NPOs & Fixed Term Contracts

In 2016 the Labour Court (the Court)  delivered a judgment in which it held that a non- profit organisation’s dismissal of an employee on the grounds of operational requirements was procedurally and substantively fair. The Court also provided some interesting findings on fixed term contracts within that context.

 Runguma v Civicus: World Alliance for Citizen Participation Inc (JS100/2012B) [2016] ZALCJHB 178 (12 May 2016)

Synopsis of facts

Mr Sebastian Runguma was employed at Civicus: World Alliance for Citizen Participation Inc (Civicus) pursuant to a fixed term contract. Civicus, an international NPO, served Runguma with a notice of termination during 2011, citing operational requirements. Runguma contested the fairness of his dismissal and sought compensation for the remaining period of his fixed term contract. He argued, among other, that Civicus failed to prove a valid commercial rationale for retrenching him, ignored the alternatives to retrenchment and did not engage in meaningful consultations.

On the other hand, Civicus contented, among other, that it had ran out of funds and was entering 2012 with a deficit. It was reliant on donor funding to continue with its programmes and activities and to continue offering employment to its employees. It averred that it complied with the substantive and procedural requirements laid down in the Labour Relations Act. After an extensive analysis of the facts, the Court concluded that Runguma’s dismissal was indeed fair.

The legal position with fixed term contracts

NPOs can learn a few lessons from the Court’s findings pertaining to fixed term contracts. Runguma also argued that the dismissal was unfair because he had a fixed term contract with Civicus.

The Court accepted the common law position that a party to a fixed term contract has no right to terminate such contract in the absence of a repudiation or a material breach of the contract by the other party. The Court accepted the following principle adopted in an earlier judgment: “The rationale for this is clear. When parties agree that their contract will endure for a certain period as opposed to a contract for an indefinite period, they bind themselves to honour and perform their respective obligations in terms of that contract for the duration of the contract and they plan, as they are entitled to in the light of their agreement. Under the common law there is no right to terminate of a fixed term contract of employment prematurely in the absence of a material breach of such contract by the other party.” 

In short, the parties are bound by the fixed term contract, unless there has been a material breach of the contract (or unless the contract makes express provision for earlier termination). The Court analysed the terms of the fixed term contract between Runguma and Civicus to establish if it made provision for dismissal based on operational requirements.

Analysing the fixed term contract

The Court started off by stating that if the fixed term contract did not make provision for its termination for reasons of operational requirements, it would have been deemed unfair. An analysis of the fixed term contract revealed three important clauses contained therein:

Clause 11: “Disciplinary, Grievance and Retrenchment Procedures: You will be bound by Civicus disciplinary, grievance and retrenchment policies”

Clause 2:Duration of Contract: Your contract with Civicus will start on 17 July 2011, or as soon as possible thereafter on condition of the relevant permit being granted by the South African Authority. The contract will be valid for 24 months upon which the position will be reviewed and the contract be extendable by mutual agreement subject to the availability of funding. In the light of sometimes uncertain nature of grant based funding, the duration of the contract is subject to the availability of dedicated and/or unrestricted funds that can be used to cover the costs of this position” (emphasis added)

Clause 16:Termination of Contract: (a) This contract can be terminated by Civicus for causes which include, but are not limited to, failure to perform contracted duties, illegal activity, fraud or misrepresentation of Civicus, in which case Civicus retains the right to terminate the contract immediately” (emphasis added)

The Court concluded that the fixed term contract: “was for all intents and purposes, subject to [Civicus’s] retrenchment policies and procedures as contained in its Staff handbook.” Clause 3.3 of the Staff Handbook defined a retrenchment as ‘any other operational requirement’.

Court’s findings:

The Court concluded that:

  • Civicus was dependent entirely on donor funding and the duration of the fixed term contract was dependent on the availability of dedicated and/or unrestricted funding;
  • Financial circumstances compelled Civicus to start a restructuring and retrenchment process as it was evident that Civicus could no longer afford Runguma’s position; and
  • Civicus was entitled – under the fixed term contract – to terminate the contract pursuant to its retrenchment policies and procedures - even though it would not ordinarily have a right to do so under common-law.

Lesson for NPOs

It is evident that the terms and conditions of the fixed term contract significantly influenced the outcome of this matter. NPOs should ensure that fixed term contracts entered into with employees are prepared or reviewed by a legal practitioner. Amendments to the Labour Relations Act have also introduced legal implications for fixed-term contracts in certain instances.

Source: Ricardo Wyngaard Attorneys - The NPO Lawyer, NPO Legal issues: Nov/Dec 2016 Issues

Important Note: The information contained in this newsletter is general in nature and should not be interpreted or relied upon as legal advice. The information may not be applicable to specific circumstances. Professional assistance should be obtained before acting on any of the information provided in this newsletter

Ricardo Wyngaard | The NPO Lawyer

The NPO Lawyer | Ricardo Wyngaard Attorneys

Ricardo Wyngaard is passionate about the non-profit sector and has been focusing on non-profit law since 1999. He is a lawyer by profession who has obtained his LLB degree at the University of the Western Cape in South Africa and his LLM degree at the University of Illinois in the USA. He has authored a number of articles and booklets on non-profit law and governance.

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