The Labour Court has confirmed the principle that clauses in a contract of employment that provide for the automatic termination of an employee's employment if the labour broker's client no longer requires the services of the employee, are invalid.
In the past businesses have avoided having to comply with the dismissal provisions in the Labour Relations Act by using labour brokers to provide employees. The labour brokers have in turn built in automatic termination provisions in their contracts of employment to avoid unfair dismissal claims by their employees.
In Mahlamu v CCMA and others (unreported) the respondent labour broker employed the applicant as a security officer with a provision in his contract that the employment contract would automatically terminate:
- on expiry of the contract between the labour broker and the client; or
- in the event that the client no longer required the services of the employee "for whatever reason".
The client sent notice of the immediate termination of the labour broking contract and the labour broker in turn notified the employee in a letter that his services were no longer required and that he was "automatically terminated" because it had no alternative position for him.
Pursuant to an unfair dismissal claim the arbitrator found that since the client no longer required the applicant's services, the employment contract had terminated automatically and there had therefore been no dismissal.
Issue to be determined
The issue was whether automatic termination clauses in employment contracts are contrary to the provisions of the Labour Relations Act (LRA) and therefore invalid?
In SA Post Office Limited v Mampeule (2009) 30 ILJ 664 (LC), the LAC endorsed the view that parties may not contract out of the dismissal requirements of the LRA, and that in such cases the employer must prove that the termination clause was fairly triggered. The court noted that section 185 of the LRA gives every employee the right not to be unfairly dismissed. Section 5 prohibits employers preventing employees from exercising rights conferred on employees, except by contractual provisions permitted by the LRA. The question was, accordingly, whether the automatic termination clause in the contract between the applicant and his employer, was permitted by Section 5 of the LRA.
The court found in the Mahlamu case that the automatic termination clause fell within the prohibition in section 5(2)(b) of the LRA because the clause prevented the employee from exercising his right not to be unfairly dismissed.
The commissioner had committed a reviewable error of law and the court set aside his award and replaced it with a ruling that the termination of employment constituted a dismissal. The applicant was granted leave to refer the dispute concerning the fairness of his dismissal either to the CCMA or the Labour Court, as the case may be. It follows that the adjudicator will find that the dismissal of Mahlamu was both substantively and procedurally unfair.
The Court found that the decision by the client had the effect of unacceptably converting a substantive right into a conditional one. The client could at any time, for any reason, simply state that the employee's services were no longer required which would result in the termination of the employment contract leaving the employee with no right of recourse.
The importance of the case
The importance of this case is that it confirms the principle that clauses in a contract of employment that provide for the automatic termination of an employee's employment, in circumstances where the labour broker's client no longer requires the services of the employee, are invalid.
In Mahlamu, the Court drew a distinction between that case and the situation where the end of an agreed fixed term is defined by the happening of a particular event, for instance the completion of a project. In the latter scenario, the Court said that there would not be a dismissal for the purposes of 186(1) of the LRA.
This means that labour brokers may enter into fixed term contracts with employees that they will be employed for the duration of a specific project or task. Labour brokers may not contract with employees for the automatic termination of their employment contracts on expiry of the contract between the labour broker and the client. This illustrates the importance of drafting employment contracts which clearly explain the specific project or task that the employees will be employed for.
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