1 The benefits problem
‘Permanent’
employment, of course, meant benefits and job security on the same basis as
other persons who often worked for much shorter periods for the same
organisation, but enjoyed access to benefits like pension and medical
aid preserved for permanent employees only. All the statutory power of the
unfair dismissal tool and innovative clauses (like s. 186(1)(b) - non-renewal
in the face of a reasonable expectation for it) inserted in the new, overhauled
LRA in 1995, did not make much of a dent in almost 20 years, in this strong
common law wall. Lawful termination through expiry of a contract for a fixed
period, proved a tough opponent in the labour law of dismissals.
This led to
a ‘second class’ of worker, who never knew the same benefits as his
permanent employee counterparts. In turn, banks and credit providers view the
value of a fixed term contract as almost worthless for obtaining longer-term
credit, when compared to a permanent employment contract. The fact that the
permanent employee may also unpredictably be retrenched at relatively short notice,
is a point that escapes credit providers. Putting workers who do the same
job in the same workplace in two tiers, one permanent with benefits, and the
other fixed term only (often with no benefits), is sowing the seed for serious
discontent. A legal solution through the LRA, was called for, to avoid this
‘casualisation’ of our labour force, and retain our standing in the
international labour community.
2
The short-period problem
Permanent
employment with related benefits is expensive. Employers facing tough economic
times, cannot be blamed for opting for flexibility and keeping the
payroll trim, by using fixed term contracts. It keeps costs down, and allows
them to hire up only when needed, they argue. Healthy labour flexibility would,
they argue, allow them to hire extra fixed term workers over peak need periods
such as the festive season in retail and e-retail, or Easter in hotels in
certain areas. This claim ‘we need workers for short fixed periods to help
out’, has nothing wrong with it. However, it sounded better than the actual
practice in many workplaces. Research done in South Africa before the
introduction of the 2010 Bill proposals that resulted ultimately in the Labour
Relations Amendment Bill of 2012, showed that fixed term workers often worked
for much longer periods that just peak times. Their contracts were simply
renewed or rolled over many times. This, in turn, resulted in the ‘second
class’ worker problem, described above. Short periods proved not short. To this
the legislator said : fine, short term contracts, where the need exists, are in
order. Our task is to avoid the two tier, ‘second class’ fixed term worker, who
is often a vulnerable person, remaining a feature of our labour market.
This
article proceeds to explain the changes made to the fixed term contract figure
in the Labour Relations Amendment Bill of 2012 (‘LRAB’). (This Bill was
adopted by the National Assembly on 20 August 2013. The LRA Amendment Bill still has
to go through the National Council of Provinces and then it has to be
promulgated by the President, and a date of commencement determined. The
general view is that all of this probably will not occur before the amendments
to the other Acts (i.e. the BCEA and the EEA) have also been passed by
Parliament.
LRAB
changes to the fixed term contract
3
The LRAB introduces changes to section 186(1), which deals with dismissals
and unfair labour practices, in particular where fixed term employees are
concerned. This applies to workers of all income levels.
3.1
Section 186(1)(b) now will hold that a dismissal means that an employee
employed in terms of a fixed term contract of employment reasonably expected
the employer -
(i) to renew a fixed term contract of
employment on the same or similar terms but the employer offered to renew it on
less favourable terms, or did not renew it; or
(ii) to retain the employee in
employment on an indefinite basis but otherwise on the same or similar terms as
the fixed term contract, but the employer offered to retain the employee on
less favourable terms, or did not offer to retain the employee;
The
addition of (ii) means that the failure by an employer to permanently employee
or retain an employee, who was then engaged under a fixed term contract of
employment and who reasonably expected to be permanently employed or retained
on the same or similar terms, constitutes a dismissal. The correction was
necessary : in the past only the employee with an expectation of renewal for
another fixed term contract upon expiry (a difficult matter to prove),
could claim dismissal. The employee with an expectation of indefinite
employment, was not covered !
These amendments, once enacted, will now
protect the fixed term employee from the problem of proving whether his
expectation was for a fixed term or a permanent contract upon renewal/expiry.
Also, that he could not (ironically) have had an expectation for more that he
had before, namely that if once on a fixed term contract, he could not have the
expectation of appointment to a permanent, indefinite position. This gap is now
closed.
It still of course enables the employee to
claim an unfair dismissal where the employer in either instance, wants to
bargain for the renewal of the contract now that he is ‘in employment’, on
lower terms of remuneration than before. To do so, would be a dismissal.
This is a serious matter in the context of labour flexibility and economic
pressures on employers – in a way it promotes ‘rolling over’, and undermines
fresh bargaining of a new contract. In skilled sectors such as IT, where heavy
use is made of high-cost FT contracts, this requires careful reflection by
employers. In a tough labour market where many persons above the earnings
threshold are also anxious about the renewal of their fixed term contracts,
this clause may well be put to more use from the quarters of more senior levels
of ‘non-vulnerable’ workers.
4
Fixed term contracts and labour brokers
4.1
The LRAB introduces a new section 198A dealing with fixed term workers of
labour brokers, and again only applies to vulnerable persons below the
threshold income level.
So, taking the issue above in mind, how long
is the ‘new short-term’ employment, before the new protections kick in?
After much wrangling, which until recently
held out for 6 months, it is now approved by the National Assembly as 3 months.
The political import of this period can hardly be overstated. At that point,
the rights to special protections kick in.
Such persons are ‘genuinely’ in a temporary
service if they do not work for more that three months for the client, or do so
as a substitute for an actual employee of the client who is absent temporarily
for some reason (e.g. maternity leave), or they fall in a category of
work and for a period of time determined by the Minister or a Council agreement
to be a temporary service for that industry or sector. (In other words, it
refers to an agreement that regulates labour brokers and temporary services, on
special terms for that industry. The Minister may also add more through a
process of public submissions – sec. 198A(6)) Such ‘genuinely’ temporary
workers will remain the employees of the labour broker.
If not, sec. 198A(3)(b) will determine upon enactment that such ‘non-genuinely’
temporary worker is deemed to be the employee of the client, who is (deemed to
be) the employer, and probably on a permanent basis. Such deemed indefinite
term employee of the client must be treated on the whole no less favourably
than an employee of the client performing the same or similar work. (See the
discussion above about IR tensions arising from a two-tier remuneration
system.) This means that if the employer is not prepared to compensate such
employee with equal access to its benefit schemes, it would have to pay the
employee out for benefits of such value. Most often, this will be more
expensive when quoted for single employees privately in the market.
4.2
In order for labour brokers to get their house in order, a three month period
will be allowed after the LRAB comes into effect, after which workers on their
books, will acquire the rights discussed above. In other words, labour brokers
enjoy a reprieve period, to clear their house of workers whom they perhaps did
not administer or believe were part of their workforce whom they stand in for as
employer, or whom they appointed on contract terms conflicting with these
new provisions.
4.3
Note : a new term is used in contradistinction to ‘employment’ in these
amendments : ‘retain’. Apparently it signifies personal services where
employment may not have been established.
5
New provisions for vulnerable fixed term employees in sec. 198B – this is
the big one for employers
5.1
The LRAB also introduces changes through sec. 198B, which deal with
vulnerable fixed term employees not hired through labour brokers.
5.2
It provides that a fixed term contract means an employment contract that
terminates on the occurrence of a specified event (e.g. ‘the departure
of the last guests in the wedding party from the hotel’), or the completion
of a specified task or project (e.g. ‘final sign-off of the warehouse
relocation project’), or a fixed date other than the employee’s
normal retirement age (e.g. ‘31 December 2014’). Naturally, there may be
overlap of these three categories on the facts.
5.3
As stated, the section does not apply to workers earning in excess of R
193 805 per annum, but only to those who in our labour economy are formally
recognised as ‘vulnerable’ workers. Employers are only impacted by these
changes to the fixed term contract where workers earning below R 193 805
per annum are concerned. (See below.) Other practices regarding
higher-earning fixed term contractors remain intact, and it is over to unions
and employees earning above this statutory income threshold in the BCEA (set by
the Minister in the Government Gazette from time to time), to monitor the
impact in the workplace, and bargain for further protective solutions with
employers. HR and payroll personnel should monitor the impact of this dividing
line, once the LRAB is enacted : does it lead to artificial retention of
appointees at salaries below this BCEA threshold ? Are workers in the same role
or with the same responsibilities still earning different salaries depending on
whether they are permanent or fixed term ?
Small businesses are also exempt : (1) employers with less than 10
employees, or (2) that employ less than 50 employees and whose
businesses have been in operation for less than two years (with
qualifications), are not covered by this provision.
Employees
who are covered by collective agreements or sectoral determinations which
permit special fixed term arrangements, often for that specific sector or
enterprise, are also not covered by this section, even if they earn
below the threshold amount per annum. They are governed by the fixed term terms
of their industry agreement, even if it conflicts with these new protections in
the LRAB. The reasoning is that special protection could be negotiated
effectively through collective bargaining for such sector, industry or group.
(The Metal and Engineering Industries Bargaining Council agreement, for
example, have such provisions relating to fixed term contracts, amongst other
directing the parties to negotiate and engage the employee afresh at the
beginning of each new fixed term contract period, to eliminate ‘rolling over’.)
5.4 An
employer may engage an employee on a fixed term contract or successive fixed
term contracts for longer than 3 months of employment only if the
work is of limited duration OR the employer can demonstrate any
other justifiable reason for fixing the term of the contract.
Sec. 198B(4) goes on to stipulate what will be a justifiable reason, but
makes it clear this is not a closed list. The underlying principle in the
proposed sec. 198B is justifiability. That of course, links back to rationality
and accountability by employers. Employers must be able to justify fixing the
duration of an employment contract, amongst others, by planning their needs.
Some of the reasons which will be deemed
justifiable reasons for appointment on a fixed term contract for longer than 3
months are, if the employee:
1 is
replacing another employee who is temporarily absent from work; (e.g. on
maternity leave)
2 is
employed on account of a temporary increase in the volume of work which is not
expected to endure beyond 12 months; (this is an indication that fixed term
contracts longer than 12 months are treated with some suspicion)
3 is a
student or recent graduate who is employed for the purpose of being trained or
gaining work experience in order to enter a job or profession;
4 is
engaged to work exclusively on a genuine and specific project that has a
limited or defined duration; (this would in the normal course be the basis
for a fixed term contract of one form at common law)
5 has been
engaged for a trial period of not longer than 6 months for the purpose of
determining the employee’s suitability for employment;
6
is a non-citizen who has been granted a work permit for a defined period;
7
is engaged to perform seasonal work;
8
is engaged on an official public works scheme or similar public job creation
scheme;
9
is engaged on a position which is funded by an external source for a limited
period;
10
has reached the normal or agreed retirement age applicable in the employer’s
business.
5.5
Sec. 198B(5) states that employment in terms of a fixed term contract concluded
or renewed without a Justifiable Reason is deemed to be of indefinite
duration.
5.6
An offer of employment on a fixed term contract or to renew or extend a fixed
term contract must be in writing and must state the nature of the
limited-period work and any justifiable reasons relied upon by the
employer. This will go a long way to eliminate costly, lengthy disputes around
the basis for the conclusion of a fixed term contract, and proof of what the
parties said led to entering into such an agreement. It is of great assistance
to eliminate disputes where vulnerable, often illiterate workers were involved.
It will however now hold employers to a much higher level of accountability for
fixed term arrangements and labour planning. Not surprisingly, the employer
will carry the onus that a justifiable reason existed in any proceedings, and
the duration of the fixed term was agreed.
5.7
Sec. 198B(8) holds that an employee who is employed on a fixed term basis for
longer than six months due to a justifiable reason must be treated no less
favourably than a permanent employee doing the same or similar work, unless
there is a justifiable reason for different treatment. Justifiable reasons
for a pay distinction will not be easy to identify, but may arise within the
particular employer’s business, and would probably reflect its HR and
remuneration philosophies, such as the levels of skill and experience of the
respective two employees doing the same work. Sec. 198D(2), on which a separate
set of comments will be posted, states that a justifiable reason includes that
the different treatment is a result of the application of a system that takes seniority,
experience, and length of service into account, as well as merit and the
quality and quantity of work performed. HR practitioners may of course also
insert their own internal, but professionally acknowledged criteria of
distinction in this regard, but it may not amount to discrimination under sec.
6(1) of the Employment Equity Act.
5.8
Employers are given a reprieve of 3 months after the new amended LRA takes
effect, to get their house in order, and resolve the status of existing fixed
term employees in their service. Thereafter, these cited provisions will apply
to their old fixed term employees. Newly hired ones will fall under the
amendments as from commencement date.
5.9
Employers will also b as from commencement date be required to both fixed term
and permanent employees with equal access to opportunities to apply for job
vacancies. This, of course, refers to permanent positions.
5.10 An employee
on a fixed term who is engaged to work exclusively on a genuine and specific
project that has a limited or defined duration, and who then is in
employment for more than 24 months on such work, must be paid severance pay of
one week per year in accordance with sec. 35 of the BCEA. This will be
calculated for the entire period of the actual employment. Employers naturally
did not budget for severance pay for fixed term workers in their employment
before the commencement of the amendments. This exposes them to risk of
severance pay if the new arrangements comes into effect. The solution is in
sec. 198A(10)(b) which states such fixed term workers will only be entitled to severance
pay for the period after commencement date.
5.11
Importantly, an employee will not be entitled to the severance pay set out
above, if the employer prior to expiry date offers the employee employment or
obtain work for it elsewhere, which commences on expiry of the fixed term
agreement and is on the same or similar terms. Such employee, who can of
course only be a fixed term employee who worked 24 months or more, presumably
is losing nothing and suffering no cessation of work, in that he has obtained
on-going, uninterrupted work elsewhere, and on similar terms to what he enjoyed
before. There are technical issues of proof and causation in this clause
198A(11), but at the very least, it enables employers to avoid paying severance
pay for longer-standing fixed term workers by actively deploying them
elsewhere. It is submitted that such employee’s years of service with the
employer should be taken into account, and then he will at any rate perhaps
even trump other permanent employees in terms of length of service, when
competing equally for new positions falling open.
5.12
In terms of these approved amendments, employers will therefore no longer be
able to appoint workers on successive fixed term contracts without such
employees enjoying rights to be treated no less favourably than workers doing
the same or similar work. ‘Similar work’ is an HR concept, which will have to
be reviewed in any particular work environment. International case law and
remuneration practices on this issue will inform our reasons here, together
with the few guiding cases we have in South Africa in this regard.
5.13
It should be noted that should an employer determine that a certain fixed term
contract worker falls outside of the ambit of the Act, either because the
employee earns more than the threshold amount, or in terms of one of the other
justifiable exemptions, such determinations should be re-assessed at least once
per annum to confirm that the relevant exception being relied upon is in fact
still valid in relation to each such employee.
5.14
A period of six months will lie for referral of such disputes to the CCMA or a
council, for conciliation and arbitration.
Note : This
is a general discussion of certain aspects of the issue. It is not intended as legal
or professional advice on any aspect addressed herein. We look forward to
discussing your particular issue with your organisation.
