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Stop! You can't just retrench a fixed-term employee!

by , 21 January 2014
As an employer, you know you have the right to retrench employees. But you probably didn't know it's completely different when it comes to a fixed-term employee... You can't just retrench fixed term employees!

But if you include a clause in the contract saying you can end the contract before it expires because of operational requirements, you can. Let's look at a case to see what could happen if you do retrench a fixed-term employee

Revealed: The one mistake employers always make when retrenching employees...
It could cost your company thousands of rands in CCMA awards. Read on to discover how to avoid this from happening to you...

Case law: Buthelezi v Municipal Demarcation Board [2005] 2 BLLR115 (LAC)
In the case above, the Labour Appeal Court looked to see if the employer could terminate a fixed-term employment contract early. In other words, before the end date in the fixed term contract. His contract was for a fixed term of five years. 
The Municipal Demarcation Board retrenched Buthelezi after just over a year into his contract. They said it was for operational requirements. 
But what was the outcome? 

What did the Labour Court say?
  • There's no right to end a fixed-term contract early, unless your contract terms allow for it.
  • When parties agree their contract will be for a certain period, not indefinitely, they bind themselves to honour and perform their obligations in terms of that contract.
  • This is because for the time of the contract they plan their lives on the basis that they'll meet the obligations of the contract. 
  • The Municipal Demarcation Board had to pay Buthelezi for the remainder of his contract. In other words, four year's pay!
So, as you can see, you can't retrench a fixed-term employee, unless you make provision for the termination of the contract due to operational requirements in the contract.
If you don't and you retrench the employee you have to pay him the full value of the fixed-term contract. So, make sure you include a termination clause in your fixed-term contracts saying you can terminate the contract before it expires.
Follow the letter of the law when it comes to retrenchments! Click here to get your hands on Retrenchments: How to make sure your retrenchment process is 100% correct.
Until next time,

P.S.  You want to reduce costs... So you decide to retrench... There are four factors that determine if retrenchment is fair. Click here to find out what they are.

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