Fixed-term contracts are not always undesirable and employers who overlook them completely could be missing a valuable opportunity.
"While there is a history of some employers abusing fixed-term contracts to evade their obligations, there are circumstances in which it is correct to use these contracts," says Bradley Workman-Davies, an employment law director at Werksmans Attorneys.
There is a mistaken belief among some companies, he says, that proposed amendments to the Labour Relations Act will make it very difficult, or even impossible, for employers to use fixed-term contracts.
"The important thing is to understand the proper usage of fixed-term contracts and to make sure that you don't create the expectation that such a contract will be renewed," he says.
If used improperly or with the result that an employee has a reasonable expectation of continued employment, terminating or failing to renew a fixed-term contract may amount to unfair dismissal.
"On the other hand, if fixed-term contracts are ruled out altogether in an organisation, it could be missing an opportunity to benefit from a useful mechanism available in terms of labour law."
What a prudent employer would do
Workman-Davies says the "prudent employer" with a vacancy to fill would first conduct an analysis to assess the type of employment relationship – permanent or for a fixed term - that would best fit the circumstances.
"The ideal circumstances for a fixed-term contract are project-based, time-limited business areas," he says, using South Africa's 2010 World Cup stadium projects as an example. "When the project ends, there is nothing more for the employee to do and it is unlikely that he or she could claim to have a reasonable expectation of further employment."
This type of project-based scenario is common in the construction and infrastructure sectors, as well as among charitable organisations. "There are a lot of employers who have limited projects where it makes sense to hire employees on fixed-term rather than permanent contracts," Workman-Davies says.
However, he cautions employers against unwittingly painting themselves into a corner by setting a specific date for the expiry of a fixed-term contract.
"Things can then become quite complicated. For instance, if the employer terminates a strict fixed-term contract before the date of expiry, the employer has to pay out the balance of the contract – even if there was misconduct on the part of the employee. That is how the courts have interpreted early termination."
Similarly, if the project encounters delays, forcing the employer to extend the contract, this could open the door for an employee to claim reasonable expectation of further employment.
Maximum duration versus fixed term
For these reasons, a better option than a strict fixed-term contract is a "maximum duration" fixed-term contract, says Workman-Davies.
Here, the contract would spell out a deliverable or project milestone (rather than a date) that would mark the conclusion of the project. "For instance, instead of giving an end date for the contract, you could state that it will come to an end when the roof of the stadium has been completed," says Workman-Davies.
He adds that employers should reserve the right upfront to terminate the maximum duration contract for any reason.
"The key is to spell out all the terms clearly and explicitly at the outset, including the fact that the employee has no expectation of further employment, leaving no room for differing interpretations, and for the employer to act consistently with its intentions, as stated in the agreement, including not renewing the contract when the expected duties have been finalised."
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