LEGAL PLATFORM : Fixed term employment contracts: a review

In employment contracts are crucial if not everything. The employer is obligated to give an employee a contract. My interest today is to discuss fixed term contracts of employment. However, at the risk of prolixity, if find it pertinent to discuss the categories of contracts first.

The Employment and Labour Relations Act provides that a contract with an employee shall be of the following types: Contract for an unspecified period of time. Some people call this type, a permanent contract or open ended contract; a contract for a specific period of time for professionals and managerial cadre. Some people call this type, a fixed time contract; and a contract for a specific task.

From the above provision, it is crucial to note that non-managerial or professional employees can only be employed by using either a contract for an unspecified period of time or contract for a specific task. It is not permissible to employ these employees vide a fixed term contract because this type of contract applies to professionals and managers. This means that if an employer gives such an employee a fixed term contract and upon the expiry of its term, decides to let it end, and if the employee protests, then the employer risks being found to have unfairly terminated the employee’s employment because the fixed term contract may be deemed to be contract for an unspecified period of time.

I so reason because labour fora are normally very reluctant to declare contracts void at the expense of the employee. As for managerial or professional employees, these can be employed using either of the three categories of contract stated above.

It is noteworthy that in practice the seemingly strict provision on categories of contracts are more honoured in breach than in compliance. There is a plethora of fixed term contracts covering non-managerial employees and non professionals, and these contracts have been consistently enforced by the CMA and the Labour Court regardless.

Again, the just solution to this breach will be to regard these fixed term contracts as open ended contracts, and proceed to determine the rights of the parties accordingly. I also find it illogical and senseless to restrict fixed term contracts to professionals and managerial employees only. Other employees should be able to enter into fixed contracts. My take is the fear of non renewal in a fixed term contract in a way boosts performance on the part of employees. Fixed term contract ends automatically at the expiry of the duration set in the contract. However, there are some instances where the contract can be deemed to have been renewed, hence barring either party from ending the contract at the date of expiry of the original contract. The contract can be renewed if the same is renewed in writing or impliedly.

In most fixed term contracts, employers forget to include a provision on renewal or non renewal of the contract. The decision whether or not to include such a provision in a fixed term contract should be considered carefully because the choice either way has consequences. The law provides that termination of employment includes; “failure to renew a fixed term contract on the same or similar terms if there was a reasonable expectation of renewal.”

Things that may trigger expectation of renewal include, inter alia, renewal clauses, previous renewals, failure to issue notice of non renewal if it was needed, giving work to the employees with deadlines stretching over expiry date of the contract, continue to give work to employee and paying salaries after expiry of contract etc. Each case has to be decided on its own facts.

So if the employer has a fixed term contract which has a clause on renewal, then its automatic termination (without following procedure) may well be deemed to be unfair, and attract the nasty consequences that goes with that finding. So an employer who does not intend to renew the contract or create an expectation of renewal may decide to state it clearly or leave the renewal clause out altogether, and allow the contract to end when it is due to expire, and conclude new contract after each expiry if a need arise, instead of issuing renewals. Renewals create an expectation of further renewal.

On the other hand, for those employees who wish to retain employees after the expiry of contract, they should note that the absence of an indication of a possibility of renewal in the contract may scare off good employees who may start planning their exit well in advance of the expiry date of their contracts. Employees want security/some sense of permanency. By the time you offer them the much needed renewal, it may be too late. The employer has to balance these considerations depending on his specific needs. If a fixed term contract is terminated unlawfully, one can sue for breach of contract seeking remedies as payment of salaries and benefits for the unexpired term of the contract.

In Tanzania, there are some court decisions favoring this position, while many others prefer to award the usual remedies for unfair termination if the employee under a fixed term contract has worked for over six months with the same employer. In the UK, the law favour the former position. The UK went further to distinguish between pure fixed term contract (not terminable by notice) and other fixed term contracts ( with notice provision).

John Bowers in his book titled “A Practical Approach to Employment Law” writes:“Very large measures of damages are available only where the contract is for a fixed term contract and cannot be terminated by notice. This is most usually the case in high status occupations like company directors, football club managers, and accountants. The measure of damages is then similarly the amount which would have been earned in the unexpired part of the fixed term, but here might be four or five years to run”

Finally, once a fixed term contract comes to an end, the employee is not entitled to severance pay as a matter of law, unless the parties agree otherwise.