Automatic termination clauses in employment contracts, also known as "self-executing" clauses, stipulate that the employment relationship will end automatically upon the occurrence of a specific event, such as the expiry of a fixed-term contract or the completion of a particular project. In South African labour law, the validity and enforceability of these clauses have been the subject of significant debate and judicial scrutiny. The Labour Relations Act (LRA) of 1995, which governs employment relationships, provides a framework within which these clauses must operate.
Legal Framework
The Labour Relations Act promotes fair labour practices and protects employees from unfair dismissals. Section 186(1) of the LRA defines dismissal and includes instances where an employee reasonably expected the employer to renew a fixed-term contract on the same or similar terms but was not offered renewal. This provision has an indirect effect on whether the clause is lawful. Historically, automatic termination clauses which are vague or ambiguous regarding the "terminating event" have been held to be invalid and unenforceable. Where an automatic termination clause is found to be unenforceable or unlawful, the employee will be considered to have been dismissed unfairly.
Judicial Approach
South African Courts have consistently held that automatic termination clauses cannot be used to circumvent the protections afforded to employees under the LRA. The Courts have emphasised that such clauses must be reasonable, and their enforcement must be consistent with the principles of fairness and justice.
In the case of Enforce Security Group v Fikile & Others (DA24/15) [2017] ZALCD 2, the employees were hired under a contract with the specific purpose of providing security services to Enforce's client, the Boardwalk Inkwazi Shopping Centre in Richards Bay. To perform the required security services, Enforce employed several employees to be stationed at the shopping centre. The employees' contracts had automatic termination clauses to the effect that if the employment relationship between Enforce and its client terminated, then the contract between Enforce and its employees would automatically terminate. The former employees argued that they were unfairly dismissed as the automatic termination clauses were invalid. The Court found that such clauses are not always invalid. However, their validity depends on whether they were intended to circumvent fair dismissal obligations imposed by the Labour Relations Act (LRA) and the Constitution. Furthermore, in this particular case, it was held that the employees were not "dismissed" for the purposes of the LRA, as a third party had triggered the clause.
In Khum MK Investments and Bie Joint Venture (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration and Others (JA52/2018) [2020] ZALAC 1, the employer attempted to rely on an implied automatic clause to justify termination of employees fixed-term contracts. It held further that while provision was made in the contract for the automatic termination by effluxion of time, the employer had issued letters of termination to its employees prior to the time stipulated in the contract. By doing so, it terminated the employment contract with notice, which conduct fell within the definition of a dismissal in Section 186(1)(a) of the LRA.
In Khum, it was confirmed that, as it was held in Enforce Security, where the express provisions of that employment contract unambiguously provided that the employee's employment duration was "totally dependant" on the duration of the company's contract with its client, the employee contract shall automatically terminate. It was held "that it was not correct that the substance of the reason for termination over its form may be decisive, as the issue remained whether the contract permitted for its automatic termination on specified grounds".
More recently, in Numsa and Another v Metal and Engineering Bargaining Council (MEIBC) and Others (D627/2021) [2023] ZALCD 21, handed down on 14 December 2023, Kaefer Thermal had a commercial contract with Sapref as a provider of maintenance work. The contract between Kaefer and Sapref provided that "Sapref shall be entitled to instruct Kaefer Thermal to adjust its personnel numbers". Hadebe's employment contract with Kaefer stated that it would expire automatically "if the employer is of the reasonable opinion the employee is no longer necessary for the completion of the contract work". Sapref instructed Kaefer to "demobilise" staff, and Hadebe was issued a notice regarding the termination of his employment.
The CCMA Commissioner found that there was no dismissal, as the termination was automatic upon the occurrence of an agreed event (Sapref informing Kaefer Thermal that staff were no longer required).
The Labour Court overturned the CCMA award. It found that the automatic termination provision was not triggered by an objectively demonstrable event (such as the completion of a project) but was instead triggered by Sapref's decision and the exercise of Sapref's will. The Court found that Sapref's decision to instruct Kaefer to reduce staff was thus not an event that could lawfully result in the automatic termination of Hadebe's employment and, consequently, Hadebe had been dismissed.
Practical Implications
For employers, the key takeaway is that automatic termination clauses must be crafted carefully and implemented in a manner that does not infringe on employees' rights. Employers should ensure that:
– The event triggering automatic termination is clear and unambiguous.
– The clause does not undermine employees' reasonable expectations of continued employment.
– The termination complies with the procedural and substantive fairness requirements of the LRA.
It is important to note that the presence of an automatic termination clause does not strip employees of their rights under the LRA. Employees can challenge the fairness of an automatic termination and seek redress if they believe it is unjust.
Conclusion
Automatic termination clauses in South African labour law must be balanced against the rights of employees as protected under the Labour Relations Act. The courts have consistently ruled that these clauses cannot be used to bypass the legal requirements for a fair dismissal. Employers must exercise caution and ensure that any automatic termination clause in an employment contract is reasonable and fair, considering the broader objectives of the LRA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.