Use Automatic Termination Clauses With Caution

BY Ivan Israelstam, Chief Executive of Labour Law Management Consulting. He may be contacted on 011 888 7944 or 082 852 2973 or on e-mail address: [email protected]. Go to: www.labourlawadvice.co.za

According to sections 193 and 194 of the Labour Relations Act (LRA) the awards and orders that can be made against the employer for unfair dismissal are as follows:

o The LRA requires the CCMA or Labour Court to reinstate the employee. This means that the employer must give the employee his/her job back and to pay the employee all remuneration calculated back to the date of the dismissal. The employer must also reinstate all the employee’s benefits retrospectively.

o The LRA also permits the CCMA or Labour Court to order re-employment instead of reinstatement. This means that, while the employer must give the employee his/her job back, this will not be with back pay.

o Even if the employer does not have to take the employee back at all it may still have to pay compensation up to a maximum of 12 months’ remuneration calculated at the employee’s newest rate of remuneration.

o If the dismissal is deemed to be automatically unfair the maximum compensation that may be awarded is 24 months’ remuneration.

o Such compensation is payable in addition to all other payments due to the employee. These could include notice pay, leave pay and even payment for the unexpired portion of the employee’s contract. The Labour Court and CCMA have the powers to make such additional awards by virtue of section 195 of the LRA and section 74(1) of the BCEA. Furthermore, the Labour Court has jurisdiction, in terms of section 77(3) of the BCEA to determine any matter relating to a contract of employment.

Therefore, in an attempt to circumvent all this onerous legislation, employers attempt to avoid having to dismiss undesirable employees by hiring workers on fixed-term contracts. Then, if the employee is seen as unsuitable, the employer merely allows the contract to lapse at its expiry date and says goodbye to the employee. However, this is a dangerous tactic because labour law has closed this loophole.

The main purpose of a fixed-term contract is supposed to be the filling of a temporary job. That is, the most appropriate time to hire an employee on a fixed-term contract is when the job itself is expected to come to an end at a specific time. It can be very dangerous to employ an employee on a fixed-term contract when the job itself is permanent (unless the temporary employee is merely standing for the permanent incumbent who is away on leave or who has temporarily been deployed elsewhere). The reason for this danger is that, according to the LRA, if the employer (even inadvertently) gives the employee a “reasonable expectation” that the contract will be renewed on expiry, the CCMA or bargaining council could force the employer to renew the contract.

In the case of Nape vs INTCS Corporate Solutions (Pty) Ltd (CLL Vol. 19 June 2010 page 103) the employee’s contract was terminated because the employer’s client no longer required his services. The employer argued that the employment contract allowed for automatic termination on these very grounds and that the termination did not constitute a dismissal. The Court disagreed and struck down the employment contract’s provision as it clashed with and was overruled by the provisions of section 189 of the LRA that requires a retrenchment process in circumstances where employers are unable to provide work for the employee.

In the case of Khum MK Investments and BIE Joint Venture (Pty) Ltd v CCMA and others [2020] 4 BLLR 362 (LAC) the employer concluded a five-year service contract with Eskom and recruited 333 employees on fixed-term contracts to perform this work. Eskom then advised Khum that certain specified tasks had been cancelled. Khum in turn issued written notices of termination of their employment contracts to three employees. At the CCMA Khum claimed that the employees were “independent contractors” and that they had not been dismissed because their contracts had terminated “automatically”.
The commissioner dismissed both points, ruled the employees’ dismissals unfair and awarded them compensation equal to the amounts they would have earned during the unexpired portion of their contracts. A review having failed, Khum went to the LAC which noted that the employees’ contracts made no provision for automatic termination before the arrival of their expiry date. The appeal was dismissed with costs.
The wording of this decision appears to imply that, had the contracts indeed made provision for automatic termination the appeal might have been upheld. This creates uncertainty for employers needing to know whether or not such clauses are legally acceptable.

The above shows that employers should not take a chance when dealing with the termination of employment contracts. Instead, they should obtain expert advice from a genuine and reputable labour law expert.

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