Fixed-term contracts are not always undesirable and employers
who overlook them completely could be missing a valuable
"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
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
"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
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
"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
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
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
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,
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
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
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