Terminating fixed-term contracts a headache

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Ivan Israelstam | Chief Executive | Labour Law Management Consulting | mail me |


It often happens that an employer needs to terminate fixed-term contracts prior to its natural expiry date because there is unexpectedly no more work for the temporary employees. This can be tricky.

The courts have traditionally taken into account four key factors when deciding whether a retrenchment is fair:

  • Was there a sufficient operational reason for the retrenchment or was the retrenchment a sham
  • Was a fair criterion used for choosing the employees to be dismissed or should other employees have been retrenched instead
  • Before deciding to retrench did the employer consult properly with the employees or trade union on measures to avoid or reduce the number of retrenchments
  • Did the employer give the employees or union all the information relevant to the retrenchment.

However, a fifth factor comes to the fore in the case of fixed-term employees.

In the landmark case of Buthelezi vs Municipal Demarcation Board (2005, 2 BLLR 115) the Labour Appeal Court found that retrenchment of an employee prior to the expiry of his/her fixed-term contract was unfair. In this case Mr Buthelezi had a five-year fixed-term contract with the Board but was retrenched one year after commencement. Prior to retrenchment he was invited to apply for an alternative post but was unsuccessful. The Labour Appeal Court found that the employer did not have the right to terminate the fixed-term contract before its natural expiry date.

This decision is most surprising because, where the job of a fixed-term employee genuinely becomes redundant what is the employer required to do? Did the Court expect the employer to keep the employee on its books and, despite the absence of work, continue to pay the employee for four years until the contract expired?

Labour law gives an employer the right to retrench for good reason.

The Court’s startling decision means that:

  • as regards retrenchment, a temporary employee with a fixed-term contract has stronger rights that a permanent employee
  • the practice of terminating the contracts of temporary employees in a retrenchment exercise as a means of saving permanent jobs needs to be urgently reviewed
  • the terms and wording of fixed-term contracts need to be radically revised
  • no employer should enter into or terminate a fixed-term contract before consulting with a labour law expert.

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