Understanding termination of fixed term contracts – Employment guide

By
Bites Editor
-
0
202

Termination of fixed term contracts often looks simple, yet it can quickly turn into an unfair dismissal dispute. This guide explains when a fixed-term contract ends “naturally”, when non-renewal becomes a dismissal, and what employers should do to reduce CCMA risk.

Disclaimer: This article offers general information, not legal advice. Always check your contract, policies, and any applicable collective agreement.

Key takeaways

  • Expiry of a fixed-term contract is not automatically a dismissal.
  • Non-renewal can become a dismissal if the employee had a reasonable expectation of renewal or retention.
  • Ending early is risky unless the contract allows it and you follow a fair process.
  • Employees earning below the BCEA earnings threshold get extra protection under section 198B.
  • Put renewal decisions in writing early, and avoid mixed messages.

What counts as a fixed-term contract

A fixed-term contract has a defined end point.

That end point may be:

  • a specific date (for example, “ends on 30 June 2026”);
  • a specific event (for example, “ends when the project closes”); or
  • the return of a permanent employee (for example, maternity cover).

In practice, disputes arise when fixed-term contracts get renewed repeatedly. They also arise when the employer promises renewal informally.

When a fixed-term contract ends automatically

Many fixed-term contracts end by “effluxion of time”. That simply means the agreed end date arrives, and the contract ends.

If the contract ends exactly as agreed, there is usually no dismissal. However, the facts still matter.

If the employer’s conduct created a reasonable expectation of renewal, the employee may argue dismissal despite the expiry.

When termination of fixed term contracts becomes a dismissal

South African law recognises that an employer can dismiss an employee by not renewing a fixed-term contract. This happens where the employee reasonably expected renewal or ongoing employment.

Reasonable expectation of renewal

A dismissal may exist where the employee reasonably expected the employer to renew the contract on the same or similar terms, but the employer did not renew it or offered less favourable terms.

Reasonable expectation of being kept on indefinitely

A dismissal may also exist where the employee reasonably expected to be retained on an indefinite basis, on the same or similar terms, but the employer did not retain them or offered less favourable terms.

What commissioners and courts look at in practice

No single factor decides the issue.

Decision-makers often look at:

  • how many times the employer renewed the contract before;
  • whether the employer made promises (written or verbal) about renewal;
  • whether the employee applied for, or was treated like, a permanent employee;
  • whether the work itself is ongoing and not truly temporary;
  • whether the employer followed its own recruitment and contract policies;
  • what was said in emails, WhatsApps, meetings, and performance reviews.

Importantly, the employee must show more than hope. They must show an expectation that was reasonable in the circumstances.

Ending a fixed-term contract early

Early termination is often where employers get into trouble. If you end a fixed-term contract before its end point, you may be terminating employment “with or without notice”. That can trigger dismissal rights.

Step 1: Check the termination clause

Some fixed-term contracts allow early termination on notice. Others allow termination only for specific reasons, such as misconduct or incapacity.

If your contract is silent, early termination can expose the employer to breach-of-contract risk and an unfair dismissal claim.

Step 2: Apply fair reason and fair procedure

Ending early should still align with the normal dismissal routes:

  • Misconduct: use disciplinary steps and a fair hearing process.
  • Incapacity: follow a fair incapacity process and consider alternatives.
  • Operational requirements: consult properly and document the business rationale.

Step 3: Give proper notice, or pay in lieu

Where notice applies, the BCEA sets minimum notice periods. Employers may also pay instead of notice in certain cases.

Also note: employers generally may not give notice during protected leave periods, and notice must usually not run alongside leave (with limited exceptions).

Section 198B: extra rules for many fixed-term employees

Section 198B of the Labour Relations Act places stricter limits on fixed-term contracts for employees who earn below the BCEA earnings threshold.

The “three-month” rule

An employer may employ someone on a fixed term longer than three months only if the work is truly limited in duration or the employer can show another justifiable reason.

If the employer cannot justify it, the employment may be deemed indefinite.

Examples of “justifiable reasons”

Common lawful reasons include replacement of a temporarily absent employee, seasonal work, a defined project, externally funded positions, or work permits with a fixed duration.

Severance-like payment after 24 months on a project

If an employee works on a fixed-term contract for a defined project for longer than 24 months, the employer may have to pay one week’s remuneration for each completed year when the contract expires.

The employee may lose this entitlement if the employer offers suitable ongoing work on the same or similar terms starting when the contract ends.

Managing the end-of-contract process properly

If you want to end the contract at expiry, plan the exit like a mini project:

  1. Decide early – make a renewal decision well before the end date.
  2. Communicate clearly – confirm in writing whether renewal will happen.
  3. Avoid mixed messages – do not “hint” at renewal unless it is real.
  4. Close out payments – pay outstanding leave and other amounts due on termination.
  5. Issue the certificate of service – employees are entitled to it on termination.

What employers should do

  • Use fixed-term contracts only where you can justify a limited duration.
  • Put the end date (or end event) in writing and keep it consistent.
  • State the reason for the fixed term, especially for longer arrangements.
  • Track renewals so you can see when “temporary” starts looking permanent.
  • Give written non-renewal notice early to reduce expectation disputes.
  • Train managers not to promise renewals informally.
  • For early termination, follow a fair process and document it properly.

What employees should know

  • You can challenge non-renewal if the employer created a reasonable expectation.
  • Save proof of renewal discussions, such as emails and messages.
  • If you earn below the earnings threshold, section 198B may give extra protection.
  • If you believe you were dismissed, act fast on referral time limits.
  • You can still pursue contractual claims if the employer breached the agreement.

Tax and regulatory considerations

  • Final pay often includes outstanding leave pay and other owed amounts.
  • Termination lump sums may trigger PAYE treatment that differs from normal salary.
  • Severance-like payments (including some fixed-term end payments) may require specific payroll handling and, in some cases, a SARS directive.
  • Earnings threshold affects whether section 198B protections apply. The threshold is updated by the Minister from time to time.

FAQ: Termination of fixed term contracts

Is expiry of a fixed-term contract a dismissal?

Not always. If the contract ends as agreed, it is usually not a dismissal. However, it may be a dismissal if you reasonably expected renewal or indefinite retention.

What is a “reasonable expectation” of renewal?

It is more than hope. It is an expectation created by the employer’s conduct, promises, or pattern of renewals, which would make renewal seem likely to a reasonable person.

Can an employer end a fixed-term contract early?

Yes, but risk increases. The employer should rely on a valid contractual clause and follow a fair reason and fair procedure, especially where the early termination looks like a dismissal.

Does section 198B apply to every fixed-term employee?

No. It mainly targets employees earning below the BCEA earnings threshold, and it has additional exclusions. Still, it is one of the first sections to check when fixed-term contracts run longer than three months.

When must a dismissal dispute be referred?

Unfair dismissal disputes usually must be referred to the CCMA or relevant bargaining council within 30 days of the date of dismissal (with limited scope for condonation).

Sources

 



RELATED ARTICLESMORE FROM AUTHOR

LEAVE A REPLY

Please enter your comment!
Please enter your name here