Terminating a fixed-term contract prematurely may lead to an award of damages
In the recent case of Air Traffic and Navigation Services Company V Esterhuizen (case no. 668/2013, 25 September 2014), the Supreme Court of Appeal found that an employee who resigns during the period of a fixed-term contract commits a breach of contract. In addition, it held that in those circumstances an employee may be liable for payment of damages to the employer.
The Company (ATNS) was the sole provider of air traffic, navigation and similar services in South Africa. Part of its operations was the training of licensed air traffic controllers. Air traffic controllers trained by ATNS had been lured overseas by lucrative offers of employment from foreign air traffic navigation service providers that do not train specialist technical staff. As a result the Company experienced a high turnover of air traffic controllers over several years. The Company had spent substantial sums of money on the training of the air traffic controllers, only to see them leave the Company once they had qualified. In order to counteract this continual exodus of key skills and personnel, the Company introduced a retention scheme.
The retention scheme introduced a financial reward to employees who met certain eligibility requirements. One of those requirements was that the reward was only available for as long as they remained employees of ATNS. The reward was calculated according to a formula and paid to qualifying employees on a monthly basis. Participation in the rewards programme was voluntary.
In April 2007 the employee in question elected to participate and a written agreement recording the terms of such participation was concluded. The terms of that agreement were that he would be paid monthly retention amounts, that he would be employed for a four year period and that his contractual notice period would be replaced with a clause preventing early termination of the contract.
Notwithstanding this, the employee tendered his resignation just over a year later, in May 2008. ATNS advised him that he was in breach of his agreement and had seven days to remedy the breach, failing which it would cancel the agreement and claim payment of an amount of R427 843.00, being the amounts that it would have paid to the employee if he had remained employed for the period of the fixed-term contract.
The employee refused to remedy the breach and instead alleged that ATNS was only entitled to claim the amounts already paid to him in terms of the retention scheme. The Supreme Court of Appeal however disagreed and found that the intention of the contract was clear, namely to ensure that the employee remained employed for the fixed-term period. In this case the employee had deleted the clause permitting him to give notice of his resignation and had replaced it with a clause binding him to ATNS for a specified period. As a result, the Supreme Court of Appeal found that the employee had breached the fixed-term contract and awarded damages to ATNS in the amount of R427 843.00.
Employers and employees should take note of the findings in this case and would be well-advised to act in accordance with the terms of their contracts. The amendments to the Labour Relations Act which came into effect on 1 April 2015 now regulate fixed-term contracts more strictly. More focus will therefore be placed on fixed-term contracts and their terms in due course by the Courts and accordingly it is necessary for the terms of those contracts to be properly understood in order to avoid claims for damages arising at a later stage.
