Is there still place for fixed-term contracts in the construction industry?

30 Nov 2016

Can a construction contractor automatically terminate its employees’ contracts when skills are no longer required for a construction project? This question was at the centre of the Labour Court case of National Union of Mineworkers obo Milisa and Others v WBHO Construction (Pty) Ltd.

In this matter, WBHO (the “contractor”) employed concrete and general workers on fixed-term contracts in 2012. The employees contended that, on signing their employment contracts, they were told that they would stop working once the construction project was complete. The project was scheduled for completion in July 2013, however, in December 2012 some of these employees were issued with letters terminating their employment contracts on 19 December 2012.

The employees approached the Labour Court, claiming that they had been unfairly dismissed. The contractor denied this, arguing that the employees were employed on fixed-term employment contracts and that it needed different skilled workers at different times during the project. While the employees’ skills were needed during the initial stages of the project, they were not required for its full duration. The employment contracts stipulated that each employee would remain in employment for “the duration of his skills requirement on the contract”.

The court’s decision 

Before the court, the employees argued that their dismissal was an unlawful premature repudiation of their fixed-term contracts of employment, and that the contractor was not entitled to terminate their employment contracts before the completion of the construction project.

The court, however, held that the employees’ argument that their employment contracts would endure until the “end of the project” was untenable because the employees conceded having signed employment contracts in which they agreed to remain in the contractor’s employ for the “duration of their skills requirement in the project”. Relying on the “automatic termination” clause in the employment contracts (which provided that the contract would be terminated by the occurrence of an event or the passing of time), the contractor argued that the employees’ contracts ended when their skills were no longer required. The employees argued that a maximum-duration contract could be terminated before the expiry date only on good cause shown; for example, if employees are in material breach of their contracts, and if such condition is agreed for the employer’s operational requirement. The onus rested on the contractor to establish that the automatic termination clause prevailed over the relevant provisions in the Labour Relations Act, 1995 (“LRA”).

The Labour Court held that parties to an employment contract cannot contract out of the protection against unfair dismissal afforded to an employee under the LRA, whether through “automatic termination” provisions or otherwise, because the LRA was promulgated to cater for the public’s interest, not only an individual’s interest.

The employees argued that the automatic termination provision of their contracts entailed a unilateral and subjective assessment by the contractor that granted it an unfettered discretion to decide when the employees’ skills were no longer required. Due to the nature of the duties of a general worker, the decision on whether his or her skills were no longer required was subjective. The contractor could not shed any light on how it came to the conclusion that the employees’ skills were no longer required and why the contractor had retained 20 to 30 other general workers until February 2013.

The court held that the automatic termination provision was invalid as it disregarded the provisions of the LRA that preclude employers from terminating employees’ contracts “at will”. It was found that the contractor dismissed its employees for operational requirements as it no longer had work for them. When the contractor contemplated dismissing its employees for operational requirements, it was required to ensure that the dismissal was substantively and procedurally fair, which it had failed to do.

Fixed-term contracts – the amendments to the Labour Relations Act 

An important consideration for employers when concluding fixed-term contracts are the amendments introduced by the Labour Relations Amendment Act, 2014, which became effective on 1 January 2015. The amendments are aimed at avoiding the abuse of fixed-term contracts in a bid to avoid employer obligations under the employment laws. The amendments expressly stipulate the circumstances in which fixed-term contracts are permitted. For the purpose of section 198B of the LRA, a “fixed-term contract” means a contract of employment that terminates on either:

  • the occurrence of a specified event
  • the completion of a specified task or project
  • a fixed date, other than an employee’s normal or agreed retirement age

The amendments do not apply to:

  • employees earning more than (currently) R205 433.30 per year
  • an employer that employs less than 10 employees, or that employs less than 50 employees and whose business has been in operation for less than two years
  • employees employed in terms of a fixed-term contract that is permitted by any statute, sectoral determination or collective agreement

Employment in terms of a fixed-term contract (newly concluded or renewed) for longer than three months will be deemed to be employment for an indefinite period (permanent employment), with some exceptions. One exception is the utilisation of a fixed-term contract of employment where the employee is employed to work exclusively on a specific project that has a “limited or defined duration” (section 198B(4)(d) of the LRA). But be warned: when such an employee is employed for more than 24 months, the employer must, subject to the terms of any applicable collective agreement, pay the employee, on expiry of the contract, one week’s remuneration for each completed year of the contract, calculated in accordance with section 35 of the Basic Conditions of Employment Act, 1997 (section 198B(10) of the LRA).

This will have far-reaching implications for employers in the construction sector, where employment is often not of indefinite duration and contracts are often linked to specific projects.

Take-away message for construction contractors 

Employers should take great care in defining the nature and term of the duration of employment in any construction project, since such projects often require reliance on some employees for a limited duration, where the project is used to determine the duration of the fixed-term contract. There should be no room for doubt about whether the employment contract will terminate on the occurrence of a specified event or the sectional completion or final completion of the works that are the subject of a construction project. Contractors should ensure that their employment contracts comply with applicable labour legislation and that the expiration of fixed-term contracts is managed properly and with the necessary care.

(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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