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Can you retrench a fixed-term employee?

by , 15 December 2016
Can you retrench a fixed-term employee?You've employed an employee on a two year contract. Unfortunately, you've lost a big client and now you have to retrench him, amongst other staff.

But can you? What does the law say about retrenching fixed-term employees?

Can you retrench a fixed-term employee?

As an employer, you know you have a right to retrench employees. But you probably didn't know the situation's completely different when it comes to a fixed-term employee...

Fixed term employees can't be retrenched unless you include a clause in the fixed-term contract that you can terminate the contract before its end date, due to operational requirements.

In today's economy many employers are unfortunately embarking on retrenchments and think they can retrench all their affected employees, including fixed term employees. But this isn't the case.


The number one mistake employers make when retrenching employees...
If you know how to avoid it, you'll save your company hundreds of thousands of rands in compensation at the CCMA.


Buthelezi v Municipal Demarcation Board [2005] 2 BLLR 115 (LAC)

In the above mentioned case, the Labour Appeal Court looked at if a fixed-term employment contract may be terminated prematurely, i.e. before the end date specified in the fixed term contract.

Buthelezi was retrenched just over one year into a five year fixed-term employment contract on the grounds of operational requirements. The Labour Appeal Court held:

'…there is no right to terminate such contract even on notice unless its terms provide for such termination. The rationale for this is clear. When parties agree that their contract will endure for a certain period as opposed to a contract for an indefinite period, they bind themselves to honour and perform their respective obligations in terms of that contract for the duration of the contract and they plan, as they are entitled to in the light of their agreement, their lives on the basis that the obligations of the contract will be performed for the duration of that contract in the absence of a material breach of the contract.'

So unless you make specific provision for premature termination of a fixed-term contract due to operational requirements, you can't retrench a fixed-term employee.

This leaves you in a position that you'd have to pay the full value of the fixed-term contract to the employee if you retrench him before the end of the contract. So make sure you include a termination clause in your fixed-term contracts stating that you can terminate the contract before the end of the period.

Do not fall into this trap when it is so easy to avoid.

For more details on retrenchments refer to chapter R03: Retrenchments in Labour Law for Managers. Still not a subscriber? Click here now...

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