Can you retrench a fixed-term employee?

06th July 2016

As an employer, you know you have the right to retrench employees. But you probably didn’t know it’s completely different when it comes to a fixed-term employee…
You can’t just retrench fixed term employees! Unless you include a clause in the contract saying you can end the contract before it expires because of operational requirements. But we’ll look at this in more detail later; let’s look at a case first…

Case law: Buthelezi v Municipal
Demarcation Board [2005] 2 BLLR 115 (LAC)
In this case, the Labour Appeal Court looked to see if the employer could terminate a fixed-term employment contract early. In other words before the end date in the fixed term contract. His contract was for a fixed term of five years.
The Municipal Demarcation Board retrenched Buthelezi after just over a year into his contract. They said it was for operational requirements. What did the Labour Court say?
– There’s no right to end a fixed-term contract early, unless your terms allow for it.
– When parties agree their contract will be for a certain period, not indefinitely, they
bind themselves to honour and perform their obligations in terms of that contract.
– This is because for the time of the contract they plan their lives on the basis that they’ll meet the obligations of the contract.
– The Municipal Demarcation Board had to pay Buthelezi for the remainder of his contract. In other words, four year’s pay!

So, you can’t retrench a fixed-term employee.
Unless you make provision for the termination of the contract due to operational requirements in the contract.
If you don’t and you retrench the employee you have to pay him the full value of the fixed-term contract.
So, make sure you include a termination clause in your fixed-term contracts saying you can terminate the contract before it expires.

Use this sample clause in your fixed-term contracts to make sure you can retrench a fixed-term employee if you need to:
“You agree that the services provided by you may be terminated for good reason (including, but not limited to, operational reasons, poor performance and misconduct) before the expiry date of the fixed term agreement.”

Four vital rules for managing
1. Fixed-term contracts make sure you manage your fixed-term contracts properly.

Follow these four rules the fixed-term contract must be in writing.
This way you can prove how long the contract is valid for.
2. The contract must specify the period of employment. This must be in terms of either
weeks or months, or specify the project that will trigger the end date.
3. The contract must say there’s no reason to expect employment after it expires. Once the period expires, the relationship will end.
4. Don’t let an employee carry on working after the contract expires, unless you enter into a new agreement. Remind him beforehand that the contract will expire.
5. If you can’t work out the exact period of the contract, both of you must accept that, you can extend the contract by agreement. You can also shorten it if you meet your target of the project before it expires.
6. The employee must accept that he can’t expect the renewal of the contract or appointment into another position, when the contract expires. Unless you’ve made an offer and he accepts it in writing.
7. The employee must agree that if the contract doesn’t run to the full term because the project ends early or the permanent employee returns etc. including but not limited to operational reasons, poor performance and misconduct, you can terminate the contract with notice.

K. Cowley
(Chairperson – (CEA – LBD)