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FIXED-TERM CONTRACTS: DO FREQUENT RENEWALS RESULT IN PERMANENT STATUS?
Many employers believe that someone who has been appointed on a fixed-term (or temporary) contract has to be appointed permanently after a certain number of renewals. Unless the employer has a policy that requires this, or has promised the individual that he/she would do so, there is no legal rule that compels the employer to appoint anybody permanently.
A fixed-term contract is one that commences on a given date and automatically ends on a future, agreed upon date, or once an agreed upon event occurs, e.g. the completion of a project or the return of someone from maternity leave. It differs from a permanent contract in that the permanent employee is appointed for an indefinite period. The contract in this case does not end automatically, but must be brought to an end on account of e.g. dismissal by the employer or the resignation of the employee.
A fixed-term contract is the ideal where the nature of the job is of short duration. However, employers often use fixed-term contracts as a way of getting rid of employees without having to comply with fair dismissal requirements. They would simply tell the employee, at the end of the contract term, that her/his services are no longer required. Informing the employee that the contract term is coming to an end is simply a matter of courtesy. While this would be quite legitimate if the position is truly of a temporary nature, problems arise where the employer has given the employee reason to believe that the contract would be renewed.
Whether this is indeed so is always a factual question, but if the fixed-term employee can prove such a ‘reasonable’ expectation, the employer could be taken to the CCMA for unfair dismissal. The repeated renewal of a contract does not necessarily create a reasonable expectation of renewal, provided that there is a sound underlying operational reason for each successive renewal to be for a limited duration only.
Where an employee has a reasonable expectation that the contract will be renewed, the employer would have to prove that he/she had a good reason for not renewing the contract (based on the employee’s conduct, capacity or the employer’s operational requirements) and that the employer had followed fair process before he/she made that decision. If the employer cannot prove this, he/she might find that the employee is either reinstated with back pay for a further period, or entitled to compensation for unfair dismissal.
It is also important to note that the intention of a fixed-term contract is that the employer and the employee intend to work together for the entire period. The employer should include a clause in the contract that spells out that, despite this intention, the employer may terminate the contract prematurely for reasons of misconduct, incapacity or the employer’s operational requirements. Appropriate notice periods should also be stipulated.
The best rule of thumb to avoid unnecessary trouble with fixed-term contracts is to avoid appointing people on a fixed term unless the position is of a truly temporary nature.
If the employer is uncertain whether one of his/her fixed-term employees might be able to prove a ‘reasonable expectation’ of renewal, the best policy then is to terminate the contract in the same way the employer would terminate the contract of a permanent employee, i.e. make sure the employer has a good reason for not renewing the contract and apply the procedure appropriate to that reason. For example, if the reason for non-renewal is the employee’s performance, make sure that the employer has counselled the employee and that the employer gives her/him a hearing before deciding not to renew the contract. If the reason is misconduct, make sure that the misconduct is serious enough to warrant dismissal (non-renewal) and that a disciplinary enquiry is held into the incident.
Barney Jordaan of Maserumule Employment Consultancy (Pty) Ltd for www.labourwise.co.za