South Africa Restricts the Use of Fixed-Term Employment Contracts for Lower Earning Employees

Effective January 1, 2015, fixed-term employment contracts with lower earning employees who work for employers with 10 or more employees must be limited to a period of three months, except for under certain prescribed circumstances. 

The Labour Relations Amended Act of 2014 introduced a new regulation of fixed-term employment contracts. The Amended Act became effective on January 1, 2015.  The regulation is set forth in Section 198B and applies only to 1) employers with 10 or more employees (and for new businesses during the first two years of their operations, the regulation applies only if the employer has 50 or more employees), and 2) to lower earning employees, which are employees earning less than a threshold annual wage determined by the South African Minster of Labour. Since July 1, 2014, the earnings threshold is South African Rand 205,433.50, which at the current exchange rate is about US $20,000.

Under the new statutory regulation, as a general rule, fixed-term employment contracts with lower earning employees are limited to a period of maximum three months. After the three month period, the employee will be deemed to be an indefinite period employee of the employer, and be protected against unfair dismissal.

A fixed-term employment contract with a lower earning employee for a period of longer than three months will be permissible only if either the nature of the work is of a limited or definite duration, or the employer can demonstrate a “justifiable reason” for the longer term.  Such longer fixed-term contracts must be in writing and state the reason for its longer term. The following are examples of “justifiable reasons” for setting the duration of the fixed-term employment contract (or successive contracts) for a period in excess of three months:

  • Replacing another employee who is temporarily absent from work;
  • Employment due to a temporary increase in the volume of work, which is expected to last for less than 12 months;
  • Seasonal work;
  • Employee will be working exclusively on a specific project that has a limited or defined duration;
  • Employee is a foreigner working on work permit for a defined period;
  • The position is funded by an external source for a limited period; and
  • The employee is retained past the normal or agreed retirement age in the employer’s business. 

Lower earning employees with fixed-term employment contracts for longer than three months have the following two new statutory rights: 1) equal treatment with full-time employees, unless a justifiable reason exists for the different treatment; and 2) equal access to opportunities to apply for vacancies.  The justifiable reasons for different treatment include the application of a system that takes into account factors such as 1) seniority, experience or length of service; 2) merit; 3) the quantity or quality of work performed; or 4) any other criteria of a similar nature. 

Finally, if the fixed-term contract of a lower earning employee is for a specific project (which is one of the listed “justifiable reasons” for longer terms) and which exceeds a period of 24 months, upon termination of the contract, such employee will be entitled to statutory severance pay, unless the employer offers the employee employment or finds employment for the employee with a different employer. The severance pay is calculated at a rate of one week’s wages for each year of service.

No statutory restrictions apply to the duration of fixed-term employment contracts with employees who earn more than the earning threshold of R205,433.50 per year (or as the earnings threshold may change). 

Multinational employers with employees on fixed-term employment contracts in South Africa should take several steps in light of this new regulation

  • Review whether those contracts include employees earning below the annual earnings threshold.
  • Evaluate whether the reason for the fixed-term might be justified to permit a contract of a longer duration.
  • Ensure those contracts are memorialized in writing and state the reason for their extended duration.
  • If the contract is not justified for a longer duration, consider whether the services of the employee are necessary and whether business needs justify engaging the employee for an indefinite period. 

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.