How can you justify your fixed-term contract?

Since the implementation of the amendments to the Labour Relations Act (LRA) in 2015, there have been several interesting judgments dealing with the justification for concluding a fixed-term contract of employment.

Earlier this year, Judge Steenkamp delivered judgment in the matter of AMCU and Another v Piet Wes Civils CC and Another (J2834/16, J2845/16) [2017] which further assists in clarifying the issue of fixed-term contracts.

Two employers, Piet Wes Civils CC and Waterkloof Skoonmaakdienste CC (the employers) contracted with Exxaro Coal (Exxaro) in order to provide various services to Exxaro until 2021. The employers then contracted a number of employees, on fixed-term contracts of employment, in order to carry out these services to Exxaro. The fixed-term contracts of employment included a clause which provided for automatic termination in the event that the commercial contract between Exxaro and the employers prematurely terminated. This meant that the fixed term contracts of employment would be in operation for as long as the contract with Exxaro remained in operation. By inclusion of this clause, the employers were of the view that these employment contracts constituted fixed-term contracts of employment.

During November 2016, Exarro terminated the commercial contracts with the employers by giving them one month’s notice. The employers then relied on the automatic termination clause in the fixed-term contracts of employment and terminated the employment relationship with their employees.    

The Association of Mineworkers and Construction Union (AMCU), which represented the employees, launched an urgent application to the Labour Court in terms of s189(13) of the LRA. AMCU contended that the employees were dismissed for operational requirements as envisaged by s189A of the LRA (retrenchments), and accordingly the employers were under an obligation to consult with the employees prior to termination of the employment relationship. In its application, AMCU requested the Labour Court to order reinstatement, therefore forcing the employers to engage in consultation
with the employees as envisaged in s189 of the LRA.

The employers argued that the employees were employed on fixed-term contracts, which was terminable on the occurrence of a specified event, namely the early termination of the commercial contract with Exarro, and as such s189 and 189A of the LRA was not applicable. The employers further argued that the fixed-term contracts of employment were governed by s198B of the LRA, which provides that employees may be employed on fixed term contracts or successive fixed-term contracts of employment for longer than three months if the nature of the work is for a limited duration or that the employer can demonstrate a justifiable reason for fixing the term of the contract.

The Labour Court found that the employers failed to demonstrate justifiable reasons as contemplated in s198B of the LRA as the fixed term contracts of employment were not for a specific project that had a limited duration. Exarro terminated its contract with the employers, which resulted in the automatic termination of the fixed-term contracts of employment. There was no evidence that a specific project had come to an end as envisaged by s198B of the LRA (being one of the justifiable reasons set out in the LRA).

The Labour Court reaffirmed the position that employers cannot terminate an employment contract at the behest of a third party as this undermines the employee’s right to fair labour practice entrenched in our Constitution. Consequently, the Labour Court concluded that these contracts of employment did not constitute fixed-term contracts in terms of s198B of the LRA and that s189A was applicable as there may be justifiable grounds for dismissing the employees for operational requirements. The Labour Court ordered the reinstatement of the employees and that the employers consult with them in accordance with the procedure prescribed under s189A of the LRA.

It is important for employers to ensure that they are able to justify the grounds for fixing a limited duration of employment and that there is full compliance with the relevant provisions of the LRA insofar as ensuring the protection of employees and avoiding any adverse orders of the Labour Court.

Zola Mcaciso and Samiksha Singh, Employment practice and services, Cliffe Dekker Hofmeyr.

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