One of the most important changes to the Labour Relations Act (the Act), which came into effect on 1 January 2015, is the added protection afforded to employees on fixed-term contracts. While some employers and employees are not directly affected, the impact will be far reaching and employers are encouraged to review their current contracts and practices to ensure compliance.
The relevant provisions, which are contained in a new Section 198B of the Act, are be summarised below.
What is a fixed-term contract?
A ‘fixed-term contract’ is defined in the Act as a contract of employment that terminates on –
(a) the occurrence of a specified event;
(b) the completion of a specified task or project; or
(c) a fixed date other than an employee’s normal or agreed retirement age.
Fixed-term employment beyond 3 months
The real impact of the amendments relates to fixed-term contracts that are for a period of longer than 3 months. For such contracts to be enforceable there are three main requirements that have to be met. Firstly, the nature of the work must be for a limited duration or there must be some other justifiable reason for fixing the term of the contract. Secondly, the fixed-term contract must be in writing. Thirdly, the contract must specify the ‘justifiable reason’.
A dispute would typically arise in the context of termination of employment. Should the employer fail to prove that the requirements mentioned above have been met, the employee will be regarded as having been employed on an indefinite (permanent) basis. In these circumstances there is a good chance that the employee’s services would not have been terminated for a fair reason and it is unlikely that the requirements of a fair procedure (for misconduct, incapacity or operational requirements) would have been met. The potential adverse implications for the employer should therefore be obvious.
What is a justifiable reason?
Section 198B of the Act lists examples of ‘justifiable reasons’ for employing someone for a fixed-term period of longer then 3 months. These are:
(a) Replacing another employee who is temporarily absent from work;
(b) A temporary increase in work volume which is not expected to endure beyond 12 months;
(c) A student or recent graduate who is employed to undergo training or gain work experience;
(d) Exclusive work on a specific project that has a limited or defined duration;
(e) A non-citizen who has been granted a temporary work permit;
(f) Seasonal work;
(g) An official public works scheme or similar public job creation scheme;
(h) The position is funded by an external source for a limited period;
(i) The employment of a person beyond the normal or agreed retirement age.
The above covers the obvious situations that come to mind, but there may be other justifiable reasons that have not been listed in the Act.
There are some additional provisions aimed at protecting employees on fixed-term contracts. Firstly, a person employed on a fixed-term contract for longer than 3 months, may not be treated less favourably than someone employed on a permanent basis performing the same or similar work, unless there is a justifiable reason for different treatment. (Part-time employees also enjoy protection against unfavourable treatment, but this, and the meaning of ‘justifiable reason’ in this context, will be discussed in a future contribution.) Secondly, employees on fixed-term contracts must also be given equal access to opportunities to apply for vacancies. Thirdly, where an employee is employed on a fixed-term contract exceeding 24 months, the employee would be entitled to severance pay upon termination. Fourthly, where the employer has failed to renew a fixed-term contract where there was a ‘reasonable expectation’ of such renewal (or where the employer offered to renew it on less favourable terms), the basis for an unfair dismissal claim has been extended to also include an expectation of indefinite employment – this is due to the amendment to the definition of dismissal in Section 186 of the Act. The onus to prove the expectation remains on the employee, though.
Fixed-term employment for 3 months or less
If someone is employed for 3 months or less, the provisions above do not apply. However, employees on shorter fixed-term contracts should continue to enjoy the protections that existed prior to the amendments. An employer may, for example, not abuse a fixed-term contract by using it as a substitute for probation. Another example is where an employee works beyond the expiry date of the contract without signing a new agreement - the employee could still successfully argue that employment has become indefinite. Furthermore, the provisions relating to a ‘reasonable expectation’ of renewal or permanent employment may also be relied upon by these employees.
Which employers are excluded?
Small businesses and their employees are generally not directly affected by section 198B of the Act. Employers that employ less than 10 employees, or employers that employ less than 50 employees and whose business has been in operation for less than two years, are excluded (but there are certain exceptions, e.g. an employer that conducts more than one business, or where an existing business dissolves and it results in the formation of more than one business). Some businesses may be specifically excluded from the effect of these amendments by the provisions of another statute, sectoral determination or collective agreement (for example, in a bargaining council).
Which employees are excluded?
The special protections afforded to employees on fixed-term contracts in terms of Section 198B do not apply to high earners. Employees who earn more than the relevant threshold determined by the Minister from time to time (currently R205433 per annum), are therefore excluded. However, high earners haven’t lost the protections that they previously enjoyed. For example, if there is no justifiable reason for appointing a high earning employee on a fixed-term contract, such employee is more likely to succeed with a claim based on a reasonable expectation of renewal or permanent employment. We therefore recommend that employers adopt a cautious approach by also applying the principles introduced by section 198B to high earners.
Implication of changes
There is likely to be a significant increase in disputes that are referred to the CCMA. These would include unfair dismissal disputes, as well as unfair labour disputes arising out of less favourable treatment of employees employed for a fixed-term or part-time.
Jan Truter of www.labourwise.co.za
www.labourwise.co.za is an on-line labour relations service aimed at assisting employers with the implementation of effective labour relations. They can be contacted via the website or email@example.com.