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When a fixed-term contract is stopped

By By Lavery Modise and Lebogang Kutumela | Apr 20, 2010 | COMMENTS [ 0 ]

FIXED-term contracts and dismissal for operational requirements:

FIXED-term contracts and dismissal for operational requirements:

In terms of section 29(1)(m) of the Basic Conditions of Employment Act 75 of 1997, when an employee commences employment, an employer must supply the employee with written particulars of his employment.

In the event that the employment is for a specified period, an employer must provide the employee with the date on which the employment will come to an end.

Contracts with specific dates of termination are referred to as fixed term contracts. Upon entering into a fixed term contract, the parties agree that the contract will be in force for a certain period and undertake to honour and perform their respective obligations in terms of the contract for the duration of the contract.

Therefore, in the absence of a breach of contract by the other party, a party to a fixed term contract may not terminate the contract before a mutually agreed termination date.

The consequences flowing from the terms of a fixed term contract as stated above are of particular importance, having regard to the developments brought about by the Labour Relations Act, in cases where an employer's operational requirements require him to terminate the employment of some of his employees or to retrench staff.

An employer is entitled to retrench employees for "operational requirements", meaning requirements based on the economic, technological, structural or similar needs of an employer, provided an employer follows the procedure as outlined in section 189 of the Labour Relations Act and has a substantive reason to retrench.

While an employer's right to restructure its business and to retrench its employees is recognised in our law, an employer may not terminate an employee's fixed term contract for operational requirements unless the contract contains a provision entitling the employer to do so.

In Buthelezi v Municipal Demarcation Board the court held that:

l Upon entering into a fixed term contract each party is entitled to expect that the other party has carefully looked into the future and has satisfied itself that it can meet its obligations for the entire term in the absence of any material breach.

l The employer is free not to enter into a fixed term contract, but to conclude a contract for an indefinite period if he thinks there is a risk that he might have to dispense with the employee's services before the expiry of the term.

l The employee also takes a risk that during the term of the contract he could be offered a more lucrative job while he has an obligation to complete the contract term.

The Labour Appeal Court accordingly held that the termination of the employee's fixed term contract on the basis of operational requirements was unfair and constituted an unfair dismissal.

In conclusion, the court held that if any operational requirements existed, they did not in law give the employer the right to terminate the contract of employment between the parties.

In calculating compensation to be awarded to the employee, the court relied on the decision of Myers v Abramsom, where it was held that the measure of damages accorded to an employee whose contract has been prematurely terminated is the actual loss suffered by such employee, represented by the sum due to him of the unexpired period of the contract, less any sum he earned or could reasonably have earned during the latter period in similar employment.

The employee was accordingly awarded a salary for the months during which he had been out of employment as compensation.

In the event that an employee's fixed term contract is prematurely terminated, the employee may refer an unfair dismissal dispute to the CCMA and, or refer the matter to the Labour Court in terms of section 77 of the Basic Conditions of Employment Act. The employee may then claim damages based on his monthly remuneration for the balance of the contract period.

l Lavery Modise is deputy chairperson of Eversheds, and Lebogang Kutumela, an associate at Eversheds


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