Fixed-term / project-based employment

Project-based recruiting is relatively common in South Africa and so are the related employment contracts catered to the needs of the employer’s client. Service providing employers place employees with clients in terms of fixed-term eventuality contracts. These contracts typically make provision for the contract to terminate upon termination of contract between the employer and the client, it being that the client no longer requires the services rendered by the employer.

Job loss and uncertainty regarding the lawfulness of such provisions frequently gives rise to litigation. Of course, our Labour Courts have reiterated time and again that the right not to be unfairly dismissed is one of the most important manifestations of the constitutional right to fair labour practices.

That being said, not too long ago the Labour Appeal Court in Enforce Security Group v Fikile and Others (judgment handed down on 25 January 2017) upheld a claim of automatic termination and found that, on the facts of the case, there was no dismissal. Happily, for employers, the Court held that it did not follow that “the inclusion in a contract of employment of a clause … should automatically render a termination of that contract based solely on its legitimate terms, a dismissal”, and that this would “defeat the whole purpose of concluding fixed-term contracts concluded for legitimate reasons”.

Khum MK Investments and Bie Joint Venture (Pty) Ltd v CCMA and Others

At the beginning of this year (2020), the Labour Appeal Court in Khum MK Investments and Bie Joint Venture (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (judgment handed down on 6 January 2020), again, had opportunity to deliberate on the question of an automatic termination of contract.

This time, however, in a rather novel argument the employer party, Khum MK Investments and Bie Joint Venture (Pty) (“Khum”) attempted to rely on an implied automatic termination of contract, having contended in effect “that a common unexpressed term permitting automatic termination could be inferred from the surrounding circumstances.

On the facts, Khum was a special purpose company established to provide persons, including the respondent employees (“the employees”), to perform certain services in terms of a contract with its only client, Eskom. The duration of this contract was five years and the date envisaged for completion was 13 April 2014.

The employees entered into fixed-term contracts of employment with Khum, which would automatically terminate on 30 April 2014. In addition, provision was made for the fixed-term contracts to be terminated before this date, specifically, “clause 3.2: 7 (Seven) days written notice must be given by either party should a party wish to terminate this agreement, for any reason whatsoever, save for completion of the assignee’s role on the Eskom contract” (“Clause 3.2”).

Khum relied on Clause 3.2 when it gave written notice to terminate the employees, consequent upon Eskom’s cancellation of certain task orders. This was prior to the completion date of the Eskom contract.

After a bout in the CCMA, the employees were successful in a claim for unfair dismissal and were awarded considerable compensation. On review in the Labour Court, Khum had again lost the fight, the Labour Court having held, among other things, that Clause 3.2 “in any event did not provide for automatic termination in the event of the termination of the agreement” with Eskom.

On appeal, the central question was whether the terms of the fixed-term employment contracts provided for automatic termination in the event of a cancellation of certain task orders by Eskom.

Unsurprisingly, the Court found that Clause 3.2 did not lend itself to an interpretation that it explicitly dealt with automatic termination.

Can automatic termination of the employment contract be implied?

Nevertheless, Khum’s alternative argument was that, “at the very least it was a tacit term… that the recruitment and deployment of the employees at Eskom was… reliant on the issuing of task orders by Eskom” and it maintained that “all the circumstances surrounding and relating to the contract indicate that the parties had automatic termination in mind even though they did not express it in the written instrument”.

This argument was found to be unsustainable for two main reasons:

  1. tacit terms are unexpressed provisions of the contract derived from the common intention of the parties. They are inferred not only from the surrounding circumstances but also from the express terms of the written contract. This means that before a tacit term may be imported into the contract, it is necessary to examine the express terms of the contract. In this case, automatic termination was already catered for, specifically, on expiry of the fixed-term. Importing a tacit term catering for automatic termination by events other than this would be contradictory; and
  2. a tacit term allowing automatic termination on cancellation of the task orders is not necessary to give business efficacy or functionality to the contract. Tacit terms can only be implied into a contract if it is necessary in the business sense to give it efficacy.

The whole agreement clause

Finally, the Court had regard to the provision of the fixed-term contract that “no party shall be bound by any express or implied term, representation, warranty, promise or the like not recorded herein, whether it induced the contract and/or whether it was negligent or not”, being the end of the road for Khum’s argument.

These standard boilerplate type clauses are inserted for the very purpose of ensuring that what is written amounts to the entire contract between the parties. Therefore, the Court found that “when Khum issued the letters of termination to the employees it terminated their employment with notice and its conduct fell within the definition of a dismissal in section 186(1)(a) of the LRA.

Importance of the case: express and unambiguous provisions

This case highlights the importance of ensuring that fixed-term employment contracts, where necessary, contain express and unambiguous provisions stating that an employee’s employment with the employer and its duration is entirely dependent on the duration of the employer’s contract with its client/s, or the happening of specified events such as cancellation of services by a client.

We trust that you found this article informative, please email [email protected] for assistance with drafting or the review of fixed-term employment contracts.

Rowan Bauer is an attorney specialising in employment law at HJW Attorneys, a boutique law firm based in Fourways, Johannesburg.

This article is provided for informational purposes only and should not be substituted for legal advice on any specific matter. Any opinions expressed herein are subject to the law as at the time of writing and will change in accordance with any change in the law. We recommend that you contact HJW Attorneys at [email protected] directly for advice applicable to your specific matter.