What is a fixed term contract and when can a fixed term contract be extended?

What is a fixed-term or fixed-duration contract?

Section 198B(1) of the Labour Relations Act (LRA) defines a fixed-term contract as a contract of employment that terminates on:

·         the occurrence of a specific event;

·         the completion of a specified task or project;

·         a fixed date other than an employee’s normal or agreed retirement age.

·         The nature of the work is of limited or definite duration. (Example of this is when the person is employed to complete a specific task like, for example, a building which may take longer than three months to complete (section 198B(3)(a)).

Does it make sense to appoint someone on a three-month fixed term contract or appoint them permanently with a three-month probation clause?

A fixed-term contract cannot be terminated before the end date unless a complete disciplinary process is followed and misconduct proved or a termination clause allows for termination. For this reason, it is not recommended that a fixed-term contract be used to circumvent the labour law requirements of following due process to discipline and terminate the employment of an employee. 

Can you extend a fixed-term contract in South Africa?

You may only extend the duration of a fixed-term contract if there is a justifiable reason for extending the employment of employees beyond three months. The conditions of an extension beyond three months are laid out below. If these conditions are not met, an employee is deemed permanently employed by the employer. 

Can a fixed-term or fixed-duration contract be terminated?

A fixed-term contract cannot be terminated before the end unless there is a termination clause and the correct disciplinary and training processes have been followed as laid out in the LRA. 

The protections  on fixed-term contracts do not apply to:

•    Employees who earn R224080,30 per year (R18673 per month) with effect from 1 March 2022

•    Employers who have fewer than ten employees; or

•    Employers with fewer than 50 employees who have been in business for fewer than two years unless the employer has more than one business or the business was formed from other existing businesses.

If the employee is protected and the employer has more than ten employees or has been in business for more than two years or has more than one business, the duration of fixed-term contracts is limited to three months.

You may only extend the duration of a fixed-term contract if there is a justifiable reason for extending the employment of these employees after three months. Examples of justifiable reasons to extend the duration of the contract:

·      is replacing another temporarily absent employee;

·      is employed due to a temporary increase in work which is not expected to endure beyond 12 months;

·      is a student or recent graduate employed for the purpose of being trained or to gain work experience to enter a job or profession;

·      is employed to work exclusively on a specific project of limited or defined duration.

·      is a non-citizen granted a work permit for a defined period;

·      is employed to perform seasonal work;

·      is employed on an official public works scheme or similar job creation scheme;

·      is employed in a position funded by an external source for a limited period;

·      has reached the normal or agreed to retirement age in that business.

If any of the above is present, a fixed-term contract may be extended past three months.

Checklist:

1. Are we dealing with a protected employee:  R224080,30 p.a?
2. Are we dealing with a protected employer? Fewer than ten employees or fewer than 50 employees who have been trading for less than 2 years? Or the employer has more than one business.
3. If No, limited duration of the fixed term to 3 months
4. If Yes, then protections do not apply.