rolling Over”. It is therefore of dire importance that Employers ensure that reasonable justification exists from the onset and further to implement necessary measures to ensure that the approval and duration of these contracts are effectively managed. This also needs to be communicated thoroughly.

Depriving an Employee of permanent employment status by disregarding the fact that the position is actually permanent in nature, is not only illegal but unethical too. We need to consider this holistically in terms of granting benefits equally and further the possibility of efficiently functioning in society without proof of permanent employment. Should an Employee not perform according to the expected standard or embark on any form of misconduct/unacceptable behavior in terms of Company policy, the Employer has the prerogative to initiate the appropriate disciplinary or corrective process with such an Employee.

In conclusion, permanent employment should not be avoided out of fear for this very reason as the Employer will have recourse should sound grounds exist. In cases where justifiable reason does exist as listed above, the Employer will not be at any risk of claims in terms of permanent employment expectations being created.

For more information regarding the appropriate use of fixed term contracts, please contact the LabourNet Helpdesk at 0861 LABNET (0861 522638).

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