FIXED-TERM CONTRACTS
One of the most important changes to the Labour Relations Act (the Act), which came into effect on 1 January 2015, is the added protection afforded to employees on Fixed Term Contracts. While some employers and employees are not directly affected, the impact will be far reaching and employers are encouraged to review their current contracts and practices to ensure compliance. The relevant provisions, which are contained in a new Section 198B of the Act, are summarized below.
However, to apply the correct laws respectfully, it is important to be able to firstly differentiate between Employees and Independent Contractors.
Section 83A of the BCEA and Section 200(A) of the LRA creates an assumption in favour of an employee and states that a person is deemed to be an employee until otherwise proven.
Section 200 (A) of the LRA provides guidelines that emphasizes on what factors deem to be an
employee.
In order to differentiate between a Dependent Worker status (Employees), and an Independent Worker status (Independent Contractors), the Common Law Dominant Impression Test, needs
to be applied.
The test questions 3 aspects:
- NEAR CONCLUSIVE - Control manner / Exclusive Acquisition
- PERSUASIVE - Extent of Control
- RELEVANT - Labels, clauses, compliance, economic circumstances, “resonant” of.
Briefly explained,
A Dependent Contractor / Employee:
- Is supervised
- Renders personal services
- Employment terminates on death, breach or expiration of the period of employment
- Is provided with tools and equipment
- Has duties which are dependent on the employer
- Is paid a fixed salary
- Is subject to the discipline of the employer
- Is protected by labour legislation
Independent Contractor varies as such, in that he/she:
- Is equal with and not subordinate to the employer
- Performs specified work or a specific result
- Relationship is only terminated by breach, completion of the job or consent
- Uses own tools and equipment
- Hires own staff
- Is paid in accordance with hours worked or on commission
- Is not subject to discipline by another
- Is not protected by labour legislation
- Could work any hours that suit him/her
- Is allowed to enter into as many contracts as he wants
- Is not supervised on a day-to-day basis
What is a fixed term contract?
A ‘fixed term contract’ is defined in the Act as a contract of employment that terminates on –
(a) the occurrence of a specified event;
(b) the completion of a specified task or project; or
(c) a fixed date other than an employee’s normal or agreed retirement age.
Fixed term employment beyond 3 months
The real impact of the amendments relates to fixed term contracts that are for a period of longer than 3 months. For such contracts to be enforceable there are three main requirements that have to be met:
1. The nature of the work must be for a limited duration or there must be some other justifiable reason for fixing the term of the contract.
2. The fixed term contract must be in writing.
3. The contract must specify the ‘justifiable reason’.
A dispute would typically arise in the context of termination of employment. Should the employer fail to prove that the requirements mentioned above have been met, the employee will be regarded as having been employed on an indefinite (permanent) basis. In these circumstances there is a good chance that the employee’s services would not have been terminated for a fair reason and it is unlikely that the requirements of a fair procedure (for misconduct, incapacity or operational requirements) would have been met. The potential adverse implications for the employer should therefore be obvious.
What is a justifiable reason?
The Act lists examples of ‘justifiable reasons’ for employing someone for a fixed term period of
longer than 3 months.
The conclusions of a fixed –term contract will be justified if the employee:
a) is replacing another employee who is temporarily absent from work;
b) is engaged on account of a temporary increase in work volume which is not expected to endure beyond 12 months;
c) is a student or recent graduate who is employed for the purpose of being trained or gaining work experience in order to enter a job or profession;
d) is engaged to work exclusively on a genuine and specific project that has a limited or defined duration;
e) is a non-citizen who has been granted a temporary work permit;
f) is engaged to perform seasonal work;
g) is on an official public works scheme or similar public job creation scheme;
h) is engaged in a position which is funded by an external source for a limited period;
i) has reached the normal or agreed retirement age applicable in the employer’s business.
The above covers the obvious situations that come to mind, but there may be other justifiable
reasons that have not been listed in the Act.
Fixed term employment for 3 months or less
If someone is employed for 3 months or less, the provisions above do not apply.
However, employees on shorter fixed term contracts should continue to enjoy the protections that existed prior to the amendments. An employer may, for example, not abuse a fixed term contract by using it as a substitute for probation. Another example is where an employee works beyond the expiry date of the contract without signing a new agreement – the employee could still successfully argue that employment has become indefinite. Furthermore, the provisions relating to a reasonable expectation’ of renewal or permanent employment may also be relied upon by these employees.
Which employers and employees are excluded?
Fixed term contract employees are employed for a fixed period or specific task and cannot expect to be hired on a permanent basis. The LRAA of 2013 introduced some far-reaching amendments regarding fixed term contracts workers.
Such amendments do not apply to:
· Employee who earn above the threshold as set out in the BCEA
· b) Employers that employ less than 10 employees
· c) Employers that employ less than 50 employees and whose business has been in operation for less than two years
· d) An employee engaged in terms if a fixed term contract that is permitted by any statute, sectoral determination or collective agreement
Additional Protections
There are some additional provisions aimed at protecting employees on fixed term contracts
· Firstly, a person employed on a fixed term contract for longer than 3 months, may not be treated less favorably than someone employed on a permanent basis performing the same or similar work, unless there is a justifiable reason for different treatment. (Part-time employees also enjoy protection against unfavorable treatment).
· Secondly, employees on fixed term contracts must also be given equal access to opportunities to apply for vacancies.
· Thirdly, where an employee is employed on a fixed term contract exceeding 24 months, the employee would be entitled to severance pay upon termination.
· Fourthly, where the employer has failed to renew a fixed term contract where there was a ‘reasonable expectation’ of such renewal (or where the employer offered to renew it on less favorable terms), the basis for an unfair dismissal claim has been extended to also include an expectation of indefinite employment. The onus to prove the expectation remains on the employee, though.
Implication of changes
There is likely to be a significant increase in disputes that are referred to the CCMA. These would include unfair dismissal disputes, as well as unfair labour disputes arising out of less favorable treatment of employees employed for a fixed term or part-time.
Termination, Unfair Dismissal, and Consequences of Misuse of Fixed Term Contracts
Fixed term contracts are as binding as any other contract, and due respect should be provided by both parties to meet the obligations on the terms and conditions of the fixed term contract. Termination of a fixed term contract prior to the stated termination date, warrants justifiable reasons that can be verified.
According to sections 193 and 194 of the LRA the awards and orders that can be made against the employer for unfair dismissal are as follows:
· The LRA requires the CCMA or Labour Court to reinstate the employee. This means that the employer must give the employee his/her job back and to pay the employee all remuneration calculated back to the date of the dismissal. The employer must also reinstate all the employee’s benefits retrospectively.
· The LRA also permits the CCMA or Labour Court to order re-employment instead of reinstatement. This means that, while the employer must give the employee his/her job back, this will not be with back pay.
· Even if the employer does not have to take the employee back at all it may still have to pay compensation up to a maximum of 12 months’ remuneration calculated at the employee’s newest rate of remuneration.
· If the dismissal is deemed to be automatically unfair the maximum compensation that may be awarded is 24 months’ remuneration.
· Such compensation is payable in addition to all other payments due to the employee. These could include notice pay, leave pay and even payment for the unexpired portion of the employee’s contract.
The Labour Court and CCMA have the powers to make such additional awards by virtue of section 195 of the LRA and section 74(1) of the BCEA.
Furthermore, the Labour Court has jurisdiction, in terms of section 77(3) of the BCEA to determine any matter relating to a contract of employment.
For these reasons above, it is of utmost importance that the proper formulation, implementation, enforcement, and compliance in the processes involved in the take-on, on boarding and monitoring of employees on fixed term contracts, exudes diligence and assiduousness, in order to avoid financial implications and non-compliance with the law.
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