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The expiry of fixed-term contracts and unfair dismissal


When can employers validly and legitimately enter into contracts of employment with their employees in terms of which the contracts expire automatically after a certain period of time or on the occurrence of a specified event?  

By: P.A.K. le Roux

When can employers validly and legitimately enter into contracts of employment with their employees in terms of which the contracts expire automatically after a certain period of time or on the occurrence of a specified event? This has been a question that has exercised the minds of the legislature, arbitrators and judges. This is because of the tension between common law contract principles and the provisions of the Labour Relations Act, 66 of 1995 (LRA). Common law contract principles provide that, if a contract of employment for a fixed period of time has been concluded, the contract terminates automatically when the period for which it has been entered into expires. There is therefore no dismissal the fairness of which can be challenged in terms of the provisions of the LRA. The same applies to another form of fixed-term contract, i.e. where the parties agree that the contract will terminate automatically if a specified event occurs sometime in the future.

The drafters of the LRA accepted the legitimacy of fixed-term contracts, at least in principle, but also realised that they could be utilised as a mechanism to prevent employees from exercising their statutory right not to be unfairly dismissed. It was therefore provided, in section 186(1)(b), that an employee will be regarded as having been dismissed if the employer fails to renew a fixed-term contract of employment in circumstances where the employee had a reasonable expectation that it would be renewed.

This provision did not prevent the legitimacy of automatic termination clauses being challenged on other grounds. The first really considered decision to deal with this issue was that in SA Post Office Ltd v Mampeule (2009) 30 ILJ 664 (LC). The employee in this case had been employed on a five year fixedterm contract as chief executive officer. He became involved in a dispute with his employer, the Post Office, and was eventually removed as a director. The Post Office then sought to argue that his removal as a director had also resulted in the automatic termination of his contract of employment. This was because the Post Office’s articles of association provided that it was an inherent requirement of his job that he be appointed as a director. During the course of subsequent litigation the Labour Court found that he had in fact been dismissed. The Court also expressed the view that the provision in the articles of association (as incorporated into the employee’s contract of employment) that had the effect of automatically terminating the contract of employment was impermissible because it truncated the right not to be unfairly dismissed, limited the right to fair labour practices and was contrary to public policy.

This view was upheld by the Labour Appeal Court (LAC) in SA Post Office Ltd v Mampeule (2010) 31 ILJ 2051 (LAC). In coming to this decision the LAC relied, inter alia, on sections 5(2) and 5(4) of the LRA.

Section 5(2) states that no person may prevent, or threaten to prevent, an employee from exercising any right conferred by the LRA. Section 5(4) states that -

'A provision in any contract, whether entered into before or after the commencement of this Act, that directly or indirectly contradicts or limits any provision of section 4, or this section, is invalid, unless the contractual provision is permitted by this Act.’

These decisions have been considered and applied in a series of later decisions where contractors or temporary employment services (TES) had entered into contracts of employment with their employees in terms of which the contracts of employment would expire automatically if the client terminated the commercial contract between itself and the contractor or TES, or informed the contractor or TES that it no longer required part of a service provided. In each of these cases the legitimacy of the use of fixed-term contracts was challenged. In some cases the legitimacy was upheld, in others it was not upheld. The tendency was, however, one of some hostility to such forms of termination. See in this regard CLL vol 24 no 4.

However, in the recent decision in Enforce Security Group v Mwelase and others (DA 24/15 25/2/2017) the LAC has adopted a more accommodating approach to this type of contract. The employer, the Enforce Security Group (Enforce) had contracted to provide a security service to the Boardwalk Inkwazi Shopping Centre (Boardwalk) in Richards Bay. The contracts of employment it entered into with the employees hired to perform the security services at Boardwalk contained a clause in terms of which the employees acknowledged that their employment was dependent on the continuation of the contract between Enforce and Boardwalk. It also contained the following automatic termination provision -

‘The period of the employment would endure until the termination of the contract which currently exists between BOARD WALK or its successors (hereinafter referred to as the CLIENT) and the COMPANY.

3.2.1 The Employee agrees that he/she fully understands that the Company’s contract with the Client might be terminated by the Client at any time and for any cause or might terminate through [e]ffluxion of time and that in consequence hereof the nature of the Employee’s employment with the company and its duration is totally dependent upon the duration of the Company’s contract with the Client/s and that the Employee’s contract of employment shall automatically terminate. Such termination shall not be construed as a retrenchment but a completion of contract…’

In September 2011 Boardwalk gave notice that it was terminating its contract with Enforce with effect from 31 October 2011. Enforce then met with the trade unions representing its employees and informed them of this development. The affected employees were offered alternative employment in Durban. This was rejected; they demanded that they be retrenched and paid a severance package. The result was that the employees’ employment terminated on 31 October 2011.

The employees claimed that they had been unfairly dismissed. At a subsequent arbitration Enforce sought to rely on the automatic termination provision to avoid liability. The CCMA commissioner found that the employees had not been dismissed and rejected their unfair dismissal claim. On review the Labour Court set aside the award and relied on the Mampeule decisions in coming to the conclusion that the employees concerned had been dismissed and that their dismissals had been unfair.

Enforce appealed to the LAC. The LAC referred to section 186 of the LRA, which sets out six circumstances in which a dismissal will be regarded as having taken place. It argued that this meant that there were circumstances in which an employment contract can be terminated which do not constitute a dismissal as defined. One of these instances is the expiry of a fixed-term contract entered into for a specified period or which terminates on the happening of a specific event. The common law position is that the expiry of the period for which the contract was entered into, or the occurrence of the specified event, results in the automatic termination of the contract by the operation of law and there is therefore no dismissal. Section 186 had not amended the common law position. In addition, the definition of a dismissal set in section 186 requires that there must be an act by the employer that terminates the contract. It went on to find that –

‘[23] The factual matrix in this case supports the view that the employees’ contracts of employment were fixed-term contracts where the end of the fixed term was defined by the completion of a specified task or project, that is, the termination of the Boardwalk contract. The continued existence of these contracts depended on the continued existence of the contract between the appellant and Boardwalk. The employees were employed specifically for the contract between the appellant and Boardwalk. The termination of that contract is a legitimate event that would by agreement, give rise to automatic termination of the employment contracts. It is Boardwalk that cancelled the contract and not the appellant. There was no direct or indirect act by the appellant to cancel the contracts. There is no evidence to suggest that cancellation by Boardwalk was a device to rid the appellant of the employees. Neither is there evidence to suggest that it was a clandestine move by the appellant to dismiss the individual employees. On the facts of this case the cancellation of the service contract by Boardwalk is the proximate cause for the termination of the employees’ contracts of employment.’

The LAC then considered the provisions of section 5 of the LRA and the lawfulness of automatic termination clauses. It stated that it is logical that parties to a contract of employment cannot be permitted to agree that ‘what is proved to be a dismissal should be regarded as not being a dismissal’. However, a finding as to whether there has been a dismissal in a particular case constitutes a value judgment which should be made on the facts of that case.

The LAC further argued that the Mampeule decisions could be distinguished from this case on three grounds. The first was that the termination of Mampeule’s employment was due to an act of the employer. It was the action of the Minister of Communications (representing the State as shareholder in the Post Office) which led to him being removed as a director – this was the proximate cause of the termination of employment. The second was that the termination of Mampeule’s employment was ‘directly related” to allegations of misconduct. The Minister’s action denied Mampeule the opportunity to contest the fairness of the termination of his employment. Thirdly, the termination of employment was not linked to the termination of a fixed-term contract.

The Court then referred to the decision in Mahlamu v Commission for Conciliation, Mediation and Arbitration and others (2011) 32 ILJ 1122 (LC) where the Court considered the impact of section 5 of the LRA and, in particular, the question of when contractual provisions that directly or indirectly contradict or limit section 4 (in effect the right not to be unfairly dismissed) of the LRA are permitted by the LRA.

It came to the conclusion that it does not necessarily follow –

‘[41] …that in all cases an automatic termination clause based on an event contained in a fixed term contract of employment will be visited with invalidity. It would be necessary to determine whether in the circumstances of a particular case the clause was intended to circumvent the fair dismissal obligations imposed on the employer by the LRA and the Constitution.’

The Court then went on to list some of the considerations that would be relevant in determining the intention of the parties. These included –

  • the precise wording of the automatic termination clause and the context of the entire agreement;
  • the relationship between the fixed-term event and the purpose of the contract with the client;
  • whether it is left to the client of the contractor or TES to choose and pick who is to render the services under the service agreement;
  • whether the clause is used to unfairly target a particular employee by either the client or the employer; and,
  • whether the event is based on proper economic and commercial considerations.

The Court stated that this list was not an exhaustive one and each case had to be determined on its own circumstances.

It then found that the automatic termination clause in this case met the requirement for validity. It stated that –

‘[42] … It does not follow that the inclusion in a contract of employment of a clause similar to the one in this case should automatically render a termination of that contract based solely on its legitimate terms, a dismissal. That would in my view defeat the whole purpose of concluding fixed-term contracts concluded for legitimate reasons.’


This decision was based on the law prior to the amendments to the LRA introduced in 2015. These amendments inserted a new section 198B into the LRA which regulates the utilisation of fixed-term contracts in some detail. Fixed-term contracts are defined to include contracts that terminate on: the occurrence of a specified event; the completion of a specific task or project; or, a fixed date. It further provides that fixed-term contracts entered into with employees who earn less than an amount specified in a ministerial determination issued in terms of section 6(3) of the Basic Conditions of Employment Act, 75 of 1995 (currently R205 433.30) and for a period of more than three months, will be deemed to be contracts entered into for an indefinite duration unless the nature of the work for which the employee is employed is of a limited or defined duration or the employer can show some other justifiable reason for entering into the fixed-term contract. The section lists eight circumstances where the use of a fixedterm contract will be justified. However, this is not a closed list.

Section198B will limit the applicability of the Enforce decision but it remains relevant in circumstances where the employee earns more than that specified in a ministerial determination or where the use of the contract complies with the requirements of section 198B as described above. In fact if the contract does comply with these requirements there will have been compliance with section 5 in the sense that the contract will be permissible in terms of the LRA.