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Be wary of entering into Fixed Term contracts

Employers have in the past resorted to entering into fixed term contracts with employees and, when the contract period has lapsed, renewing such fixed term agreements, sometimes repeatedly. From an employer’s perspective, the advantages of this practice are obvious. The services of an employee who is hired on a fixed term contract can be terminated without complication and costly retrenchment costs. This practice has been the subject of much litigation in the labour courts.

This article will examine the amendments to the Labour Relations Act, in particular it will examine the current legal principles applicable to Temporary Employment Services (section 198A of the Labour Relations Amendment Act, 2014) and Fixed Term Contracts (section 198B of the Labour Relations Amendment Act, 2014).

Section 198B of the LRAA, introduced new provisions regarding the duration and status of fixed term contracts.
Section 198B of the LRRA states that an employer will not be able to employ an employee on a fixed term contract for longer than 3 (Three) months unless it can be shown that a longer fixed term period is justifiable (i.e. the nature of the work or due to an alternate justifiable reason).
Consequently, an employee who is employed for a period longer than 3 (Three) months, in the absence of a justifiable reason, will be deemed to be a permanent employee of that employer. Justifiable reasons may comprise one or more of the specified reasons listed in section 198B. These grounds include but are not limited to the following:

  1. Project Work;
  2. Non – Citizens who have been granted a work permit for a defined period;
  3. Replacement of another employee who is temporarily absent;
  4. Seasonal work; or
  5. Student / graduate interns.

In addition, should the fixed term contract run in excess of 2 (two) years, an employee would be entitled to receive severance pay, equal to 1 (One) weeks remuneration for every full year of service upon the termination of the employment based on operational reasons.

It should be noted that section 198B does not apply to an employee who earns in excess of the prescribed threshold contained within the Basic Conditions of Employment Act 75 of 1997, as amended (currently an amount of R 205 433.30 per annum).


Section 198A introduces a number of restrictions on the use of individuals supplied by Temporary Employment Services (“TES”), commonly known as labour brokers.

The Labour Relations Amendment Act, 2014 (“LRAA”) states that where an individual is utilised by a client of a TES for a period exceeding 3 (three) months, such individual will be deemed to be the employee of the client unless the employee:

  • earns in excess of the prescribed threshold;
  • where the individual is employed as substitute for an employee who is temporarily absent; or
  • the individual is engaged in temporary work as determined by a sectoral determination, bargaining council or the Minister of Labour.

Thus, an employee who earns below the prescribed threshold and who is not performing temporary services as defined in section 198A, will be deemed to be the employee of the client and not the TES. In addition, the employee will be deemed to be a permanent employee of the client and may therefore not be treated “less favourably” than employees of the client. This means that the employee must have the same employment conditions as all the other employees of the client (including leave entitlements, bonuses etc.)

In light of the fact that the definition of “services” and/or “work”, in section 198 of the Labour Relations Act and section 198A of the LRAA, is not elaborated on (and the LRAA only being recently implemented) one will have to wait for an authoritative interpretation of section 198 and section 198A being handed down by the Labour Court, to determine whether and under what circumstances an employee will be deemed to be performing “services” and/or “work for the client”.

The courts are likely to apply, one or all of the judicial tests (i.e. Control Test, Dominant Impression Test etc.) developed in terms of the Labour Law to determine whether parties are indeed “employers” and “employees” within the meaning of the applicable statute and/or common law.
The LRAA has been effective from 1 January 2015 and employers had 3 (Three) months from 1 January 2015 to comply with the amendments.

Christina Pfalzgraf, Candidate Attorney

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