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Can SMES Employ on Fixed-Term Contracts?

One of the most important changes to the Labour Relations Act 66 of 1995 (LRA), which came into effect on 1 January 2015, is the added protection it affords employees who are employed on fixed term contracts. A fixed term contract means a contract of employment that terminates on the occurrence of a specific event, the completion of a specified task or project, or a fixed date other than an employee’s normal or agreed retirement age.

What is the protection that fixed term employees enjoy?

Fixed-term employment contracts with lower earning employees are now limited to a 3 month period. After 3 months, the employee will be deemed to be an indefinite employee of the employer and will therefore be protected against unfair dismissal.

Income threshold

This protection, however, only applies to lower earning employees, which are employees who earn less than the prescribed earnings threshold. This threshold is currently R205,433.30 per annum. This means that employees earning more than the threshold will not enjoy the protections afforded by the LRA relating to fixed term contracts.

Which employers are exempted?

Employers should further take note that these protections will not apply to a small employer that employs less than 10 employees or to an employer that employs less than 50 employees and whose business has been in operation for less than 2 years (start-up business).

When can a fixed term agreement be extended beyond 3 months?

An employer may engage an employee on a fixed term contract for a period of longer than 3 months only if:

  • the nature of the work is of a limited or definite duration, for example where building will take longer than 3 months; or
  • the employer can demonstrate a “justifiable reason” for the longer term, for example employing a student or recent graduate for the purpose of gaining work experience.

Formalities of Entering or Renewing Fixed Terms Contracts

It is now a requirement that a fixed term contract or the renewal or extension of a fixed term contract must be in writing and must state the reason for fixing the term. If a dispute should arise regarding the fixed term contract, the employer will have to prove that there was a justifiable reason for fixing the term of the contract and that the term was agreed upon by the employer and the employee.

Additional Protections

Employees who are employed on a fixed term contract also enjoy the following additional protections -

  • Equal Treatment: where an employee is employed on a fixed term contract for longer than 3 months, such employee may not be treated less favourably that a permanent employee who is performing the same or similar work, unless there is a justifiable reason for the different treatment. This would mean that they are entitled to equal pay, equal benefits and equal leave entitlements. Factors to be taken into account when considering whether there if a “justifiable reason” for different treatment may include: seniority; experience; length of service; merit; quantity or quality of work performed; and any other non-discriminatory reason.
  • Equal Access: employers must ensure that they provide employees employed on fixed term contracts and employees employed on a permanent basis with equal access to opportunities to apply for vacancies at the employer.
  • End-of-term Payment: where an employee is employed on a fixed term contract which exceeds a period of 24 months, the employee would be entitled to severance pay upon termination which will be equal to one week’s pay for every completed year of service.
  • Reasonable Expectation of Renewal: where the employer has failed to renew a fixed term contract where the employee “reasonably expected” the employer to do so (or where the employer offered to renew it on less favourable terms), the basis for an unfair dismissal claim has been extended to also include an expectation of indefinite employment. However, the employee will have to prove the existence of such an expectation.

SMES can therefore employ on a fixed-term contract for a maximum period of 3 months, which period can only be extended under the circumstance as set out above. Should the fixed-term contract, however, be extended beyond 3 months, the employer must take note of all the benefits that the employee will enjoy.

 

Tags: Contracts
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