HOW TO (BETTER) MANAGE THE EXPECTATIONS CREATED BY THE CONTINUOUS RENEWAL OF FIXED TERM EMPLOYMENT CONTRACTS
A fixed term contract should be used when the employee’s employment is for a “defined period of time” or for a specific task only. Once that task is completed and/or the time period ends, the contract is automatically terminated and the employer need not give any notice of termination.
In terms of s 186(b) of the Labour Relations Act 66/1995 (the LRA), ''dismissal" means that: 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.
The LRA envisages that the refusal or failure may take one of two forms:
the employer did not renew the contract; or
the renewal was qualified by an offer to renew it on less favourable terms.
An employee must prove that he/she had an expectation of renewal and that such expectation was reasonable in that, apart from his/her subjective say-so or perception, there is an objective basis for the creation of his/her expectation.
Our courts have found that the following factors may create a reasonable expectation of continued employment:
the purpose of or reason for entering into a fixed term contract;
the continued availability of the particular job or position beyond the expiry of the contract;
“rolling over” or renewing the contract on its expiry or allowing the employee to continue working on the contract’s expiry;
inconsistent conduct on the part of the employer, such as renewing some fixed term contracts but not others;
failure to give reasonable notice that the fixed term contract is not to be renewed;
the nature of the employer’s business, which may suggest continuity of employment;
a reasonable understanding on the part of the employee that the contract would be renewed;
an undertaking or agreement to renew - for example, if the employer has provided that, on expiry, the contract may be renewed for a further period;
a practice of past renewal;
the reason for terminating the relationship; and
whether the contract is of a type that, although couched in temporary terms, is in reality designed to conceal a permanent relationship in order to avoid obligations accruing to permanent employees in terms of the LRA.
These factors are not exhaustive. Indeed, an evaluation of all the surrounding circumstances is required for the purpose of establishing, on an objective basis, whether a reasonable expectation has come into existence, which entails an analysis of all the facts in any given situation.
The risk for the employer is that an employee who has been unfairly dismissed in terms of s186 (b) of the LRA may claim renewal of the contract or reinstatement and/or s/he could be awarded up to 12 months’ remuneration as compensation. Obviously the court will take into account the term of the contract in awarding compensation.
Owing to the risks involved, employers should ensure that they carefully manage the expectations created by the continuous renewal of fixed term contracts. Thus:
a fixed term contract should only be entered into if there is a good operational reason for doing so;
all fixed term contracts should be in writing;
employers should try to match the duration of the agreement to the operational purpose of the fixed term contract. If the period is uncertain because the employee is required to complete a task of a temporary nature, it may be better to link the duration to the completion of the task rather than to stipulate a termination date; alternatively, link the duration to the completion of the task or the completion of the fixed period, whichever occurs first;
the terms and conditions of the contract, in particular the question of continued employment upon expiry of the contract, must be stated in the contract, as well as the conditions under which the contract may be ended or terminated by the employer before the specified end date of the contract. In order not to be contractually obligated for the full contractual period of a fixed term contract or its extension, the employer should include a provision for the premature termination of the contract for reasons of misconduct, incapacity or the employer’s operational requirements;
fixed term contracts should not be renewed or extended without a good operational reason;
the employer should advise the employee of the reason for any renewal;
do not continuously roll over fixed term contracts. Employment must end upon the expiry of any limited duration contract, and if there is a need for further employment, then the parties must first record the renewal or extension in writing;
if it appears that the employee may have reason to expect renewal, this should be addressed at the earliest opportunity. In cases of doubt, it may be necessary to terminate the contract in the same manner as that of permanent employees;
there should be no unauthorised promises of renewal. All fixed term contract staff must be informed in writing of the identity or designation of the persons who are authorised to contract on the employer’s behalf;
where there will not be a renewal of the fixed term contract, advance warning must be given to the employee in writing.