There are many different kinds of ‘atypical labour’’ and each carries with it specific obligations on the part of the employer. But perhaps the one most often abused and misused is the fixed-term contract. “Recently, fixed-term contracts have become a point of contention in law because of the fact that many employers have started to use them in order to avoid potential unfair dismissal liability,” says Peter Le Roux, director at Brink Cohen Le Roux Inc. And while there are instances where fixed-term contracts make sense from both an employer and employee point of view, employing someone on a fixed-term contract basis does not absolve employers of certain legal obligations. Understanding what these are is vital to ensuring that your company doesn’t end up on the wrong side of the law.
As its name suggests a fixed-term contract is one in which the duration of the contract has a definite start and finish, as agreed by the employer and the contractor. This can be determined either by actual dates, or on the basis of the start and completion of a specific project. This means that the contract naturally and automatically comes to an end when the date is reached, or when the specific project is completed. “Because the contract comes to an end with the effluxion of time, it is not deemed to be a dismissal and the Labour Relations Act (LRA) does therefore not apply,” explains Le Roux. In such instances, the employer is not required to give the contractor notice or go through a dismissal procedure. There is also no obligation on the part of the employer to afford the contractor the same benefits as are given to ordinary employees (things like medical aid cover).
“However, apart from the above a fixed -term contractor is treated in every other respect as an employee for the duration of the fixed-term contract and is protected by the Basic Conditions of Employment Act (BCEA) and the LRA. This means that the employer has certain legal obligations to the fixed-term contractor, as they would to ordinary employees,” explains Le Roux. For example, the contractor will accrue annual leave at the rate of one day for every 17 days worked, as well as sick leave. As the company is deemed to be the contractor’s employer for the period of the fixed-term contract, it is also its responsibility to pay PAYE contributions on behalf of the fixed-term contractor.
Renewals & Termination
There are a few other important areas to be aware of. One is the issue of renewals. If an employer creates a reasonable expectation that a contract is going to be renewed, and then does not renew the contract, they are guilty of unfair dismissal. For example, if a contract with the same terms and condition, is renewed every year, it creates a reasonable expectation that this will continue to be the case. If you renew a date-defined fixed-term contract because the project has not yet been completed, it can be argued that the contractor cannot reasonably expect the contract to be renewed again once the project is finished. (Incidentally, to avoid any confusion surrounding this issue, it’s probably wiser to determine the contract’s term based not on dates but on the start and end of a project). There is much debate about the number of renewals that create a ‘reasonable expectation’, and the courts will usually judge each case on its own merits, but to be on the safe side, be aware that whenyou have renewed a contract once, you are opening your company up to potential risk.
Its also important to be aware that if you continue to renew or roll over contracts each time they expire, you will not be protected by a clause typically included in fixed-term contracts stating that “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”. Once you create the expectation, you negate that clause.
It’s also important to be aware that, should a fixed-term contract need to be terminated for any reason other than the effluxion of time, you will need to comply with the Labour Relations Act in terms of fair dismissal procedure. For example, if the fixed-term contractor is guilty of misconduct (things like theft, sexual harassment, being under the influence of drugs or alcohol, or if they are not complying with the terms of the contract, you will need to go through the same process of dismissal as you would with an ordinary employee.
The purpose of these stipulations in law is to prevent unscrupulous employers from putting people who are to all intents and purposes employees, onto fixed-term contracts simply to avoid their obligations as set out in the LRA and BCEA. Understanding your fixed-term contractor’s rights, like understanding your employees’ rights, is the safest way to ensure you don’t expose your company to the risk of litigation.