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employment | 19 May 2020
ENSight

employment


When employees continue working after their fixed-term contract ends: a legal perspective

South African case law is replete with decisions where employees claim that they were unfairly dismissed because their employer failed to renew their fixed-term contracts. But what is the status of an employee if a fixed-term contract expires and is not explicitly renewed, but the employee simply keeps on working and the employer continues to pay the employee? Is there a renewal of the fixed-term contract or is the employee now employed on an indefinite period contract?

A fixed-term contract automatically terminates on the occurrence of a specified event, upon completion of a specified task or project, or on a fixed date other than an employee’s normal or agreed retirement age. The fact that this type of employment terminates automatically without a dismissal taking place means that it can be utilised to evade the provisions of the Labour Relations Act, 1995 (“LRA”) prohibiting unfair dismissal.

To counter this possibility, the LRA states that a dismissal takes place if an employee party to a fixed-term contract has a reasonable expectation that the contract will be renewed on the same or similar terms, or that he or she will continue to be employed on an indefinite basis, but the employer does not renew the contract or does not offer to retain the employee. Section 198B of the LRA also states that an employer may only employ an employee (who earns less that the threshold amount of ZAR205 433.30 per annum, as per the Basic Conditions of Employment Act) on a fixed-term contract of more than three months if the nature of the work the employee will perform is of a limited or definite duration, or the employer can show any other justifiable reason for concluding a fixed-term contract. It then goes on to list a number of situations where it will be justifiable to conclude a fixed-term contract.  The failure to comply with these provisions results in the employee being regarded as being employed for an indefinite duration.

In Owen and others v Department of Health, KwaZulu-Natal the applicants’ legal representative (relying on a previous edition of Grogan’s Dismissal) argued that, if an employee continues to work after the expiry of the fixed-term contract, the contract is deemed to have been tacitly renewed on the same terms, but for an indefinite period of time. The Labour Court held that although this approach is commendable in principle, the facts and circumstances of the case will determine the status of the employee. This approach has been accepted in at least two arbitration awards, such as Manikus v Genrec and Mbatha and Others v KZN Legislature.  

Recently, the question came before the Labour Appeal Court in Ukweza Holdings (Pty) Ltd v Nyondo and Others. In this case, the employee was employed as a project manager on a fixed-term contract from 11 December 2014 until 31 December 2014. The employee continued working after the contract expired on 31 December 2014. In mid-January 2015, the employer extended his contract until 31 January 2015. During this period, the employee learned that his post was being advertised. He applied for the position but was informed that his application had been unsuccessful.  The employee then received a notice of termination of employment on 3 February 2015. He argued that this constituted a dismissal and that the dismissal was unfair. He referred a dispute to the Commission for Conciliation, Mediation and Arbitration (“CCMA”) on the basis that he had become a permanent employee when he continued to work beyond the expiry of the fixed-term contract.

A CCMA commissioner found that the fixed-term contract ended on 31 January 2015 and that the notice of termination issued on 3 February 2015 could not be for a contract that had already expired. The commissioner therefore found that the employee was employed on an indefinite contract from 1 February 2015 and that he had been dismissed.

The Labour Court dismissed an application to review the decision.

On appeal, the Labour Appeal Court (“LAC”) found this approach was “too technical” and held that it failed to consider the “real and practical way in which the parties dealt with each other”.

The facts were that the employee knew that other candidates were being considered for the position and had asked to be considered as well. He raised no issue with this until he received the termination notice. On this basis, it could not be argued that the employee held a legitimate expectation of permanent employment.

In the LAC’s view, the facts indicated that the contract terminated automatically on 31 January 2015 and there had been no dismissal. The employee had not been required to work after 31 January 2015. The employer had given notice of termination of employment in the mistaken belief that this was necessary.  It said the following in this regard:

[15] In my view, the fixed term contact ended on 31 January 2015. The fact that the appellant did not inform the employee prior to the expiry of the contract that the contract will not be renewed or extended or that it will be coming to an end does not mean that it is either automatically extended or that the employment has become permanent, unless provisions of the law specifically provided for that.

The Ukweza decision supports the view that if an employee continues working after the date of expiry of the fixed-term contract, this does not necessarily mean that he or she automatically becomes a “permanent” employee. The specific facts of the case will determine what the nature of the relationship is after the expiry of the contract.   

Finally, it should be noted that this decision does not refer to section 198B of the LRA. This was probably because the employee earned above the threshold referred to above or because the parties and the LAC were of the view that this section was not in force at the relevant time.

Reviewed by Peter le Roux, an executive Consultant in ENSafrica’s Employment Department.

Dalene Moodley
Candidate Attorney | Employment
dmoodley@ENSafrica.com
+27 84 383 0393