What do you mean you’re now a permanent employee?!?!?
by Claire Stewart on 30/07/09 at 8:54 pm
7 comments
For a variety of reasons many employers have employees on fixed term contracts. One thing to remember though is that it’s vital to make a note of the end date of the contract (preferably a month before). You must decide whether you want to renew the contract for another fixed term or terminate your relationship with the employee.
A recent court case has set a precedent that if your employee continues past the termination date of the fixed term contract without signing a further fixed term contract, they will be deemed to be a permanent employee from that point on. This means they automatically obtain all the rights and benefits of permanent employees -which means that the only way you can legally terminate the individual’s employment with your organisation is by way of the full disciplinary process (which is difficult if they don’t give you any grounds to act on), the retrenchment process (with its convoluted legal requirements); or illegally, by paying the employee out and hoping for the best.
The moral of the story:
A month before the termination date of the fixed term contract, decide on your course of action and act on it:
- If you want to renew the contract, prepare a new fixed term contract and get the employee to sign it.
- If you want to terminate the contract, inform your employee in writing that you will not be renewing his/her contract and that the termination date on their existing contract will be their last day of employment with you.
Otherwise your permanent workforce might have an unplanned expansion.
Claire Stewart is the founder of PeopleWise, an HR and Employment consulting service. Like Neo in the Matrix, Claire sees through the convoluted mess of SA employment law and makes sense of it for you, loyal Ideate reader. View more articles by Claire Stewart.
Tags: employment, HR, Labour, Law/Crime, Termination of employment
Bruce
Jul 31st, 2009
Claire, thanks for the info. I am sure that this article has send shivers down many small business owner’s spines who are now scrambling to find someone to review their employee contracts.
I will defiantly forward this on to my clients
Michelle
Jul 31st, 2009
Hi Claire, from another angle, my ‘tax-guy’ told me that, as a Sole Prop, I need to be monitor quantities of contract work I receive from other companies (they hand me contracts of “walk-in” clients that they are too busy to handle, strategically). Should 1 company elevate itself in one or other year to 75% of my turnover, said company is deemed an employer of myself. Implications for them and certainly tax implications for myself.
There’s a lot of info that SMEs need to keep juggled in their busy little minds.
Claire
Aug 3rd, 2009
Hi Michelle,
You should be signing an Independent Contractor agreement to prevent this happening, it should have a clause like the following: The Contractor is an independent contractor and therefore not an employee as envisaged in the Labour Relations Act, any Bargaining Council or other legislation applicable to employees. In this regard the contractor is aware that a certain presumption in terms of labour legislation (attached as Schedule A) may apply, but specifically agrees to assume the status of independent contractor despite such presumption.
Hope this helps,
Claire
Twylite
Aug 3rd, 2009
An alternative way of phrasing this: don’t try to use contracts to circumvent labour law (LRA, BCE) – it won’t work.
You are only safe using temporary contracts when there is a distinct operational requirement that falls away at the end of the contract. e.g. a member of permanent staff is temporarily absent; a specific project requires additional resources for the duration of the project; seasonal fluctuations in demand for the products/services of the business.
If you try to keep staff on fixed term contracts so that you can drop them when it is convenient (without those messy laws getting in your way), then it is guaranteed that the messy laws WILL get in your way.
See http://www.labourguide.co.za/fixed_term_contract.htm for a good description.
Michelle
Aug 3rd, 2009
Hi Claire,
Thank you for the tip. I did have an independant contractor contract in place however the “tax guy” advised that it doesn’t matter. Apparently (noting I’m NOT a tax specialist) TAX law deems you an employee if 75% of your income is from 1 company, regardless of independant contractor contracts, and hence said income is subject to PAYE formulas i.e. gets a different tax treatment. I’m not sure if tax legislation allows for ‘contracting out of’ tax legislation.
What this does prove to me is that a) I will always need a “tax guy”, b) I must get 2nd and 3rd opinions.
Thanks again.
Best regarsd
PM
Sep 2nd, 2009
Hi Claire
Is it possible that you can give me the case number and the court details in which the precedent was set, to which you refer to in your article.
Regards
Claire Stewart
Sep 4th, 2009
Hi PM,
The case details are:
Owen & Others v Department of Health KZN.
Labour Court D492/06 2 November 2008
A Van Niekerk AJ
Kind regards,
Claire