Fixed-Term Contracts – Reasonable Expectation of Renewal, or not!

You have been employed on a fixed term contract for a number of years. Each year the contract is renewed for a further fixed period on the exact same terms as the existing one. Then, approaching the completion of the latest fixed term contract, your employer announces that there will be no further renewals or extensions of the fixed term employment contract.

Does this leave you without recourse? Are you dismissed? To answer these questions, we need to take a closer look at what exactly a fixed-term contract entails at the hand of the definition of a dismissal.

• What is a fixed-term contract?

The term is self-explanatory in that the contract is for a fixed/specific/predetermined period.  It is not an indefinite or permanent contract.

Who then determines the end date? Section 198 B of the Labour Relations Act (LRA) provides that a fixed-term contract is a contract that terminates on the occurrence of a specific event or completion of a specific task or project or on a fixed date other than an employees agreed or normal retirement age.

• What is a dismissal?

In essence a dismissal is when your services are ended, but there are various forms of dismissal. Section 186(1) in the LRA sketches no less than five scenarios that are termed dismissal Subsection (1)(b), speaks to fixed-term contracts that are not renewed or renewed on less favourable terms when there was a reasonable expectation that the employer would renew the fixed-term contract on identical or similar terms and conditions.

The key word or the element that must be present to render the termination of a fixed-term contract an unfair dismissal is where the employee had a reasonable expectation that the contract would be renewed.

This then begs the question, what is a reasonable expectation?

Reasonable Expectation

A reasonable expectation of a renewal may be established on a number of factors dependent on the circumstances and will be open to the interpretation of the courts. For instance:

• In the dispute – Malandoh v SABC[1997] 5 BLLR 555 (LC), the employee was engaged on a fixed term employment contract. The employee saw his contract renewed after the end of each period for eight consecutive periods. Nearing the completion of the last period the employee was informed that the contract would not be renewed. The court in this case held that the contract on its own did not create an expectation of renewal.
• In the dispute – King Sabata Dalindyebo Municipality v CCMA & others (2005) 26 ILJ 474 (LC) (hereafter referred to as King Sabata case), the Labour Court established that the employees, employed as cleaners, had established a reasonable expectation. In this scenario the services of the cleaners were still required and the Municipality had sufficient funds to sustain the renewal. It was confirmed that the cleaners were dismissed and that their dismissal was unfair.

It is evident from these two decisions that, apart from the number of times a contract has been renewed, there are more to consider when determining whether a reasonable expectation has been created. Specifically, in the King Sabata case where it was established that there was a reasonable expectation created by the employer through the repeated renewals; the necessity of their services and the availability of funds to remunerate them.

The Labour Court held in Pikitup Johannesburg (SOC) Ltd v Muguto and others [2019] 10 BLLR 1146 (LC) that while a number of extensions of a fixed-term contract is a relevant factor, its weight must still be objectively evaluated.

In Dierks v University of South Africa (J399/98) [1998] ZALC 126 (14 December 1998), the court provided guidance and determined that, in ascertaining whether a reasonable expectation has been established, several factors ought to be considered. Including, but not limited to, the evaluation of all the surrounding circumstances to establish whether a reasonable expectation of renewal had come into existence on an objective basis. Other factors that should be considered are the provisions in terms of the contract; undertakings made by the employer; the conduct of the employer when renewing employment and numerous other factors not limited to the foregoing.

Conclusion

Our courts have come to varying decisions on whether the non-renewal of a contract constitutes a dismissal which goes to show that there are no hard and fast rules on how to determine whether the non-renewal constitutes a dismissal. Each matter ought to be dealt with on an individual basis, objectively taking into account each case’s unique facts. The reasonableness of the expectation is inevitably tied to the circumstances in which it finds itself.

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