A fixed-term employment contract becomes permanent

There is a commonly-held belief among employees and certain HR practitioners that a fixed-term employment contract becomes permanent after a certain number of renewals. This article examines whether or not there is any truth to this.

There are two provisions of the Labour Relations Act that are relevant to this issue.

Firstly, section 186 of the Labour Relations Act defines the notion of “dismissal”. This definition is important because it is only if an employee is dismissed, that he or she may pursue an unfair dismissal claim against the employer.

The definition of dismissal includes a provision (in section 186(1)(b)) that dismissal means that an 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 at all. In other words, where there was a reasonable expectation of renewal which the employer did not fulfil, this may constitute a dismissal.

Secondly, section 198B of the Labour Relations Act was introduced into our law as part of the amendments which came into effect on 1 January 2015.

The section provides for additional protections for fixed-term employees where the following conditions are met:

1. The employer must not employ less than ten employees or less than 50 in the case of businesses that have been in operation for less than two years unless the business was formed by dissolution or division of an existing business or where the employer conducts more than one business.
2. The employee must be earning less than R205,433 per year (the current earnings threshold requirement of the BCEA)
3. The fixed term contract must not qualify as fixed term work as permitted by any statute or collective agreement.

Section 198B(3) provides that provides that an employer may only employ an employee on a fixed-term contract or on successive fixed-term contracts for longer than three months if the nature of the work for which the employee is employed is of a limited or definite duration or if the employer can demonstrate any other justifiable reason for fixing the term of the contract.

Section 198B(5) provides that “Employment in terms of a fixed-term contract  concluded or renewed in contravention of subsection (3) is deemed to be of indefinite duration.”

The effect of these sections is that a fixed-term employment contract becomes permanent automatically if:

1. section 198B applies to the employee (based on the 3 conditions detailed above); and
2. the employer employs him/her on a fixed-term contract or on successive fixed-term contracts for longer than three months, despite the fact that the nature of the work for which the employee is employed is not of a limited or definite duration (for example, for the completion of a specific project).

If those conditions are met, the employment is deemed to be indefinite unless the employer can demonstrate any other justifiable reason for fixing the term of the contract.

Examples of justifiable reasons for fixing the term of the contract, include situations where 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.

Where the employer is unable to advance a valid ground of justification, the fixed-term employment contract becomes permanent automatically.