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Pitfalls of Limited Duration Contracts for Temporary Employment

The Facts

Many companies are not willing to appoint employees on a permanent basis due to the fact that they feel that the employees’ performance declines once he is permanently employed. An additional reason for this is because employers don’t want to pay severance packages during retrenchments.

The reality, however is that legislation protects employees from the uncertainty of multiple renewals of limited duration contracts:

Sections 4 and 5 of the Basic Conditions of Employment Act (BCEA) prohibit the provisions of an employment contract from diminishing an employee’s rights granted by any law.

  • The MEIBC regulations require limited duration contracts to specify the end date of the contract.
  • Section 29(1)(m) of the BCEA requires limited duration contracts to specify the end date of the contract.

Although there is no statutory limitation on the maximum amount that it can be renewed, the MEIBC Main Agreement also limits the reasons for entering into this type of contract. The most common exception for entering into a LDC with an employee would be if the company had an “influx of work”.

 Consequences of Continual Renewal and How It Is Regulated

Continuous renewal of employment contracts can create an “expectation of renewal”. If this expectation is found to be reasonable, the employee will be successful in a claim for compensation at any Dispute Resolution Centre.

Although a “reasonable expectation” is not defined by legislation, the presiding commissioner will assess each case and apply his mind to the merits before him. If an employee had received the same income for a certain period and had adjusted his lifestyle by accruing debt (which was provided to him based on his existing income), then it can be assumed that he had the reasonable expectation of continued employment.

In the case of SACCAWU and others vs. Primeserv (2007, 1 BLLR 78) the arbitrator found that because the company did not renew the employees’ contracts it constituted dismissals. The dismissals were found to be unfair and the employer was ordered to pay each employee the amount of 12 months’ remuneration.

 How To Ensure That Your Contracts Are Managed Efficiently

The above mentioned does not mean that limited duration contracts are completely out of the question. Although the employment contract, which is a legal binding document, should be scrutinised to ensure accuracy, the impression that verbal communication creates also plays a very important role.

Start by advertising the vacant position correctly. Ensure that the employee knows that it is not a permanent position. During the interview, communicate to the employee that it is only for a limited duration, and then affirm this information on his offer of employment.

When signing the employment contract, employers should be weary of clauses that create confusion. Rather opt for a basic contract with minimal legal terminology – ensure that the employee knows exactly what he is signing and why.

It is also advisable that employees sign every page, and specifically sign at the clause where the ending date of the contract is stated. The period of engagement should be very specific. If the employee is appointed for a specific type of order / tender / project, indicate the order number or description as well as the beginning and end date or the order / tender / project.

If the exact date that the project will be ending is unknown, rather shorten the period than prolonging it.  The courts recently found that it is a breach of contract if the contract is ended from the side of the employer before the end of the period (even if the employer pays the employee for the remainder of the contract).

 How Can The Chamber Assist

The East Rand Chamber of Commerce provides assistance with the drafting of employment contracts that will ensure optimum protection to the employer. We also offer sound advice on the do’s and don’ts of contracts and clauses in all sectors.

Source: East Rand Chamber of Commerce

Our Thoughts

Our view is that Fixed Term (Limited Duration) contracts are necessary to modern business practices. They also suit some employees who do not want permanent employment. However, they should not be abused.

This article succinctly sets out the requirements and how to avoid creating the expectation that the contract will be renewed.

For more information on B&A’s Labour Relations training and consulting services contact your local B&A office at Durban (031-3094627), Johannesburg 0861-474722, Cape Town 021-5270044.

BRUNO BRUNIQUEL
DIRECTOR
BRUNIQUEL & ASSOCIATES (PTY) LIMITED 

Employment Relations & Training Consultants