DOES THE NON-RENEWAL OF A FIXED TERM CONTRACT CONSTITUTE AN ACTIONABLE DISMISSAL IN TERMS OF THE LABOUR RELATIONS ACT?

 

A fixed term contract is a simple agreement between employer and employee which exists for a fixed period of time and terminates on a predetermined date. When a contract of this nature ends on the date determined from inception, there is legal certainty, with remedies to be found strictly within the confines of the law of contract. The legal uncertainty with regard to fixed term contracts occurs when the contract is renewed, as the agreement no longer ends at a certain date. It is in this situation, and in the face of a reasonable expectation of renewal, the employee’s employment relationship may transcend the contract itself and enjoy legislative protection.

These kinds of agreements exist as employers enjoy the flexibility they allow in industries where volatile markets may constantly require fluctuating levels of staff. These agreements have, however, been used by employers to avoid the legislative ‘red tape’ of the Labour Relations Act (“LRA”). The renewal of a contract indicates that an employer no longer requires that employee on a strictly contractual basis, and they use the guise of a contractual relationship to navigate and avoid the legal framework that governs formal employment.

The LRA now recognises the need for protection against an unjustified termination of a fixed term contract in the face of a reasonable expectation by the employee of renewal on the same or similar terms[1]. The definition of employee in South African Labour legislation is sufficiently broad to encompass a myriad of various forms of employment relationships[2], including those employed by fixed term contract. Section 186 (1) (b) of the LRA essentially asks two questions, was there a dismissal and if so, was this dismissal fair?

In order for a ‘dismissal’ to have occurred in terms of the Act, there must have been numerous renewals of the contract. These renewals and other factors mentioned below must create a reasonable expectation of further renewal. This ‘expectation’ comprises two elements: the subjective existence of the expectation by the specific employee, and the objective reasonability of that belief when tested against a reasonable standard having regard to all relevant factors[3]. Once it has been established that a dismissal has occurred, the focus of the enquiry then shifts to whether or not the dismissal was procedurally justified under the Labour Relations Act[4]. Some guidance from the courts suggest that “the terms of the contract, the past practice of renewals, the nature of employment, reason for the fixed term contract, any assurances that the contract would be renewed and a failure to give reasonable notice of non-renewal” are important factors to be taken into account in determining if the dismissal was procedurally fair or not.

The courts and CCMA will not always ‘come to the rescue’ of the employee should they fail to satisfy the required standard of reasonable expectations. In Muthwa & others / Ethikweni Municipality: Metro water[5], the employees argued that they had been dismissed after signing fixed term contracts under the impression that they would be employed permanently when these ended. The employer argued that there had been no dismissal and that the contracts had been entered into and ceased to exist on the specified dates. The contracts had therefore not been renewed. This could hardly be seen to have created a reasonable expectation of renewal.

The courts and CCMA value considerations of fairness and equity when looking at the context within which the termination takes place. Should the court find that the relationship satisfies the requisite standard, it will extend the protection of the LRA in the face of the cumulative value the various factors present in each case[6].

In essence the courts look at “the totality of the evidence together with the surrounding circumstances that serve to indicate whether or not there objectively existed a reasonable expectation”[7]. Two recent decisions of the CCMA highlight the inclusion above in that both the subjective existence of an expectation and objective reasonableness of such are examined to identify whether or not the protection of the Labour relations Act is to be extended to encroach on the contractual relationship between the parties.

In Baijnath / University of South Africa [8] the Applicant was employed by the Respondent in a succession of fixed term contracts for a period of 20 years. When his final contract was not renewed, the Applicant referred the matter to the CCMA claiming he had been unfairly dismissed on the basis that he had a reasonable expectation of renewal in terms of Section 186 (1)(b). The Respondent claimed that no dismissal had taken place. The Commissioner found that the true reason behind the Respondent’s non-renewal of the Applicant’s contract was that they had found his performance to be poor. The Commissioner found that the Applicant’s performance had not been poor, and that proper procedure had not been followed by the Respondent to train and counsel him had this been the case. He further decided that the applicant had a reasonable expectation of renewal of his contract and that the respondent could not adequately explain their reason for non-renewal. The applicant was awarded compensation equal to the remuneration he would have earned for the balance of his final contract – an amount of R3 245 475.

The above should be contrasted with another similar in Klusener / KZN Cricket (Pty) Ltd [9] The Applicant in this matter had been appointed as caretaker coach of the team in the 2012 season, after which he left the country to take up a position overseas. Upon his return to South Africa he was appointed permanently to the position for a period of two years, with each fixed term contract comprising a 12 month agreement between the parties. The Applicant’s contract was not renewed for a third year. He contended that the termination constituted a breach if his reasonable expectation of renewal. His expectation, he argued, was created by a promise made to him by the CEO of the KZN cricket board. The Commissioner found that the Applicant could not logically have expected the CEO to have the authority to make the appointment without consulting the board. The team had performed poorly in its latest season, an important factor in the Commissioner finding that the applicant could not sustain his arguments. The application was therefore dismissed and the termination upheld.

The competitive nature of the South African economy and the need to constantly adapt to volatile changes within the labour market mean that fixed term contracts are likely to remain a prevalent form of employment for the near future. The value-based approach of the courts and CCMA allows a dynamic balance to be struck between allowing parties to regulate their interactions through the law of contract, whilst ensuring that these forms of agreements are not abused as formal employment under the disguise of a contract. Legislation might yet be amended to ensure further certainty is enjoyed by this non-standard form of employment.

Written By: Robert Philip BA LLB (WITS)

[1] Labour Relations Amendment Act 6 of 2014s 38.

[2] SARPA obo brands and SA rugby Pty Ltd (2004) 13 CCMA 8.34.15

[3] SACTWU & another v Cadema Industries (Pty) ltd (2008) 17 LC 8.34.1

[4] A dismissal can be valid if it satisfies the procedural requirements under the Labour Relations Act.

[5] [2011] 20 SALGBC 9.9.5

[6] Cohen, T. When Common law and labour law collide –some problems arising out of the termination of fixed-term contracts (2007) 19 SA Merc LJ 26 – 43

[7] SACTWU & another v Cadema Industries (Pty) ltd (2008) 17 LC 8.34.1 [20]

[8] [2016] 12 BALR 1296 (CCMA)

[9] [2016] 12 BALR 1334 (CCMA)