Case summary written by Snazo Tuswa and checked by Jordan Dias
1 April 2021
Background
The Applicant concluded a contract of employment with the Second Respondent (the employer) to render services as a Vendor Administrator to the First Respondent for a limited period of 24 (Twenty-Four) months from 1 January 2017 to 31 December 2018.
The contract of employment was terminated on 30 March 2018, by way of a letter dated 22 January 2018, from the Second Respondent. The aforesaid letter simply stated that the First Respondent had terminated the Applicant’s employment; no reasons for the termination were given. When the Applicant questioned the basis of the Second Respondent terminating his employment, the Second Respondent relied on a clause in the contract which stipulated that “this short-term assignment may be terminated by either party with a minimum of 30 days’ notice.”
The Applicant contended that the premature termination of the contract without furnishing reasons thereof was unfair and unreasonable. It goes against the principles of good faith, Ubuntu, fairness, and simple justice. Further, the Applicant alleged that the cancellation amounted to repudiation. The Applicant contended that she had suffered loss/damages as a result of the repudiation and was entitled to the salary payable for the remainder of the contract.
The First Respondent contended that the employment contract was terminated on account of operational requirements and it informed the Second Respondent of its financial and operational difficulties and that it no longer required the service of the consultants. Furthermore, the employment contract was concluded between the Second Respondent and the Applicant in respect to services that would be rendered to the First Respondent. Therefore, the First Respondent argued that there was no basis in law or fact for the relief that the Applicant was seeking because the employment contract was between the Applicant and the Second Respondent. It was also argued by the First Respondent that, in terms of the employment contract, the Second Respondent was responsible for the payment of salaries, allowances, allowances, taxes and costs (including leave entitlements) which arose in relation to the Contractor Personnel and for any costs or expenses relating to the removal of any Contractor Personnel.
The Second Respondent denied that it was the First Respondent’s agent but a management consultancy and technology solutions service provider of which the First Respondent had been their client for some time. It also denied that the cancellation of the contract was unfair and that it constituted a repudiation of the contract.
The Applicant sought an order against the First and Second Respondents declaring their notice of termination of her employment invalid and unlawful. The Applicant also claimed damages from the First and Second Respondent’s alleged repudiation of her employment contract plus money payable for the leave days due to her as at 30 March 2018 (the termination date).
Court held
The Court was required to determine whether a fixed-term services employment contract can be terminated prior to the agreed termination date or the happening of the agreed-upon circumstance by the mere exercise of the notice as provided in the contract, without any reasons being stipulated in the notice.
The Court held, according to the common law, that fixed-term contracts of employment or services cannot be prematurely terminated, unless
- there is a material breach or repudiation by either party; In other words, there is no right to terminate such contract even on notice, without a material breach or repudiation; and
- unless its terms provide for such termination.
The Court held further that there are two exceptions for premature termination of the fixed-term contract which are valid, fair and reasonable. Firstly, there should be repudiation or a material breach and secondly, the terms of the contract should provide for such termination. The Court stated that courts have upheld the principle that by entering into a fixed-term contract of employment for a specific period, the parties intend to be bound by the contract for that stipulated period.
Referring to established authorities, the Court held that employers need to ensure that their contracts include their specific requirements. They need to ensure that the contract includes a clause allowing for premature termination, especially if it is anticipated. Therefore, premature termination of a fixed-term contract amounts to a breach of contract, unless the contract specifically makes provision for earlier termination. Employers who want to terminate a fixed-term contract, before the expiry date, could do so as long as the employee is paid for the full term. However, if the fixed-term contract allows for premature termination, then the employer will not be liable to pay the employee in respect of the remainder of the term of the contract and an employer can retrench an employee employed on a fixed-term contract, even if the contract does not specifically mention that this is permissible, but rather allows for premature termination as a general statement.
A notice to bring a fixed-term contract to an early end is a repudiation because it does not, in itself, constitute a contractually permissible act of termination. The innocent party then has an election to hold the guilty party to the contract or to accept the repudiation and cancel the contract.
In respect of the issue of damages, the Court held that, in terms of the common law, the damages that an employee is able to claim for breach of contract is limited to the amount still due for the remainder of the period of the contract. Whilst in terms of the Labour Relations Act, an employee may in certain circumstances be able to claim more if an employer prematurely terminated the fixed term contract. The amount for which the Respondent would be liable for must place the Applicant in the same position as she would have been had the Respondent not prematurely terminated his employment.
In applying the abovementioned principles, the Court held that the termination of the Applicant’s contract of employment prior to its expiry date, even on notice, amounted to repudiation. Since the Applicant had accepted the repudiation, she was entitled to full payment of the remuneration that was still due for the remainder of the term of the contract. Although the Applicant is also entitled to be compensated for the leave pay that was going to accrue to her, had her contract not been prematurely terminated, she failed to prove that she forfeited leave or had leave due to her at the time of termination, the days for which leave has been accumulated and the amount payable.
In respect to the Respondent’s argument that the contract was validly terminated on the basis of operational requirements, the Court held that there was no provision for premature termination even on general terms. The Court held that a party to a fixed-term contract is not entitled to later seek to escape its obligations in terms of the contract on the basis that its assessment of the future had been erroneous or had overlooked certain things.
The Court held that the termination of the Applicant’s fixed-term contract of employment is invalid and constituted a breach of the contract. The Second Respondent was ordered to pay the Applicant’s total salary payable for the remainder of the Applicant’s employment contract. In addition, the Court dismissed the Application against the First Respondent.
Value
The court highlighted the importance of employers including their specific requirements in employment contracts, and that employers need to ensure that the contract includes a clause allowing for premature termination especially if it is anticipated.
