Fixed term contracts: The expectation of permanent employment

In this article the balancing of scales between a newly hired employee in terms of a fixed term contract and his/her legitimate expectation of permanent employment will be discussed. This will equally apply to probationary employees and the employer’s right to first evaluate the employee’s work performance prior to determining whether such employee is worthy of permanent employment. All of the aforesaid factors have legal consequences and should be carefully observed.

Guidelines regulating the issue of probation are found in the Code of Good Practice contained in Schedule 8 to the Labor Relations Act (LRA) 66 of 1995, which states that a newly hired employee may be placed on probation for a period that is reasonable given the circumstances of the job. The period should be determined by the nature of the job, and the time it takes to determine the employee’s suitability for continued employment. It can therefore be deduced that the legislator had no intention of prescribing the duration of probation, or probation at all, and left it in the discretion of the employer

The Code further states that, when appropriate, an employer should give an employee whatever evaluation, instruction, training, guidance or counselling the employee requires to render satisfactory service. Dismissal during the probationary period should be preceded by an opportunity for the employee to state a case in response and to be assisted by a trade union representative or fellow employee. The employer should therefore monitor the probationer’s performance from the start and any imperfection in performance must be addressed by giving the employee the necessary evaluation, counselling, instruction, training and guidance in order to assist him/her to achieve the required work performance standard. In addition the employee should be given the opportunity to explain the cause of non-performance and how this specific situation can be rectified. These are absolute requirements.

During a fixed term contract, the employee might be influenced by either objective or subjective circumstances where a reasonable expectation of permanent employment was created. Should an employer under these circumstances fail to renew a fixed term contract of employment on the same or similar terms, on less favorable terms, or not renew it at all, then the LRA will regard such conduct as a dismissal. The Labor Court held that the reason for this provision is to prevent the unfair practice by employers of keeping an employee on a temporary basis, without employment security until such time as the employer decides to dismiss the employee without complying with the obligations impost by the Act in respect of permanent employees.

It is generally believed that after a fixed term contract of employment is rolled over or renewed, the employee may develop a right to expect that the employer will continue to renew the contract. However, section 186(1)(b) of the LRA makes the expectation of permanent employment problematic for fixed term employees. This section states that:

“An employee reasonably expected the employer to renew a fixed term contract of employment on the same or similar terms but the employer offer to renew it on less favorable terms, or did not renew it.”

This section therefore contemplated claims for renewal of a fixed term contract and not claims for permanent employment as such.

In the matter of University of Pretoria vs Commission for Conciliation, Mediation and Arbitration & Others (JA 38/2010) [2011] ZALAC 25; [2012] 2 BLLR 164 (LAC); (2012) 33 ILJ 183 (LAC) (4 November 2011), the Applicant was employed by the university on a number of fixed term contracts for three years. During this period the employee applied for one of several permanent positions that the university needed to fill but she was unsuccessful in her application. Instead she was offered another fixed term contract of employment but failed to accept the contract and referred the matter to the CCMA as an unfair dismissal in terms of section 186(1)(b) of the LRA. She also claimed that she expected to be appointed permanently. The university argued that no dismissal took place in terms of section 186(1)(b) of the LRA. The Commissioner disagreed and held that the employee had discharged the onus of proving that she had reasonable expectation of permanent employment. The university took the matter on review but was unsuccessful and then took the matter on appeal. The issue to be decided by the Labor Appeal Court was whether section 186(1)(b) could be understood to include a right of expectation of permanent employment. The court noted that specific reference was made to fixed term contracts only. According to the court the legislator opted to specifically limit this right of expectation to fixed term contracts and that the expectation of permanent employment cannot be dealt with under the current section 186(1)(b) unless the LRA is amended. The appeal of the university was upheld. Since this matter, the 2012 Relations Amendment Bill was published and the new section 198B of the amended Act now indeed makes provision for the right of reasonable expectation of indefinite employment.

The practical implication is that employees appointed on fixed terms contracts will be able to claim that they reasonably expected to be appointed indefinitely as a result of the behaviour of the employer. However, it appears that this expectation is qualified by the new section 198B of the LRA, as amended by Act 6 of 2014, in that, in order to claim expectation of permanent employment, the employee has to prove that he/she earns below the monetary threshold determined by the Minister from time to time (currently R205 433.00 per annum) and that he/she was on a fixed term (or probationary) contract for longer than three months, in which event it will be deemed to be a permanent employment.  Should the employer then fail to appoint the employee permanently, this conduct may constitute a dismissal, unless the employer can demonstrate a justifiable reason to keep the employee on a fixed term contract, in writing, or the nature of the job requires it.

However, these provisions does not apply to small businesses which employs less than 10 employees or an employer employing less than 50 employees but who’s business has been in operation for less than two years – unless the employer conducts more than one business or the business was formed by the division or dissolution of an existing business.

It is thus important for employers to be wary of successively renewing or extending fixed term employment contracts without a justifiable reason to do so. Equally important is for the fixed term employee to understand that there are certain requirements to comply with before alleging that he/she perceived an expectation of permanent employment.

by Francois van Zyl