25 May 2015 Employment Alert

Temporary employment services – Assessing automatic termination clauses through the telescope of the fixed term contract

In general, our courts have declared automatic termination clauses which permit the immediate removal of the employee employed by a Temporary Employment Service (TES) from the client's premises unlawful, as these clauses constitute a breach of the employee's right to fair labour practices.

The Labour Court was recently tasked with determining whether the position is altered in circumstances where TES employees are employed under fixed term contracts which contain agreed end dates, being the date when the client terminates the Service Level Agreement (SLA) with the TES. This issue was addressed in the case of SATAWU on behalf of Dube and 2 others v Fidelity Supercare Cleaning Services Group (Pty) Ltd, Case number: JS 879/10.

In brief, the facts were that Fidelity provided cleaning services to the University of the Witwatersrand (Wits) through an SLA. The employees that Fidelity placed at Wits were members of SATAWU and had been appointed by Fidelity on fixed term contracts of employment.

The main aspects of the fixed term contract of employment were as follows:

"Period of Employment

The employee’s employment will commence on the date appearing on the schedule to which this agreement is attached and terminate on the date appearing on the schedule or the date upon which the contract which exists between the company and the customer terminated or on the retirement date, whichever date occurs first; and

The employee specifically acknowledges that he/she fully understands that the company’s contract with the customer might be terminated by the customer and for any cause or might terminate through the effluxion of time and that in consequence thereof the nature of the employee’s employment with the company and its duration is totally dependent upon the duration of the company’s contract with the customer and that the employee’s contract will terminate when any of the events predicated in 2.1 occur and the employee fully understands that there will be no entitlement of severance pay".

On the 27 November 2009, Wits gave notice to Fidelity to terminate the SLA and, in turn, Fidelity issued all employees with letters advising them that as a result of the termination of the SLA, their fixed term contracts would come to an end as agreed.

Wits subsequently required further services from Fidelity albeit with a reduced staff compliment. Although invited, none of the employees who were part of the present case applied. As a result, their employment was terminated for operational reasons and SATAWU challenged the dismissals.

In the Labour Court, SATAWU contended that in dismissing their members, Fidelity did not follow the required provisions of s189 of the Labour Relations Act, No 66 of 1995 (LRA). Alternatively, SATAWU submitted that the dismissals were unnecessary as the contract with Wits had in fact continued in a reduced form.

In response, Fidelity argued that there were in fact no dismissals as the services of Fidelity and thus the employees employed under Fidelity had automatically terminated. More particularly, the termination of the SLA was an agreed term that had been fulfilled.

The Labour Court had to determine whether such a clause as contained in a fixed term contract of employment, permitted its automatic termination, alternatively whether the employees' termination of employment constituted a dismissal.

In deciding the matter, the Labour Court considered a number of prevailing authorities, including the decision of Sindane v Prestige Cleaning Services (2010) 31 ILJ 733 (LC), in which it was held, among other things, that in principle an employment contract can be terminated in a number of ways which do not constitute a dismissal and that these can include the natural expiry of a fixed term employment contract entered into for a specific period, or upon the happening of a particular event.

Notwithstanding this principle, in the decision of SA Post Office Ltd v Mampeule (2010) 10 BLLR 1052 (LAC), the Labour Appeal Court held that parties to an employment relationship cannot contract out of the protection against unfair dismissal, whether or not they do so by means of an automatic termination clause or otherwise, as the LRA was promulgated in the public interest.

In the decision of Nape v INTCS Corporate Solutions (Pty) Ltd (JR 617/07) [2010] ZALC 33, the court also held that in applying the right not to be unfairly dismissed, the Labour Court will not be bound by contractual limitations created between parties and that conflict with the fundamental rights of workers.

The above principles have been amplified by the LRA Amendments and, in particular, s198(4C) of the LRA which provides that, "an employee may not be employed by a temporary employment service on terms and conditions of employment which are not permitted by this Act, any employment law, sectoral determination or collective agreement concluded in a bargaining council and applicable to a client to whom the employee renders services".

On the basis of these authorities, the Labour Court held that Fidelity's employees had been dismissed on the basis of operational requirements and that any clause in a contract between a client and TES which allows the client to undermine the right not to be unfairly dismissed, is against public policy and is thus unenforceable.

It is incumbent on both TESs and clients to ensure that the contractual arrangements which they agree to in their SLAs are compliant with the above authorities and the LRA in its amended form. Failure to comply may result in such terms being overruled by the courts.

Clients who make use of TESs are also cautioned where TES employees earn under the threshold of R205,433.30 and are contracted for a period longer than three months, as - in terms of the new s198A of the LRA, these TES employee will be entitled to institute action against either the TES, or the client, or both. As such the consequences of any unenforceable provisions in the SLA can now also be levelled against the client.

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