Fixed Term Agreements
Johanette Rheeder

The controversy about A-typical agreements and more particularly fixed term agreements is hotly debated and surely to be part of the legislative changes envisaged for the near future. Various CCMA cases in 2010 dealt again with the question of renewal of fixed term agreements, legitimate expectations and dismissal of fixed term employees.

In Mthembu / Trans Caledon Tunnel Authority (2009) 18 CCMA 7.1.12 and [2009] 9 BALR 934 (CCMA), the employer set a condition to the renewal of the contact which condition was adhered to by the employee. Just before the applicant’s five year fixed-term contract as the respondent’s CEO expired, the board offered the applicant a six-month extension, which she accepted.
After that, the relationship between the applicant and the chairman of the board deteriorated. At a meeting held in the applicant’s absence, the board withdrew the offer of the extended fixed-term contract. The applicant claimed that she had a reasonable expectation that the contract would be renewed, and claimed compensation.
The documents proved that the board had resolved to extend the applicant’s contract, subject only to the condition that her performance was satisfactory. There was no indication that the applicant had not satisfied that condition. The commissioner accordingly ruled that the applicant had a reasonable expectation that the contract would be renewed, and that she had accordingly been dismissed.

As to the fairness of the dismissal, the commissioner noted that the respondent had conducted a performance appraisal only after the applicant had been dismissed, and had paid her a performance bonus. There was no evidence that the applicant was underperforming or had in any way failed to properly discharge her duties.

In fact, the true reason for the dismissal was that the applicant had submitted a grievance to the board, which had taken umbrage and decided to terminate the employment relationship. The dismissal was also procedurally unfair because the applicant had not been given any hearing.
Employees bear the burden of proof to show a legitimate expectation of renewal. In Kgaile / Senforce Security Services - (2010) 19 CCMA 7.1.9 the applicant, a security guard, claimed that he was unfairly retrenched when he was removed from the premises of one of the respondent’s clients and his salary was stopped. The respondent claimed that the employee was employed on a fixed-term contract, which had expired. The commissioner noted that the employee had signed a contract which set a specific date for termination. That date had arrived.

The LRA provides that a dismissal occurs on the expiry of a fixed-term contract only if the employee has acquired a reasonable expectation that it will be renewed. The only evidence led by the employee in this regard was a vague allusion to somebody having indicated that his contract might be renewed. However, the employee conceded that he had signed the contract, which contained a specific provision that there could be no expectation of renewal. The employee had accordingly failed to prove that he was dismissed.

In Macholo v Nice (2010) 19 CCMA 8.34.2 and [2010] 7 BALR 730 (CCMA) the employer committed one of the bigger sins of fixed term agreements and incorrectly thought it is going to get away with it. The applicant, a sales assistant, was employed for nearly three years on successive three-month fixed-term contracts, the last of which was not renewed.
The commissioner mentioned that there appears to be a general conception from (some) employers that they are legally entitled to appoint employees on a temporarily (fixed-term) basis for as long as they wish. In many of these cases, this form of employment is an endeavour to escape the application of our labour laws. In Biggs v Rand Water (2003) 24 ILJ 1957 (LC), the court held as follows:
“Sec 186(1)(b) was included in the LRA to prevent the unfair practice of keeping an employee on a temporary basis without employment security until it suits the employer to dismiss such an employee without the unpleasant obligations imposed on the employer by the LRA in respect of permanent employees.” Even in bona fide appointments on a fixed-term contract of employment, does not mean that an employer has the legal right to simply terminate the employment relationship at will. Our Legislator has specifically introduced section 186(1)(b) of the LRA to govern these situations.

The commissioner noted that the common law situation of a fixed-term contract of employment expiring ex lege (automatically by law) at the end of the period, has been changed with the inception of section 186 of the LRA - the legal position has changed dramatically. Section 186 of the LRA now puts it beyond doubt that, in certain circumstances, an employer will not be entitled to rely on the automatic termination doctrine which generally governed the termination of employment contract by force of law (ex lege). That will be the case where the employee had a reasonable expectation of renewal. The question to be asked is whether the constant renewal of the fixed term agreement constitutes such a legitimate expectation?

It is possible that the relationship between employer and employee could be construed as aiming at a permanent duration, despite an official description to the contrary in an agreement. (See SACTWU v Mediterranean Woollen Mills (Pty) Ltd (1995) 4 ILJ 889 at 291 (LAC) [also reported at [1995] 3 BLLR 24 (LAC). It is thus now settled law that the employment relationship does not necessarily terminate at the formal expiry of a contract of employment within the meaning of section 186(1)(b). It also follows that the employee must have had a reasonable expectation of renewal of the fixed-term contract: this is a jurisdictional fact that must be proven by the employee in terms of section 192(1).

Grogan: Workplace Law summarise the legal position where he stated as follows:
“The notion of reasonable expectation clearly suggests an objective test: the employee must prove the existence of facts that . . . would lead a reasonable person to anticipate renewal. The facts that found a reasonable expectation will clearly differ from case to case but will most commonly take the form of some prior promise or past practice – e.g., where the employer habitually renewed the contract.

That a fixed long term contract has been renewed a number of times is not in itself indicative of the existence of a reasonable expectation of renewal; whether there was a reasonable expectation of renewal must be determined from the perspective of both the employer and the employee. The conduct of the employer in dealing with the relationship, what the employer said to the employee at the time the contract was concluded or thereafter, and the motive for terminating the relationship has been cited as factors to be considered.”

The next important case is that of Sindane /Prestige Cleaning Services (2009) 18 LC 5.3.3 and [2009] 12 BLLR 1249 (LC). This case dealt with the fixed term agreement often used by labour brokers and contractors, where the contract automatically terminates upon termination of the agreement with a client. When one of the respondent’s clients scaled down its cleaning requirements, the services of the applicant and a colleague were terminated. The respondent claimed that his services had terminated according to the terms of his fixed-term contract, which provided that it would last only while the client required his services, and denied that the applicant had been dismissed.

The first question in this type of case which has to be considered is whether or not there was a “dismissal” as contemplated by section 186(1)(a) the Labour Relations Act 66 of 1995 (“the LRA”). If there is not dismissal then the employee has no case. The employer here argued that there was no dismissal as the contract of employment makes provision for the simultaneous termination of the employment contract of the employee when the cleaning contract with a client terminates or when it is reduced. If this argument is to be accepted it would mean that an employer may make the termination of a contract of employment dependent upon a future circumscribed or specific event, such as the termination of another contract.

When this event takes place the contract of employment will automatically come to an end and the court would not have jurisdiction. The court then considered the question as to whether this type of termination of contract is acceptable, therefore not constituting a dismissal. The court found yes, after it considered and distinguished itself from the decision in SA Post Office Ltd v Mampeule [2009] 8 BLLR 792 (LC). The reason for the termination of the employee in the SA Post office case was not linked to a particular period, or as is applicable in this case, an eventuality, which gives automatic rise to the termination of the employment contract, as contemplated and being applicable to fixed-term employment contracts.

In the SAPO matter the facts were a bit different. SAPO sought an order that the termination of a certain employee’s (hereinafter referred to as “KM”) employment, as a direct result of his removal from SAPO’s board of directors, does not constitute a dismissal for purposes of section 186(1)(a) of the LRA. This proposition was founded on a term of KM’s contract of employment read together with SAPO’s Articles of Association, to the effect that his removal from SAPO’s Board gave rise unavoidably to the automatic and simultaneous termination of his employment contract with SAPO.

KM was appointed as SAPO’s Chief Executive Officer on a 5-year fixed-term contract. In terms of the contract of employment the employment relationship could be terminated on any of four grounds, namely: (i) automatically upon expiry of the 5-year period; (ii) incapacity resulting from poor work performance or ill-health; (iii) misconduct; or (iv) SAPO’s operational requirements. The Minister of Communications suspended KM pending a forensic audit into his alleged misconduct. Subsequent thereto KM was removed as a director of SAPO. KM was informed in writing that following his removal from SAPO’s Board, his employment contract has terminated automatically and simultaneously with his removal as a director.

In this case the judge ruled that KM was dismissed by SAPO. The court found that the employment contract of KM permitted automatic termination as alleged by SAPO, the question however is whether that is permissible in law? The court found that the terms of KM’s employment contract cannot be divorced from SAPO’s act of removing KM from the Board for reasons related to misconduct. The court held that this type of automatic termination clause is impermissible and cannot be invoked to correct the effect of the Minister’s overt act of removal from the board and concluded that the termination of KM’s contract of employment pursuant to a contractual term in his employment contract read together with the Articles of Association of SAPO are impermissible as it acts contra to the provisions of Schedule 8 of the LRA, and possibly even, the concomitant constitutional right to fair labour practices. Provisions of this sort are against public policy. The effect of this clause was to dismiss him for reasons related to misconduct and he did not have the right to defend himself against the allegations.

In WESUSA obo Radebe & another / Whiraway Trading 115 t/a Thuto Ke Lefa Training CC (2010) 19 CCMA 8.34.3 and [2010] 8 BALR 902 (CCMA) The commissioner noted that employers can no longer rely on the automatic termination of fixed-term contracts, as they could do under the common law. Moreover, it appeared that the contracts, read as a whole, were not true fixed-term contracts, because they provided for a period of probation, annual salary reviews and annual bonuses. Whether the employees were employed indefinitely or they whether were on fixed-term contracts, the dismissals were substantively and procedurally unfair.

Some pointers:
First of all it should be noted that it is trite law that the employment relationship does not necessarily terminate at the formal expiry of a contract of employment or a date mentioned in the fixed term contract. Employers cannot avail themselves to this common law principle any more. If an employee has a reasonable expectation of renewal of the fixed-term contract then the termination is a dismissal in terms of the Act.

A fixed term agreement does not mean that the employer can always rely on an end date. Due to the conduct of the parties, it is possible that the relationship between employer and employee could be construed as a permanent duration, despite an official description to the contrary in an agreement. Constant renewal for a long period such as a year or two years may be enough grounds to change the relationship from temporary to permanent. See SACTWU v Mediterranean Woollen Mills (Pty) Ltd (1995) 16 ILJ 366 (LAC) at 291 [also reported at [1995] 3 BLLR 24 (LAC). It also follows that the basis on which an employee is employed, can change. However, if the change allegedly entails that a contract of an indefinite duration or temporary status has been replaced by a fixed-term contract, quite a heavy onus rests on the employer to prove the cancellation of the normal employment contract by agreement and novation.

An employee must show that the expectation is reasonable. A legitimate expectation is a fact that must be proven by the employee in terms of section 192(1). It requires an objective test: the employee must prove the existence of facts that would lead a reasonable person to anticipate renewal. The expectation cannot be based on the subjective say-so or perception of the employee. It is the totality of the evidence together with the surrounding circumstances that serves to indicate whether or not, objectively there existed a reasonable expectation on the part of an employee.

The facts supporting a reasonable expectation will clearly differ from case to case but will most commonly take the form of some prior promise or past practice by the employer such as the habitually renewed of the contract. This also includes an approach involving the evaluation of all the surrounding circumstances, the significance, or otherwise of the contractual stipulation, agreements, undertakings by the employer, or practice or custom in regard to renewal or re-employment, the availability of the post, the purpose of or reason for concluding the fixed-term contract, inconsistent conduct, failure to give reasonable notice, and the nature of employer’s business.

This requires clear communication and clear and concise contract terms. Even if the contract stipulates that no renewal will take place, the employer can act contra to that and create a legitimate expectation. Communicate clearly, in writing and in time with employees about renewal or non renewal of contracts.

Do not make early promises.

Be careful of too many people communicating on behalf of the employer. Some expectations can be created by unguarded statements contra to the agreement with the employee.
Be careful to set conditions and not following up on those conditions. Setting conditions to renewal can create an expectation of renewal if the employee is not informed that he is not complying with the conditions. If performance is a condition, it should be dealt with before the expiry date of the agreement to ensure that the employee understands that the conditions of renewal have not been met.
The fact that a fixed long term contract has been renewed a number of times is not in itself indicative of the existence of a reasonable expectation of renewal; -whether there was a reasonable expectation of renewal must be determined from the perspective of both the employer and the employee at the beginning and during the course of the relationship.

Continuous renewal is a dangerous practice and may be but one factor leading to permanence or legitimate expectation.
Communication is a safe way to ensure fair conduct. In the case of a fixed term agreement depending on an event such as the cancellation of clients’ contracts, hold meetings to duly inform the employees of the scaling down of the contract with the client or the cancellation and ensure that they understand that it would result in the employment contract of the employees being terminated as contractually stipulated. Allow representation at these meetings and allow the employees to make proposals. Give fair notice of the cancellation.

It is accepted that apart from a resignation by an employee an employment contract can be terminated in a number of ways which do not constitute a dismissal as defined in section 186(1) of the LRA, and more particularly, in terms of section 186(1)(a). These circumstances include the following: (i) The death of the employee; (ii) The natural expiry of a fixed-term employment contract entered into for a specific period, or upon the happening of a particular event, for example the conclusion of a project or contract between an employer and a third party.

In the first instance, if the fixed-term employment contract is, for example, entered into for a period of six months with a contractual stipulation that the contract will automatically terminate on the expiry date, the fixed-term employment contract will naturally terminate on such expiry date, and the termination thereof will not constitute a “dismissal”, as the termination thereof has not been occasioned by an act of the employer. In other words, the proximate cause of the termination of employment is not an act by the employer.

The same holds true for a fixed-term employment contract linked to the completion of a project or building contract. These fixed-term employment contracts are typical in circumstances where it is not possible to agree on a fixed time period of employment, i.e. a definitive start and end date, as it is not certain on what exact date the project or building contract will be completed, and hence, the termination date is stipulated to be the completion date of the project or building contract. Similarly as in a fixed-term employment contract with a stipulated time period, when a fixed-term employment contract linked to the completion of a project or building contract terminates, such termination will not (necessarily) be construed to be a dismissal as contemplated in section 186(1)(a). Thus, the contract terminates automatically when the termination date arrives, otherwise, it is no longer a fixed-term contract (SA Rugby (Pty) Ltd v CCMA & others (2006) 27 ILJ 1041 (LC) [also reported at [2006] 1 BLLR 27 (LC) – Ed] at 1044 paragraph [6].

Misconduct or incapacity cannot be used as a reason for termination, therefore be used as a fixed term in an agreement. The normal route in terms of the LRA must be used. It is trite in our law that an employee who is charged with misconduct has the right to the audi alteram partem. An employee cannot be deprived of the normal remedies in such circumstances.

Be careful for the terms of the contract. The contract, read as a whole, must be true fixed-term contracts, if it provides for terms such as a period of probation, annual salary reviews and annual bonuses, it will appear to be permanent contracts.

In terms of subsection 186(1)(b) above, it is firstly clear that the existence of a fixed-term contract must be established. This requires that the contract of employment for a fixed period, linked to a determined or determinably period or the completion of a particular task, must have been entered into. It is of no avail if only the employer holds the view that the contract is of a limited duration, while the employee in the absence of a (valid) written agreement is completely unaware thereof. See McKenzie v Econ Systems & another [1995] 1 BLLR 64 (IC); De Sousa v Wonder Air [1995] 2 BLLR 49 (IC).

Section 186(b) also implies that the refusal to renew a fixed-term contract under specific circumstances is a species of dismissal (dispute). See also Cremark a Division of Triple P-Chemical Ventures (Pty) Ltd v SACWU (1994) 15 ILJ 289 (LAC) where the Labour Appeal Court held that the termination of a fixed-term contracts of employment is no different from a termination of a contract on other grounds, i.e. misconduct, incapacity or operational requirements. What is required is that the termination must have been both procedurally and substantively fair/justified. In fact, the court confirmed that the employer did not have an unfettered discretion to renew or not renew, whatever the reason might have been. Substantive and procedural fairness is always a requirement, even if you want to cancel a fixed term contract.

Make sure the employee understands the terms of the contract.

For more information contact Johanette Rheeder Attorneys
www.jrattorneys.com