3 September 2018 by Employment Alert

Do employers have free rein to terminate fixed-term employment?

The High Court in Joni v Kei fresh Produce Market (936/2012) [2018] ZAECMHC 39 (14 August 2018) (the Joni judgment), confirmed the right of an employer to prematurely terminate a fixed-term employment contract on any grounds. According to the court, it is sufficient for a fixed-term employment contract between the employer and the employee to simply contain a clause permitting either party to terminate the contract on written notice, prior to the expiration of the contract term. This is independent of whether such termination may be fair in terms of the Labour Relations Act.

The employee instituted action against her employer, Kei Fresh Produce Market (KFPM), claiming damages arising out of the alleged unlawful termination of her contract of employment with KFPM. The employment contract was for a fixed-term and commenced on 1 July 2010, to end on 30 June 2015. Clause 10 of the contract provided for termination, prior to the expiration of the term of the contract. Particularly, clause 10.2 stipulated that either party would be entitled to terminate the contract on one month’s written notice to the other party, while clause 10.3 provided that notwithstanding anything to the contrary, the contract could also be summarily terminated on any grounds recognized in law.

In 2011, KFPM wrote to the employee, giving her one month’s notice of the termination of the employment contract, citing operational requirements as the reason.

The High Court relied on the Labour Appeal Court decision of Buthelezi v Municipal Demarcation Board [2005] 2 BLLR 115 (LAC) (Buthelezi), which highlighted that the common law does not recognise the right to terminate a fixed-term contract of employment prematurely in the absence of a repudiation or material breach, which was interpreted to mean that where the terms of the employment contract specifically make provision for premature termination, such termination is lawful.

In light of its interpretation of Buthelezi, the High Court in the Joni judgment held that if no termination clause was present, the right of termination would be restricted in terms of the common law. It, however, highlighted that under these circumstances, there was a termination clause present, and it set out the terms of termination in clear and unambiguous language. The High Court then concluded that because clause 10.2 placed no restriction on the grounds upon which the contract could be terminated and because the employee was served with a notice of termination which cited the reasons for termination, the contract was terminated lawfully. Furthermore, the Court made it clear that clause 10.3 of the contract was not applicable to this situation as it referred to “summary termination”, which would deal only with instances of gross misconduct or material breaches that warrant immediate termination.

The High Court held that the contract of employment was therefore lawfully terminated in accordance with the provisions of the contract.

Accordingly, if an employer terminates a contract in accordance with its termination clause, but without complying with labour legislation, the employee may not have a claim under the contract, but the employer may still be exposed to a claim under the Labour Relations Act. Where the fixed-term contract does not include a termination clause, the employee may have both a contractual and employment claim.

In light of the Joni judgment, it would be prudent for employers to ensure that their fixed-term contracts with employees contain a provision permitting the early termination of the contract. This, however, does not detract from the fact that in terminating the contract in accordance with its termination clauses, employers must still comply with the Labour Relations Act.

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