Legitimate expectations in fix term agreements
Fixed term agreements are normally used when employers cannot provide the employee with permanent employment because the work the employee is performing is of a temporary nature.
Various types of abuse of this contract have resulted in section 186(1) (b) of the Labour Relations Act. Section 186(1) (b) determines that when 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, then it constitutes a dismissal.
This is a simple agreement in terms of which the employee will work until the work or project is finished or until a fixed period of time has run out. However, employers often end up in trouble when the agreement is renewed continuously for various reasons or expectations are created of permanency or renewal. Often, these agreements are also tacitly renewed for extended periods of time.
It is not uncommon to find a fixed term agreement of 3 or 6 months that has been renewed and the employee continuously working for the employer for a few years. The problems start when the employer gives notice to the employee of non renewal and the employee has an expectation that the agreement will be renewed yet again or even permanent employment will follow at some time.
The biggest risk this employer runs is a substantively or at least a procedurally unfair dismissal. The mere notice of non renewal does not comply with those procedural and substantive requirements. Once the employer has created the legitimate expectation of renewal, it becomes a dismissal and the employer must prove that there is a substantive fair reason not to renew and must also follow a fair procedure to inform the employee thereof.
Not all expectations are sufficient to past the test of the section. Firstly, the employer must have created the expectation through words, letters, documents or its conduct, which the employee must prove. It is an objective test and cannot depend only on the subjective “say so” or view of the employee.This suggests an objective test: the employee must prove the existence of facts that, in the ordinary course, would lead a reasonable person to anticipate renewal.
In Woolworths (Pty) Ltd v Whitehead 2000 (3) SA 529 (LAC) it was said that, as a legal concept, unfairness cannot exist in abstraction. A person's act or omission is unfair if it unfairly affects the rights or expectations (reasonable or legitimate) of another. There must be a causal connection between the act or omission complained of and an adverse effect on the rights or expectations of the person complaining of the unfair labour practice. Therefore, not only must the employee prove the expectation, but also that the expectation is a legitimate one and that the employer created it, which acts to his detriment.
The employees passed this test in the CCMA case of IDWU obo Mathebula & others v Band V Mining & Slabs (2010) 19 CCMA 8.34.5 the employees, worked for the employer on weekly fixed-term contracts for about eight months. When their final contract was not renewed, they claimed they had been unfairly dismissed, pointing out that three of their former colleagues were still in its employ. The employer claimed that retaining employees on short duration contracts was necessary because work in the building industry fluctuates, and that the employees’ contracts were not renewed because of a slump in demand for residential property.
The issue to be determined was whether the employees expected their contracts to be renewed and, if so, whether that expectation was reasonable. The commissioner found that there was no doubt that the employees expected their contracts to be renewed, since this had been done on a regular basis for a lengthy period.
The commissioner found that habitual renewal of the contracts also rendered their expectation reasonable. The employees had, accordingly, proved that the non-renewal of their fixed-term contracts constituted a dismissal. Since the employer had failed to prove its claim that there was insufficient work for the employees and because it had not consulted the employees, their dismissals were substantively and procedurally unfair. The employees were awarded compensation equal to four weeks wages.
However, before a person can determine whether renewals constitutes a legitimate expectation, it should be remembered that the fact that a fixed term contract has been renewed for a number of times is not in itself indicative of the existence of a reasonable expectation; Although it is risky, this cannot be seen in isolation and the question 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 or did at the time the contract was concluded or thereafter, and the motive for terminating the relationship will also play a role.
A question which has not finally been settled by our courts is whether this section also covers the situation where the employee claims a legitimate expectation of permanent employment? Various authorities and writers are of the view that it is covered by this section as well. Various authorities are also of the view that a reasonable expectation of renewal can exist even though the written contract of employment expressly stipulates that the employee fully understands that he has no expectation of the contract being renewed.
The Supreme Court of Appeal in Mediterranean Woollen Mills (Pty) Ltd v SA Clothing & Textile Workers Union 1998 (2) SA 1099 (SCA) and (1998) 19 ILJ 731 (SCA). Although the terms of the contract in this case were clear and explicit, and left no room for the entertainment of expectation of renewal, the court held that the assurances given to the workers outside the agreement clearly conveyed to them that they could entertain such expectations. The employer basically overruled its own agreement.
Can an employer create a legitimate expectation of permanent employment upon expiry of a fixed term probation? The court found in the affirmative in the case of Vorster v Rednave Enterprises CC t/a Cash Converters Queenswood (2008) 17 LC 8.29.3 and  JOL 22266 (LC). The problem the employer faces with fixed term probation is that it creates the impression that the employee will be permanently appointed if the employee performs sufficiently during the probation period. If the employer did not address any poor performance during this period, it will have great difficulty in arguing the substantive fair reason for the non renewal. In the current 2012 Labour Relations Amendment Act, the conflicting authorities have been cleared by adding to the section that an employee can not only claim an expectation of renewal but also claim a legitimate expectation for permanent employment.
The next question that arises is the remedy the employee can seek in terms of this section? In Tshongweni v Ekurhuleni Metropolitan Municipality (2010) 19 LC 6.9.1 and also reported in  10 BLLR 1105 (LC) it was confirmed that the remedy cannot exceed what the employee would have been entitled to in terms of the contract. The Court or the CCMA cannot create a new agreement for the parties.
In SEAWU v Trident Steel (1986) 7 ILJ 418 (IC), it was held that an order of reinstatement restores the original contract, it does not make a new one. According to Brassey, an award of reinstatement has the effect of regenerating the pre-existing employment relationship – “the court does not and cannot create a contract on new terms when it reinstates”. Similarly, Grogan states that “because reinstatement revives the original employment contract, the court and arbitrators cannot fashion new contracts when they order reinstatement”. This approach was recently confirmed by Molahlehi J in Cash Paymaster Services Northwest (Pty) Ltd v Commission for Conciliation, Mediation & Arbitration & others (2009) 30 ILJ 1587 (LC) [also reported at  5 BLLR 415 (LC), where the court dealt with a case of a fixed-term contract that was to terminate within a month of the arbitration hearing. The court held that the commissioner had a duty to establish the nature of the contract when deciding on a remedy, and that by making an order of reinstatement, and effectively extending the contract beyond its fixed term, the commissioner had exceeded her powers. The award was set aside and substituted with an award of compensation for the unexpired portion of the fixed-term contract.
For more information contact Johanette Rheeder
Johanette Rheeder attorneys