The obligation to pay severance pay to fixed-term employees

transfer pricing 105The amendments to the Labour Relations Act, No 66 of 1995 (LRA), ushered in an era of greater protection for employees on fixed-term contracts where the employees earn below the earnings threshold (currently R205,433.30) published annually in terms of the Basic Conditions of Employment Act, No 75 of 1997 (BCEA). Amongst the advantages offered to fixed-term contract workers receiving a salary of less than R205,433.30 per year is the fact that, under some circumstances, they may now also lay claim to a new statutory payment at the conclusion of a fixed-term contract.

Section 198B(10)(a) of the LRA provides that employees on fixed-term employment contracts are entitled to a payment of one week’s remuneration for every completed year of the (fixed-term) employment contract, subject to the terms of an applicable collective agreement. This payment falls due to the employee where (1) the employee earns below the earnings threshold, (2) the employee has been employed for a fixed-term to work exclusively on a specific project that has a limited or defined duration (3) the duration of the contract exceeds two years. If all these requirements have been met the employee is entitled to the payment upon termination of the contract. This provision does not import an obligation on employers to consult with affected employees about the amount of severance due, contrary to the position in respect of other severance payments provided for in the LRA and BCEA (ie in an operational requirement dismissal). Nonetheless, it provides for the possibility that a collective agreement may overrule this statutory protection. It is not stated whether such collective agreement may only increase the payment, or whether it is possible to agree to a reduced payment as well,

The employer may further escape its liability to make this statutory payment where the employer offers the employee permanent employment or procures employment for the employees with a different employer at the expiry of the contract, provided the employment is on the same or similar terms.

Employers should take great care in defining the nature and term of any project where the project is used to determine the duration of the fixed-term contract. This is especially true where there are sub-components to a project. There should be no confusion on whether the contract will terminate on the completion of the sub-component or upon completion of the larger project itself.

Employers should further take cognisance of all the amendments in respect of fixed-term employment especially when employing staff earning below the earnings threshold. Whilst the widened scope of protection offered to fixed-term employees in respect of unfair dismissal apply to all fixed-term employees, those workers earning below the threshold are likely to find refuge in the additional fortification provided to them in s198B.

Employment Alert – 30 March 2015 (130KB)