Fixed-Term Contracts in South Africa: 5 Mistakes Employers Still Make

Fixed-term contracts in South Africa remain an important workforce planning tool for employers. They provide flexibility where businesses require employees for seasonal work, project-based employment, temporary replacements or short-term operational demands. However, since the introduction of section 198B of the Labour Relations Act 66 of 1995 (“LRA”), employers can no longer use fixed-term contracts as a convenient alternative to indefinite employment where no justifiable reason exists. Many employers continue to rely on outdated practices that expose them to disputes before the CCMA and Labour Court. Depending on the circumstances, the consequences may include findings that an employee is employed on an indefinite basis, as well as unfair dismissal claims and orders for reinstatement or compensation. It is important to note that section 198B does not apply to every employee or every employer. Subject to certain statutory exclusions, the section generally applies to employees earning below the earnings threshold determined under the Basic Conditions of Employment Act 75 of 1997 (“BCEA”). Employers should therefore ensure that they understand whether the section applies before relying on its provisions.

Repeatedly Renewing Fixed-Term Contracts

A common mistake is repeatedly renewing fixed-term contracts without considering whether the position remains genuinely temporary. Section 198B does not prohibit fixed-term contracts. Rather, it requires an employer to have a justifiable reason for employing an employee on a fixed-term contract for longer than three months where the employee falls within the protection of the section. The employer must be able to demonstrate that the work is of a limited or definite duration or that another justifiable reason contemplated by the LRA exists. Where no such justification can be established, the employee may be regarded as being employed on an indefinite basis. Employers should therefore review every renewal carefully rather than extending fixed-term contracts as a matter of routine.

Ignoring the Risk of a Reasonable Expectation

Many employers mistakenly believe that a clause stating that a fixed-term contract will terminate automatically at the end of its term prevents legal claims. It does not. Section 186(1)(b) of the LRA recognises that a dismissal includes circumstances where an employee reasonably expected a fixed-term contract to be renewed on the same or similar terms or reasonably expected to be retained on an indefinite basis, and the employer failed to do so. Whether such an expectation exists is determined objectively with reference to all the surrounding circumstances, rather than the wording of the contract alone. Repeated renewals, assurances given by managers, ongoing operational requirements and the employer’s previous conduct may all contribute to a reasonable expectation. These principles were considered in Dierks v University of South Africa (J399/98) [1998] ZALC 126, where the Court emphasised that the surrounding circumstances, including the employer’s conduct and previous renewals, must be considered when determining whether an employee’s expectation was reasonable.

Failing to Record a Justifiable Reason

Another common mistake is describing employment simply as “temporary” without identifying the reason why. Section 198B requires employers to have a justifiable reason recognised by the Act for employing an employee on a fixed-term basis beyond the statutory period. Examples include replacing an employee who is temporarily absent, work on a specific project of limited duration, seasonal work, a temporary increase in the volume of work, externally funded positions expected to end at a particular time, employment linked to the duration of a valid work permit, or any other justifiable reason contemplated in section 198B(4). The reason for the fixed-term arrangement should be clearly recorded in the employment contract and supported by the employer’s operational requirements and surrounding circumstances. If challenged, the employer bears the onus of demonstrating that the use of a fixed-term contract was justified.

Treating Fixed-Term Employees Less Favourably

Some employers incorrectly assume that employees engaged on fixed-term contracts may automatically receive fewer benefits than comparable permanent employees. Section 198B provides that qualifying employees employed on fixed-term contracts for longer than three months must generally not be treated less favourably than comparable employees employed on an indefinite basis who perform the same or similar work, unless there is a justifiable reason for the different treatment. Objective factors such as seniority, experience, length of service, merit, performance or any other fair and rational ground may justify a difference in treatment. Employers must also ensure that employees employed on fixed-term contracts have equal access to opportunities to apply for permanent vacancies. Failure to comply with these obligations may expose employers to disputes concerning compliance with section 198B and other remedies available under the LRA, depending on the circumstances.

Misunderstanding the Three-Month Rule

Perhaps the most persistent misconception is that every fixed-term contract automatically converts into permanent employment after three months. This is incorrect. The LRA creates no automatic conversion date. Instead, once the three-month period has elapsed, an employer must be able to justify the continued use of a fixed-term contract where section 198B applies. If no justifiable reason exists, the employee may be found to be employed on an indefinite basis. The focus is therefore not on the mere passage of time, but on whether the employer can objectively demonstrate that the fixed-term arrangement remains justified.

Conclusion

Fixed-term contracts remain a legitimate and valuable employment mechanism where they are used to meet genuine temporary business needs and are supported by a justifiable reason. Section 198B of the LRA does not prohibit their use, but it does require employers to justify their continued use where the statutory requirements apply. Employers who regularly review the operational need for fixed-term employment, document the reasons supporting each fixed-term appointment, and manage employee expectations carefully will be better placed to withstand scrutiny before the CCMA or Labour Court. A legally compliant approach not only reduces the risk of costly disputes but also promotes fair, transparent and sustainable employment practices.