The Sunday Times reported on a recent Labour Appeal Court judgment involving fixed-term employment contracts. Fixed-term employment contracts operate for a fixed period of time, as their name suggests, and then terminate. This is a departure from the default position with an employment contract in that the usual employment contract can only be terminated by the employee resigning and by the employer on the recognised grounds of misconduct, incapacity and operational requirements. According to the Sunday Times:
IN TERMS of the law of contract and common law, when two parties enter into a fixed contract of employment, it is binding on both parties for the duration.
In other words, if an employer and employee enter into a fixed, five-year contract it is expected to run for five years except where one of the parties is in breach of the contract, which may lead to its cancellation.
But what happens when an employer enters into a fixed-term contract with an employee only to realise that he or she has to terminate it before it expires due to the operational requirements of the business?
This question faced the Labour Appeal Court (LAC) in the case of Buthelezi versus the Municipal Demarcation Board last year.
In this case the fixed-term contract of employment was five years, but it only ran for a year before the employee was retrenched.
After the matter had been heard by the Commission for Conciliation, Mediation and Arbitration (CCMA) and the Labour Court, it came before the LAC.
After a careful and thorough review of the common law principles of contract, the court ruled that the employer was not entitled to terminate the fixed-term contract prematurely on the basis of operational requirements.
What this means is that employers should give due consideration to the feasibility of a fixed-term contract in the context of their businesses and where it is appropriate to use a fixed-term contract, it should operate for a time period that is realistic. Fixed-term contracts do offer a useful alternative to conventional employment on one hand and appointing staff as independent contractors on the other. It is really a matter of using these contracts appropriately.