Can fixed-term employees be retrenched?
Most employment agreements are permanent, terminating only when an employee is dismissed, resigns, retires or dies. An alternative to this is a fixed-term contract where the relationship lasts for a predetermined period of time and will only terminate at a specific event or date. Pre-empting this natural termination can be problematic, especially when retrenchment is the envisioned mode of termination. In today's uncertain economy, many employers are forced to embark on this unfortunate route, retrenching their employees on grounds of operational requirements as per section 189 of the Labour Relations Act 66 of 1995 (LRA). However, when it comes to fixed-term employees, the road becomes treacherous...
The Labour Appeal Court explored this issue in Buthelezi v Municipal Demarcation Board [2005] 2 BLLR 115 (LAC):
- Buthelezi, the employee, had been retrenched one year into a five-year, fixed-term contract.
- The court held that "...there is no right to terminate such contract even on notice unless its terms provide for such termination. The rationale for this is clear. When parties agree that their contract will endure for a certain period as opposed to a contract for an indefinite period, they bind themselves to honour and perform their respective obligations in terms of that contract for the duration of the contract and they plan, as they are entitled to in the light of their agreement, their lives on the basis that the obligations of the contract will be performed for the duration of that contract in the absence of a material breach of the contract."
- The court concluded that the onset of true operational requirements justifying a retrenchment didn't give the employer the contractual right to terminate the fixed-term contract. The termination was therefore found to be unlawful and unfair. In so doing the court made clear that the LRA does not overrule the common law principles of contract.
Fixed-term employees can't be retrenched unless their contract states this. This leaves the employer in a precarious position as he must either:
- Keep fixed-term employees at the expense of permanent employees, or
- Pay the full value of the (unfinished) fixed-term contract to perform early termination.
Neither of these are viable positions and it's therefore crucial that fixed-term contracts are drafted properly and provide for the possibility of an early termination in a variety of circumstances, including operational requirements. This being said, the court recognised contractual freedom as the backbone of its finding.
The parties therefore have the contractual freedom to contract out of a fixed-term contract as well – although the chances of an employee giving up the cash value of an unfinished fixed-term contract seems highly unlikely.
In the meantime, employers must bear in mind that even if a fixed-term contract makes
provision for early termination by retrenchment, all the normal requirements of the section 189 process in the LRA must still be met – or the employer risks an unfair termination.
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Peter did a Bachelor of Technology (B.Tech), Human Resources Management and Services at Technikon Witwatersrand (1994-1998) and an Advanced Diploma – Labour Law, Law at University of Johannesburg (2001-2002). He joined Labour Net in 1997 and was a consultant there until 2000, and has been a director and shareholder in Invictus Outsourcing Solutions since November 2001. Peter has gained extensive knowledge and experience over the past 17 years in dealing with various Human Resources (HR) and Industrial Relations (IR) matters, including but not limited to :
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