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Can an employer retrench a fix-term employee?

Employers have the right to retrench employees. However, it is completely different when it comes to an employee that is on a fixed-term contract of employment. A fixed-term employee cannot just be retrenched, unless the contract stipulates that it could be ended before it expires due to operational requirements.
 

Retrenchment of employee

Case Law: Buthelezi v Municipal Demarcation Board [2005] 2 BLLR 115 (LAC)

In this case, the Labour Appeal Court looked to see if the employer could terminate a fixed-term employment contract early. In other words before the end date in the fixed-term contract. The employee’s contract was for a fixed-term of five years. The employer, the Municipal Demarcation Board retrenched Buthelezi after just over a year into his contract. They said that it was for operational requirements.

What did the Labour Appeal Court say?

  • There is no right to end a fixed-term contract early, unless the terms allow for it.
  • When parties agree their contract will be for a certain period, not indefinitely, they bind themselves to honour and perform their obligations in terms of that contract.
  • This is because for the time of the contract they plan their lives on the basis that they’ll meet the obligations of the contract.
  • The Municipal Demarcation Board had to pay Buthelezi for the remainder of his contract. In other words, four year’s pay!

Therefore an employer cannot retrench a fixed-term employee unless provision is made for the termination of the contract due to operational requirements. If not and the employee is retrenched the employer would have to pay him the full value of the fixed-term contract. It is thus important to include a termination clause in fixed-term contracts stating that the contract could be terminated before it expires.

Example clause to ensure that a fixed-term employee can be retrenched

We would suggest that employers use the following sample clause in their fixed-term contracts:

“The employee agrees that the services provided by him/her may be terminated for good reason (including, but not limited to, operational reasons, poor performance and misconduct) before the expiry date of the fixed-term agreement. Should the employer contemplate the termination of this contract for these reasons, the employer shall follow the guidelines contained in Section 189 of the Labour Relations Act, 1995”.