What about Fixed Term Employment Contracts?

A few remarks on this much misused and abused form of contract

Many employers utilize the Fixed Term Contract purely as a means of evading their statutory obligations in terms of the BCEA and the LRA and the EEA, and to save money by denying the employee the opportunity of pension/provident fund benefits and also medical aid benefits. Further, in the event of retrenchments, the employee on a fixed term contract is robbed of his/her severance pay.  The unscrupulous employers who do this range from small “one-man” operations right up to huge corporate organizations.

The practice is reprehensible and employers who exploit employees in this way should hang their heads in shame and should be put out of business. It amounts to nothing less than outright fraud at the expense of the employee.  A fixed term contract is exactly what the name implies.  It is a contract which runs from one specified date to another specified date. Upon the second date being realized, the contract (and thus the employment relationship) is terminated and the employee joins the ranks of the unemployed.

Put differently, it is a contract, the duration of which is agreed in advance between the employer and the employee. The “fixed term” element can also be not a specified date or dates but can be specified as the completion of a specific project, the actual date of completion being uncertain. The danger in fixed term contracts comes when the employer continues to renew the contract every time it expires – commonly known as “rolling over” the contract.

The employee says nothing because he/she needs the job, and the employer KNOWS that the employee needs the job. However, after the contract has been rolled over for the third or fourth time, the employee now has what is known as “the right of expectation.” This means that, because the employer has introduced the practice of “rolling over” the contract every time it expires, the employee now has the right to expect that such a situation will continue.

And when the employer suddenly fails to roll over the contract for the umpteenth time, the employee is dismissed and takes the employer to the CCMA for unfair dismissal – and what is more, the CCMA will find in favour of the applicant!! Let me tell you that it makes no difference whatsoever for the contract to contain the clause “the employee acknowledges that he/she has no right of expectation in this contract and has no expectation that the contract will be renewed on expiry.”

The fact that the employer then continues to roll over the contract 6 or 7 or more times, negates that clause completely. Any employer who finds themselves “paying up” under these circumstances deserves what they get. This is not to say that it is forbidden for an employer to ever roll over a fixed term contract. The employer can do this, say once or at the most twice. If the contract has to be rolled over more than that, then it is either plain bad management, or the position must be declared permanent.

I personally know of many employees who have been working on rolled over contracts for as long as 6 years – the employers excuse being that “it is not yet decided whether or not to make that post a permanent one” I know of one employer who has 28 such employees!!!  If the employer can’t make up his mind in 6 years, then he should not be in business – he does not know what he is doing. And of course, remember that for 6 years these employees have been denied benefits under the BCEA, have been denied pension benefits and have been denied medical aid benefits.

Use a fixed term contract by all means. But use it for its intended purpose. Don’t rob employees of their just entitlement. If you do, you are playing with fire. If the employer fails to renew a fixed term contract, but allows the employment relationship to continue, then the employee has every right to expect that the relationship is now permanent, and they have the right to claim any benefits such as pension, medical aid and so on.

This means that the contract will be deemed to have been tacitly renewed on the same terms, except that the relationship will now be of a permanent duration. This means that failure to renew a fixed term contract does not automatically mean that the employment relationship is terminated. Once this happens, the contract may only be terminated by the employee’s resignation, death, or by dismissal. The relationship cannot now be on grounds of expiry of contract because the contract, having now become permanent, no longer has an expiry date.

The employer may not, after having failed to renew a fixed term contract, suddenly come along and renew the contract in arrears. In other words, if the contract expired a year ago and this fact is suddenly realized by the employer, he cannot come along with a renewal dated a year ago on the date which the contract expired. The more frequently an employer rolls over a fixed term contract, the more reasonable becomes the employee’s expectation that it will continue to be rolled over in the future.

Again, this does not mean that the employer cannot renew a fixed term contract – it does mean that it becomes more likely, with each continued roll-over, that the employment relationship has become more permanent with each renewal of contract. There seems to be an amazing number of employers out there who still seem to believe that they can employee a person on a fixed term contract and continue to roll over or renew the contract each time it expires, without placing the “contractor” onto permanent staff.

Employers refer to these people as “independent contractors”, but they do not even come within 100 miles of that classification. Some employers even deduct P.A.Y.E. and medical aid and pension contributions and u.i.f. contributions from the salary of these “independent contractors”, but yet when it comes to retrenchment they deny the “contractor” a severance package “because he is a contractor and not an employee” and when it comes to dismissal, they simply terminate the contract.

The action in the foregoing paragraph constitutes an unfair dismissal and any employee who exploits employees in this way deserves nothing short of being found guilty and made to pay the penalty to the fullest extent that the law allows. This is a highly dangerous practice. Section 200A of the Labour Relations Act makes it abundantly clear that this practice is taboo.

An independent contractor is the electrician that you phone when your lights fail. He comes in, quotes you for the job and carries out the work. On completion of the work, he give you an invoice, you pay him and he goes away to his next job. Your contract with him is ended until you need his services again, whereupon you will enter into a new contract with him. An independent contractor is not a person to whom every single one of the conditions stipulated in Section 200A of the LRA applies.

A fixed term contract can run from one specific date to another specific date. Upon the second date being attained, the contract ends, and the employee goes. End of story. At the very best, the contract may be renewed for a second similar period, the employee must be informed in writing that there will be no further renewals, and upon the expiry of the contract it must be terminated, and the employee is now unemployed.

Many employers even put in the contract a clause which states that the contract will not be renewed, that the employee has no right of expectation regarding renewal, and yet the employer continues to roll over the contract for the next 5 to 8 years!!!!!

Just how “temporary” is “temporary”?? If that does not create an expectation of renewal in the employee, then please tell me what does???? There are employers who, upon being approached by the employee regarding permanent employment, tell the employee that “we have not yet decided whether or not to make that a permanent position.”  And they blithely make this statement after the contract has been continually rolled over for the past 8 years!

Just how long does the need to make this earth-shattering decision?? I contend that if management cannot make such a simple decision after deliberating the matter for 8 years, they are either stupid or just plain dumb – and have no right to be in business exploiting employees in that way. The position is that, should any ONE of the conditions stipulated in section 200A of the L.R.A. apply, then that person is an employee – there is no argument and it is not negotiable.

Employers must clearly understand that to disguise what is actually permanent employment in the form of a fixed term or temporary contract is not only illegal, it is a despicable practice and amounts to nothing more than fraud and exploitation of the hapless employee. Employers engage in this practice not because they have a genuine need for a temporary employee, but because it enables the employer to escape his statutory and contractual duties and obligations – such as having to pay medical aid, pension and u.i.f. contributions for the employee, with the subsequent reduction of admin work for the employer.

In many cases the employee is denied annual leave, sick leave and family responsibility leave privileges, and the employee is too frightened to say anything because he/she needs the job. Employers would be well advised to stay far away from these illegal practices – or face the consequences.  And that is the end of the story, and hopefully the end of the fraudulent fixed term and temporary contract.

By: The South African Labour Guide