Automatic termination of employment: Not always clear-cut

law hammer
16 Feb 2017

In the recent decision in Enforce Security Group v Mwelase Fikile and Others, the South African Labour Appeal Court was tasked with looking at the validity of an automatic termination clause in the context of a fixed-term employment contract.

In this matter, the employer, Enforce Security Group (“Enforce”), was a private security services provider contracting out security officers to its clients. The security officers were employed on the basis that their period of employment would endure until the termination of the service contract between Enforce and the client whose premises the employee would be assigned to. This type of provision is commonly referred to as an “automatic termination clause”.

In this instance, the client gave notice of termination of the service agreement to Enforce and, pursuant to the automatic termination clause, Enforce terminated the employment of those employees based at the client’s site.

The employees referred an unfair dismissal dispute to the Commission for Conciliation, Mediation and Arbitration (the “CCMA”). The Commissioner held that the contracts were “indefinite (period)” contracts where the period of employment could be determined with certainty. The Commissioner further found that the client’s termination of the contract with Enforce led to an automatic termination of the employment contracts and there was therefore no dismissal.

The matter was taken on review to the Labour Court. The court overturned the CCMA’s decision on the reasoning that “any contractual provision that infringes on the rights conferred by the [Labour Relations Act, 1995 (the “LRA”)] or Constitution is not valid, and even though the employee might be deemed to have waived his or her rights, such waiver is not valid or enforceable.” The Labour Court further found that while Enforce may have had an obligation to embark on a retrenchment exercise, the termination of employment constituted a dismissal and this dismissal was substantively and procedurally unfair.

The matter was then taken on appeal to the Labour Appeal Court, where Enforce maintained its argument that the termination of the employees’ contracts did not constitute a dismissal as defined in section 186(1)(a) of the LRA as the cause of the termination of employment was not an act of the employer, but an act of the employer’s client. The Labour Appeal Court confirmed that an employment contract can be terminated in a number of ways that do not constitute a dismissal in terms of section 186(1) of the LRA, in particular, the termination of employment by the occurrence of a specific event.

The court held that the employment contracts were fixed-term contracts where the end of the fixed term was defined by the completion of a specific task or project; in this case, the termination of the contract between Enforce and its client. As the client terminated the contract, there had been no direct or indirect act by the employer to cancel the employment contracts and although the employer could have retrenched the employees or considered other options, this did not negate the terms agreed to by the employer and the employees.

As such, the court held that automatic termination clauses based on an event indicated in a fixed-term contract are not necessarily invalid. The court cautioned that it is necessary to consider the circumstances of each case to determine if the clause is intended to circumvent the employer’s obligations under the LRA. In so doing, one must consider, among other issues, the precise wording, 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 to pick and choose who is to render the services under the service agreement, whether the clause is used to unfairly target a particular employee by the client or the employer, and whether the event is based on proper economic and commercial considerations. In this case, the court found that the automatic termination clause was not invalid and that its inclusion in the employment contracts did not automatically render the termination of the contract, based solely on its terms, a dismissal.

It is important for employers to carefully consider automatic termination clauses together with the abovementioned factors as it is these factors that are likely to be used to interpret the validity of such clauses. As illustrated by this case, the interpretation and valid application of an automatic termination clause is not always clear-cut and employers should be mindful when adopting such clauses.

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)

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