FIXED TERM CONTRACTS, DEEMED PERMANENT EMPLOYMENT AND NOVATION

There are still employers who try to avoid proper probation by using fixed-term contracts. And coming up with clever legal arguments to try and circumvent statutory provisions. The Labour Court would have none of it.  

Introduction

We frequently get enquiries from employees who had been appointed ‘on probation’ for a few months, and then find themselves still working for the employer some two months after the probationary deadline, without any formal confirmation of their employment status, and lacking a ‘permanent’ contract.

In the recent case of National Union of Public Service and Allied Workers (NUPSAW) V Mfingwana and Others (C251/17) [2020] ZALCCT 4 (20 February 2020), the employer who found itself in a situation like this and came up with some creative ideas to try and circumvent the law, was in fact a Trade Union. The Labour Court made some interesting and noteworthy observations about their approach.

Facts

The Union employed Mr Mfingwana (‘M’) as an organiser on a fixed-term contract for six months, from 1 October 2015 to 31 March 2016.

This contract was not renewed, but M continued working for the union.

In July 2016, the union proposed and got M to sign an addendum to the original contract, backdating and extending it from 1 June to 31 November 2016.

M was then promptly advised on 5 November that his contract would not be renewed when it expired on 30 November.

M claimed to have been unfairly dismissed, based on a reasonable expectation of permanent appointment (the position of Organiser is not a temporary one); and that since he had been allowed to continue working as if permanent after expiry of the initial 3-month contract on 31 March, he was to be deemed a permanent employee in terms of s198B of the LRA.

The CCMA

The CCMA found that it was an unfair dismissal:

• The nature of the work was not of a limited duration;
• The union as the employer did not put forward any justifiable reasons for employment of M on a fixed-term contract;
• It appeared as if the union was using fixed-term contracts as a probationary mechanism, which is against the spirit and intent of s198B;
• If the union had wanted to assess M’s performance, it should have employed him on a permanent contract subject to a reasonable probationary period.
• It was not open to an employer to employ someone for over a year and then simply decide not to renew the contract or make the employee permanent, based on an unanswered allegation of poor performance.

The CCMA found that M’s employment was deemed to be permanent / indefinite w.e.f. 1 January 2016, subsequent to having served a 3-month fixed term contract for which there had been no justifiable reason.

The Labour Court – on review

The union (as the employer) came up with a creative legal argument to rebut the deeming provision.

It submitted that the subsequently signed addendum by the parties which extended the fixed term contract until 30 November, ‘novated’ any claim that M might have had to be deemed a permanent employee, arising from the initial contract. [For the non-lawyers, ‘Novation’ in contractual law essentially means that one obligation is replaced with a new obligation or that the old obligation is being discharged by the new obligation.]

The Labour Court rejected this argument by examining the principles of novation in our law and emphasising that a novation is only valid and enforceable if the contract that it novates, is legally valid in the first place.

• The Court referred to the wording of the deeming provision in s198B(5), where it states that “employment in terms of a fixed-term contract concluded or renewed in contravention of subsection (3) is deemed to be of indefinite duration”. In other words, since the initial fixed-term contract did not fall within the ambit of the exceptions/justifications in s198B(3), and M had continued working after its expiry, there existed no valid fixed-term contract which could have been ‘novated’ or extended by an agreement signed in July and back-dated to 1 June 2016.
• In addition, it was clear from the fact that M had signed this addendum under protest – which is another factor to be considered to determine whether novation has occurred.

The Labour Court confirmed the CCMA’s finding of an unfair dismissal and the review was dismissed.

Conclusion

Employers who still use fixed-term contracts as probationary mechanisms, will be caught out sooner or later. Even creative legal arguments or forcing employees to sign new fixed-term contracts, will not cure the situation.

A rose by any other name is, after all, still a rose.

? Judith Griessel

www.griesselconsulting.co.za

February 2020