Fixed Term Contracts

Fixed Term Contracts

Human Resources, Legislation


This is an explanatory overview and guideline in respect of the amendments to the Labour Relations Act for Fixed Term Contracts (FTCs), and more specifically Section 198B.


The first issue to determine with regards to entering into an FTC would be to ascertain whether Section 198B applies to the specific organisation, or the specific individual to be employed.

Section 198B(2) states the following:

“198B(2) – This section does not apply to:
a. employees earning in excess of the threshold prescribed by the Minister in terms of Section 6(3) of the Basic Conditions of Employment Act (currently this amount sits at R183,008.00 per annum);
b. an employer that employs less than ten employees, or that employs less than fifty employees and whose business has been in operation for less than two years, unless:
(i) the employer conducts more than one business; or
(ii) the business was formed by the division or dissolution for any reason of an existing business; and
c. an employee employed in terms of a Fixed Term Contract which is permitted by any statute, sectoral determination or collective agreement.”

What this would tend to indicate is that a contract entered into, for example, with an employee who earns over the threshold, will not have to comply with this specific section and the FTC would in these circumstances be permissible to be for a period in excess of three months without any formal justification. This section is also important to small employers as stated in sub-section (b) above, as again this section would not apply to those types of undertakings. Should the employer be an undertaking that the section would apply to it, then set out hereunder are the further considerations which would need to be taken into account.


The first consideration which would need to be made by the employer would be regarding what period they require the employee to work. Should the employee be a solution for a short-term problem, then an FTC can still be entered into, such as in terms of the Act prior to the amendments for this period. The difficulty which the amendments do create however, is that should the employer require an employee for longer than this period, a formal justification would be required for any FTC entered into for longer than the three month period.

In terms of the amendments, the Act sets out the possible justifications one could have for an FTC over the three month threshold. These are the following:

“4. Without limiting the generality of sub-section 3, the conclusion of a Fixed Term Contract will be justified if the employee:
a. is replacing another employee who is temporarily absent from work;
b. is employed on account of a temporary increase in the volume of work which is not expected to endure beyond twelve months;
c. is a student or recent graduate who is employed for the purpose of being trained or gaining work experience in order to enter into a job or profession;
d. is employed to work exclusively on a specific project that has a limited or defined duration;
e. is a non-citizen who has been granted a work permit for a defined period;
f. is employed to perform seasonal work;
g. is employed for the purpose of an official public works’ scheme or a similar public job creation scheme;
h. is employed in a position which is funded by an external source for a limited period; or
i. has reached the normal or agreed retirement age applicable in the employer’s business.”

This formal justification would have to be reflected in the employee’s contract as to indicate that the employer has a reason for the FTC to be longer than the three month period.


Should an employer at any given stage attempt to renew an FTC, either one which was previously below the three month threshold, or, which would now then go over such period, or alternatively an FTC which was already over the three month period but which would require to be renewed, would have to extend such an offer to the employee for renewal in writing and would furthermore have to state the reasons for this renewal, as contemplated by the justifications set out above.


A further aspect which needs to be considered is that an employer may employ an employee using an FTC for a duration longer than three months should the nature of the work for which the employee is employed be of a limited or definite duration. Again, this would link into one of the justifications regarding the specific project for which an employee may be employed or for a specific set of deliverables that the company could suggest.


One final aspect that an employer will also be required to consider, with regards to FTCs, would be that any employee who is employed to work exclusively on a specific project that has a limited or defined duration, and where such contract exceeds a twenty four month period, would be entitled to the payment of one week’s remuneration for each completed year of the contract, calculated in accordance with Section 35 of the Basic Conditions of Employment Act on the expiry of this contract.

The only time that this payment would not be applicable would be if the employer had offered the employee employment or procures employment for the employee with a different employer, which commences at the expiry of the contract and on the same or similar terms.


Therefore, should the employer follow the steps as set out above with regards to entering into an FTC with an employee, they would fall in line with the amendments to the Labour Relations Act.

However, should the employer fall foul of Section 198B and the justification provided for offering an FTC or renewing an FTC for a period in excess of three months is not accepted, the specific FTC would be deemed to be of an indefinite duration, ostensibly the employee would be a permanent employee. Therefore, as stated above, this memorandum is to assist an employer in determining whether the position which is available requires the employee to enter into an FTC for a period of three months or, alternatively, if there is some form of justification as to why the FTC could be for a period longer than that. This would simply mean that an employer would now have to pay more consideration to its operational requirements when entering into FTCs and should the employer follow the requirements set out above correctly, they could quite easily continue to utilise FTCs when employing individuals.

Contact Nicky Hardwick in our HR department on [email protected] for assistance.