Fixed-Term Contracts vs Probation: What Employers Need to Know

Employers sometimes use fixed-term contracts as a “trial period”, assuming that the expiry of the contract provides an automatic and risk-free means of ending the employment relationship if the employee is not suitable. That assumption can create significant legal risk. Where the true purpose of a fixed-term arrangement is merely to assess an employee’s suitability for an ongoing position, rather than to meet a genuine fixed-term need, the employer may not be able to rely on the expiry of the contract to avoid an unfair dismissal claim. Depending on the circumstances, the employee may also be deemed to have been employed for an indefinite duration in terms of section 198B of the Labour Relations Act 66 of 1995 (“LRA”).

Probation and Fixed-Term Employment Are Not Interchangeable

Probation exists specifically to allow an employer to assess whether a newly appointed employee is suitable for the position. The current Code of Good Practice: Dismissal, issued in 2025, provides that an employer may require a newly hired employee to serve a reasonable period of probation before the employee’s appointment is confirmed. During probation, the employer should establish clear performance expectations and provide reasonable guidance, instruction, training or counselling where appropriate. The employee should be given an opportunity to demonstrate suitability and to address concerns raised by the employer.

Importantly, probation does not remove an employee’s protection against unfair dismissal. The expiry of a probationary period does not, by itself, justify termination. Where an employer decides to dismiss an employee or extend probation, the employee must be given an opportunity to make representations and those representations must be considered. The Code recognises, however, that when assessing an employee’s suitability during or on expiry of probation, a less compelling reason may be sufficient than would ordinarily be required after probation has been completed. The Code also expressly cautions against using probation for purposes not contemplated by it, including to deprive employees of the status of permanent employment.

A fixed-term contract serves a different purpose. Section 198B(1) of the LRA defines a fixed-term contract as an agreement that terminates on the occurrence of a specified event, the completion of a specified task or project, or a fixed date. For employees to whom section 198B applies, a fixed-term contract extending beyond three months may only be justified where the nature of the work is of a limited or definite duration or where there is another justifiable reason for fixing the term. The distinction is therefore important: probation is designed to assess an employee’s suitability; a fixed-term contract is designed to address employment that is genuinely limited by time, an event, a task or another justifiable reason.

The Risk of Using a Fixed-Term Contract as a Trial Period

This issue arose in National Union of Public Service and Allied Workers (NUPSAW) v Mfingwana and Others (C251/17) [2020] ZALCCT 4. The employee was employed by the union as an organiser on a six-month fixed-term contract. After the contract expired, he continued working for the union without a new contract initially being concluded. An addendum was subsequently signed extending the arrangement, after which the employee was informed that his contract would not be renewed again. The Commissioner found that the employee was performing ongoing work and that there was no justifiable reason for the fixed-term arrangement. The use of fixed-term contracts as a form of probationary mechanism was also criticised. The employee was consequently deemed to have been employed for an indefinite duration in terms of section 198B(5), and the termination was found to constitute an unfair dismissal. The Labour Court upheld the finding. The case illustrates that an employer cannot necessarily avoid the protections applicable to indefinite employment simply by describing an arrangement as “fixed-term”, particularly where the work is ongoing and the statutory requirements for fixing the term have not been established.

Using Probation for Its Intended Purpose

Where a position is genuinely ongoing and the employer wishes to assess a new employee’s performance and suitability, probation is generally the appropriate mechanism. The employee should be appointed on an employment contract that accurately reflects the permanent nature of the position and contains an appropriate probationary provision. The employer should establish clear expectations, provide reasonable guidance and training, monitor performance and address shortcomings as they arise. If the employee ultimately does not meet the required standard, the employer must follow the appropriate process before deciding to dismiss or extend probation. The fact that an employee is on probation does not entitle the employer simply to terminate employment when the probationary period expires.

Practical Implications for Employers

• Use the correct mechanism. If the position is genuinely ongoing and the purpose of the initial period is to assess suitability, probation is generally more appropriate than a fixed-term contract.
• Do not use fixed-term contracts merely as trial periods. Where the work is ongoing and the real purpose is to assess performance, the arrangement may create section 198B or section 186(1)(b) risks, depending on the circumstances.
• Ensure there is a genuine basis for a fixed term. Where section 198B applies, employment extending beyond three months must be supported by the statutory requirements, including work of a limited or definite duration or another justifiable reason.
• Remember the three-month threshold. Section 198B applies to qualifying employees employed on fixed-term arrangements extending beyond three months. A contract of exactly three months does not, merely because of its duration, trigger the section 198B deeming provision.
• Be careful about representations concerning permanent employment. Telling an employee that permanent employment will follow satisfactory performance may, together with other circumstances, contribute to a reasonable expectation under section 186(1)(b).
• Do not assume expiry automatically means there was no dismissal. Although a genuine fixed-term contract can expire without constituting a dismissal, section 186(1)(b) may apply where the employee had a reasonable expectation of renewal or indefinite retention.

Manage probation properly. Clear expectations, appropriate guidance and a fair opportunity to make representations remain important, even during probation.