Can fixed-term contracts automatically turn into permanent contracts?

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In Department of Agriculture, Forestry and Fisheries v Teto and Others,1 the Labour Appeal Court (“LAC”) considered whether the termination of employees initially engaged on fixed-term contracts constituted a dismissal on the basis that the employees had become indefinitely employed when they were permitted to work beyond the expiry date in their fixed-term contracts.

In this case, the employees had been engaged on fixed-term contracts for the duration of one year but had continued to work for the employer in their same positions, performing the same tasks for another two years before their services were eventually terminated. The General Public Service Sectoral Bargaining Council found that the employees were permanent employees and had been unfairly dismissed. The employees’ reinstatement was ordered.

On review, the Labour Court held that:

  1. Although there was an employment relationship between the employer and the employees, the employees were not permanent employees.
  2. The Court further held that the employees had been treated unfairly as their services had been terminated abruptly and as such compensation equal to up to 12 months’ remuneration was ordered.
  3. It set aside the award of the bargaining council and awarded payment of compensation equal to 12 months’ remuneration as opposed to reinstatement.

On appeal, the employer argued that it was not the employer of the employees at the time of the termination, as they were temporary employment service employees. It further alleged that on the expiry of the fixed-term contracts the employees were no longer employed by the employer and instead became employees of an agency, which paid their salaries. The evidence of the employees was that on the expiry of the fixed-term contract, they had been informed that they would continue in their same positions on an indefinite basis, but their salaries would no longer be paid through the government payroll system. Instead, they would be paid through a service provider. The employer paid the agency, and, in turn, the agency paid the employees. The reason for this was that the employees’ positions did not appear on the organogram of the employer. Importantly, there was no employment contract entered into between the employees and the agency, the employer made arrangements for their travel to work, and paid daily subsistence allowances.

The Labour Appeal Court held that:

  1. If an employee is initially employed on a fixed-term contract and continues to work for the employer after the fixed-term contract ends, then the contract is deemed to be tacitly novated into that of permanent employment.
  2. The bargaining council had reached the correct conclusion when finding that the employees had become permanently employed and were permanent employees on their dismissal.
  3. The Court acknowledged that some of the terms and conditions of the employees’ employment had changed, for example, there had been a reduction in remuneration, but it was held that this factor is not decisive.
  4. The employees remained employed by the same employer, albeit on different terms.
  5. It would generally be assumed that the parties intended for the new contract to be of an indefinite duration unless there were facts to the contrary.

Thus, the appeal was dismissed.

The employees cross-appealed against the Labour Court’s judgment alleging that they should be reinstated as opposed to being awarded compensation. Regarding the cross-appeal, the Labour Appeal Court held that reinstatement is the default remedy if a dismissal is substantively unfair unless there are exceptional circumstances that warrant the granting of compensation instead. The employer had not made out a case that any exceptional circumstances exist and as such the cross-appeal was upheld. The employees were subsequently reinstated.

Reference List:

  • Monique Jefferson BA (Wits) LLB (Rhodes)De Rebus in 2020 (Dec) DR 33.
  • Department of Agriculture, Forestry and Fisheries v Teto and Others [2020] 10 BLLR 994 (LAC).

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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