27 June 2022 by , and Employment Law Alert

Do employers need to retrench fixed-term employees at the end of their contracts?

In Dumisani Yeko v Red Mining South Deep (Pty) Ltd (LC) JS633/18 [2022], the employer dismissed the fixed-term employee following the termination of the tender rail contract awarded to it by a joint venture, Gold Fields. The duration of the employee’s employment was linked to the rail contract.

After Gold Fields terminated the contract, the employer initiated a retrenchment process and retrenched the employee. Fixed-term employees were given the opportunity to apply for a position under the new company that won the tender, Flint. However, the employee was unsuccessful and referred an unfair dismissal dispute. 

The court considered three issues in light of the Labour Relations Act 66 of 1995, as amended (LRA):

  1. Whether the employee was unfairly retrenched in terms of section 189A?
  2. Whether a transfer in terms of section 197 of the LRA occurred?
  3. Whether the employee was afforded any protection in terms of section 200B?

In referring to section 189(1) and (3) and section 186(1) of the LRA, which govern retrenchments, the court held that a termination of a fixed-term employment contract either by effluxion of time, or by the happening of an event, did not amount to a dismissal in terms of section 186(1) of the LRA. The employer did not have to follow the section 189A retrenchment process in these circumstances.

In this case, the termination as per the contractual term did not constitute a dismissal in terms of section 186(1) of the LRA. Thus, it was unnecessary for the employer to have followed the retrenchment process.

Section 197 of the LRA provides that contracts of employment of existing employees are automatically transferred to new employers where there is a sale of a business as a going concern. “Transfer” is defined as the transfer of a business by one (the old) employer to another (the new) employer. Notably, this provision only applies to the transfer of a business. The court held that it did not apply to the transfer of a short-term service that was lost by one company and awarded to another company. The takeover of the old employer’s employees by the new employer was also not decisive in causing such to be a transfer. Only the service contract was taken over by the new employer, and not the old employer’s business. As a result, no transfer had occurred, and Flint was not the new employer of the employee.

Employer obligations

However, the court noted that this lacuna defeats the purpose of section 197 as it is intended to safeguard security of employment. Because section 197 did not apply to transfers of tenders by way of the loss and award of contracts, fixed-term employees were not afforded any protection.

Despite the lacuna, the court noted that section 200B of the LRA does provide some protection for fixed-term employees in this scenario.

Section 200B imposes liability for employers’ obligations and provides that an employer includes one or more persons who carry on associated or related activity or business by or through an employer if the intent or effect of their doing so is or has been to defeat the purpose of the LRA directly or indirectly.

Where an employer falls within this definition, should there be more than one employer of an employee, they may be held jointly and severally liable for any failure to comply with the obligations of an employer.

The court concluded that this would require determining whether Gold Fields was also the employee’s employer, and whether it could be held jointly and severally liable for any failure to comply with the obligations of the primary employer.

However, the court could not make a pronouncement on this point as the employee’s cause of action did not rely on section 200B and as he did not allege that Gold Fields was an employer. As a result, the employee’s case was dismissed.

It is clear from this judgment that where fixed-term employment contracts are terminated by effluxion of time, or by the happening of an event specified in the contract, employers do not have to follow a section 189A retrenchment process. Additionally, and depending on the facts of the matter, no transfer will have occurred where a service contract is awarded to a new entity. However, the effect of this judgment is that employers may face joint and several liability in terms of section 200B of the LRA even if they are not the contracted employer.

download PDF

The information and material published on this website is provided for general purposes only and does not constitute legal advice.

We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter.

We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages.

Please refer to the full terms and conditions on the website.

Copyright © 2022 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com

You may also be interested in