Fixed-term contracts are a useful tool. They let employers cover maternity leave, staff a project or deal with a seasonal rush without taking on a permanent cost. But many employers still treat them as a way to keep staff “temporary” indefinitely, renewing contract after contract for years.
South African labour law does not allow that. For employees earning below the earnings threshold, a fixed-term contract that lasts longer than three months without a justifiable reason is treated as permanent employment. In a recent judgment, the Labour Appeal Court applied this rule to educators at a private college who had been on successive fixed-term contracts for many years, confirming that the employer could not rely on the contracts simply “expiring”.
The earnings threshold also increased on 1 May 2026 to R269,600.90 a year, which brings more employees within these protections. This article explains the rules and how to use fixed-term contracts lawfully.
The rules in section 198B of the LRA
Section 198B of the Labour Relations Act 66 of 1995 (LRA) regulates fixed-term contracts for employees earning at or below the threshold set under the Basic Conditions of Employment Act 75 of 1997 (BCEA). In summary:
- An employer may employ such an employee on a fixed-term contract, or successive fixed-term contracts, for longer than three months only if the nature of the work is of limited or definite duration, or the employer can show some other justifiable reason.
- If not, the employee is deemed to be employed indefinitely, in other words permanently.
- The justifiable reason must be stated in writing in the contract, and in a dispute the employer bears the burden of proving it.
- A fixed-term employee may not be treated less favourably than a comparable permanent employee doing the same or similar work, unless there is a justifiable reason.
- Where a fixed-term contract lasts longer than 24 months, the employee is generally entitled to a payment of one week’s remuneration for each completed year of service when the contract ends, unless the employer offers further employment on the same or similar terms.
What counts as a justifiable reason?
The LRA lists examples of justifiable reasons. These include where the employee:
- replaces another employee who is temporarily absent;
- is employed because of a temporary increase in work that is not expected to last more than 12 months;
- is a student or recent graduate employed for training or work experience;
- is employed exclusively on a specific project with a limited or defined duration;
- is a foreign national with a work permit for a defined period;
- is employed for seasonal work;
- is employed on an officially declared public works or job creation scheme;
- is employed in a position funded by an external source for a limited period; or
- has reached the employer’s normal or agreed retirement age.
The list is not closed, but any other reason must be genuine and specific. “The company prefers flexibility” is not enough.
Who is excluded?
The three-month rule does not apply to:
- employees earning above the BCEA earnings threshold;
- employers with fewer than 10 employees;
- employers with fewer than 50 employees whose business has been operating for less than two years, unless the business was formed by dividing or dissolving an existing business, or the employer conducts more than one business; and
- contracts permitted by statute, a sectoral determination or a collective agreement.
Even where section 198B does not apply, the general unfair dismissal rules still do.
The expectation of renewal or permanent employment
Separately from section 198B, the definition of dismissal in section 186(1)(b) of the LRA covers two situations involving fixed-term employees of any income level:
- the employer fails to renew a fixed-term contract on the same or similar terms, where the employee reasonably expected it to be renewed; and
- the employer offers to renew on less favourable terms, or not at all, where the employee reasonably expected to be retained permanently.
A reasonable expectation can arise from repeated renewals, promises made by managers, the way the employee was treated or the nature of the work. If a dismissal is established, the employer must show it was fair, or face reinstatement or compensation orders at the CCMA or Labour Court.
The recent Labour Appeal Court judgment
In New Model Private College v Maphosa and Others, educators had worked for years on successive fixed-term contracts. When the employer treated the contracts as having expired and excluded the employees from the workplace, the CCMA found an unfair suspension. The Labour Court set that award aside, reasoning that the contracts had ended. The Labour Appeal Court reversed that decision. It held that the Labour Court had overlooked section 198B: the deeming provision operates by law, so employees who should have been permanent could not lose their jobs simply because a contract date had passed.
The lesson for employers is that the label on the contract does not decide the employee’s status. The facts do.
A checklist for employers using fixed-term contracts
- Check the employee’s earnings against the current BCEA threshold of R269,600.90 a year, and whether any exclusion applies to your business.
- Identify the real reason for the fixed term and record it clearly in the contract.
- Define the end point, either a date or a specific event, such as the return of the employee being replaced or the completion of a named project.
- Do not roll contracts over without reassessing whether the reason still exists. Repeated renewals for the same ongoing work are a warning sign.
- Treat fixed-term staff consistently with comparable permanent staff on pay and benefits, unless you have a justifiable reason not to.
- Manage expectations. Make sure managers do not promise renewals or permanent posts.
- Plan for the end of the contract, including any section 198B payment for contracts over 24 months.
- Audit existing contracts, particularly for long-serving temporary staff, and consider converting those who are, in substance, permanent.
How O’Reilly Law can help
We draft fixed-term and permanent employment contracts, audit existing workforce arrangements for compliance with the LRA and BCEA, and represent employers in CCMA and Labour Court disputes about fixed-term employment and dismissals. We can also help you convert long-term temporary staff to permanent contracts in an orderly way.
Contact us to review your fixed-term contracts.
Related reading: The new Code of Good Practice: Dismissal (2025) · Precautionary suspension of employees
This article is general information and not legal advice. Correct as at October 2026.