What are the rules for fixed-term contracts?

"You are on contract" is used in South African workplaces to mean something it usually does not mean: that the employee has fewer rights, can be let go at the end of any term without process, and is not really an employee at all.

This guide is part of our Your rights at work: pay, contracts, resigning and retrenchment, which links every guide on the topic.

Section 198B of the Labour Relations Act 66 of 1995 was inserted precisely because that practice had become widespread. It does not ban fixed-term contracts. It requires a reason for them.

Who it protects

Section 198B applies to employees earning below the earnings threshold determined under the Basic Conditions of Employment Act. Above that threshold, the ordinary law of contract governs and the section's protections do not apply.

The threshold is adjusted by the Minister from time to time, so check the current figure before relying on either side of the line; our labour law figures page carries it with the date it took effect. It is the same threshold that governs several of the working-time protections, and it moves most years.

There are also exclusions for small and new businesses: an employer with fewer than ten employees, or with fewer than fifty employees whose business has been in operation for less than two years, is treated differently, subject to conditions.

The three-month rule

The core of the section is short.

An employer may employ 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 a limited or definite duration, or
• the employer can demonstrate any other justifiable reason for fixing the term

If neither applies, the employee is deemed to be employed for an indefinite period. Not entitled to argue for permanence: deemed permanent, by operation of the statute.

The word "successive" does the heavy lifting. An employer who signs a worker to four consecutive three-month contracts has not stayed inside the three months. The contracts are looked at together, and the arrangement is assessed for what it is.

What counts as a justifiable reason

The Act gives examples of the kinds of reason that qualify, and they share a common feature: the work itself has a natural end point, or the employee is standing in for something temporary.

Reasons that are typically justifiable include replacing an employee who is temporarily absent, a temporary increase in the volume of work that is not expected to last beyond twelve months, a student or recent graduate gaining work experience, work on a specific project with a limited duration, a non-citizen with a work permit for a defined period, seasonal work, an official public works or job creation scheme, a position funded by an external source for a limited period, and an employee who has reached the normal retirement age.

The unifying question is whether the work is limited, not whether the employer would prefer flexibility. "We want to see how it goes" is not a justifiable reason: that is what probation is for, and probation operates within permanent employment. Our guide on unfair labour practices deals with how probation itself must be handled, and the probation checker tests a probation dismissal against the Code of Good Practice: Dismissal, 2025.

Equal treatment

An employee employed on a fixed term for longer than three months must not be treated less favourably than a comparable permanent employee doing the same or similar work, unless there is a justifiable reason for the different treatment.

That covers pay and benefits, and it is the provision most often breached without anybody noticing, because differential treatment of "contract staff" is so normalised in many workplaces. An employee doing identical work beside a permanent colleague for materially less, with no reason beyond the label on their contract, has a claim.

The end of a fixed term is not automatically a clean exit

Employers frequently assume that when a fixed term ends, the employment simply ends and nothing further is owed. Two things complicate that.

Deemed permanence. If the employee was deemed to be permanent under section 198B, there is no expiry date to rely on. Ending the employment is a dismissal, and it requires a fair reason and a fair procedure like any other. Our guide on what counts as a fair reason for dismissal sets out the standard.

Reasonable expectation of renewal or permanence. Separately from section 198B, section 186(1)(b) of the LRA treats it as a dismissal where a fixed-term employee reasonably expected the employer to renew the contract on the same or similar terms and the employer did not renew it, or offered to renew it on less favourable terms. Since the 2015 amendments it also covers an employee who reasonably expected to be kept on permanently, on otherwise similar terms, and was not. That expectation is built by conduct: repeated renewals, assurances, the way the employer has treated others in the same position.

The two doctrines overlap but are not the same, and an employee may have one without the other. Unlike section 198B, the expectation rule has no earnings limit.

A payment when a long project contract ends

One more rule catches employers by surprise. Where an employee is employed on a fixed-term contract to work exclusively on a specific project of limited or defined duration, and the contract runs for longer than 24 months, section 198B(10) requires the employer to pay one week's remuneration for each completed year of the contract when it expires, subject to any applicable collective agreement. It works like severance pay, on the same one-week-per-year arithmetic. Section 198B(11) removes the payment where, before the contract ends, the employer offers the employee employment, or arranges employment with another employer, on the same or similar terms starting when the contract expires. Only service from 1 January 2015, when the section came into force, counts.

What an employer should actually do

Write the reason into the contract. Not a recital that the contract is fixed term, but the reason it is: the project, the absent employee being replaced, the funding period, the season. If the reason cannot be written down, it probably does not exist.

Attach the term to the reason. A contract that ends when a named project ends is coherent. A contract for exactly twelve months, renewed four times, on work that has no end point, is not.

Do not use fixed terms as an extended probation. Use probation, and run it properly.

Check the earnings threshold, because an employee who crosses it during the relationship changes position.

Benchmark the terms against comparable permanent employees, and be able to justify any difference.

What an employee should do

Keep every contract. The pattern of renewals is the evidence, and employees frequently sign a fresh contract each time without keeping copies.

Note what you were told. Assurances about renewal, about "going permanent", about the contract being a formality, all bear on reasonable expectation.

Compare yourself to a permanent colleague doing the same work, on pay and on benefits.

Watch the clock if the contract is not renewed. A non-renewal that amounts to a dismissal has to be referred to the CCMA within 30 days, which is the same short period as any other dismissal. Our guide on referring an unfair dismissal to the CCMA sets out the process.

Where fixed terms and labour broking meet

The same set of amendments dealt with temporary employment services, and the two provisions are frequently confused because they solve related problems.

Section 198A addresses employees placed by a labour broker, which our guide on labour broker employees' rights covers in full. Where such an employee earns below the threshold and performs work for a client for longer than three months, they are deemed to be the employee of the client, not of the broker, and employed indefinitely.

So a worker can arrive at permanence by either route, and occasionally by both. A placement that runs past three months makes the client the employer; a fixed term that runs past three months without a justifiable reason makes the employment indefinite. Clients who believe that using a broker insulates them from employment obligations are relying on a position the legislation removed.

The practical signal for a worker is who actually controls the work. If you take instructions from the client, work their hours, use their equipment and are supervised by their managers, the question of who employs you is a live one regardless of whose name is on the payslip.

Worked example

This example is illustrative. Thabo is employed by a call centre on a three-month contract. It is renewed seven times over two years. Each contract is identical, the work is ordinary inbound customer service that the business does continuously, and there is no project, no absent employee and no funding period. He earns well below the threshold. Permanent colleagues beside him doing identical work receive a medical aid subsidy and a thirteenth cheque; he receives neither.

The employer's position is that each contract simply ended.

On these facts the arrangement is squarely within section 198B. The successive contracts are considered together, so the three-month limit was passed nearly two years ago. The work is not of limited or definite duration: it is the core, continuing work of the business. There is no other justifiable reason on the facts. Thabo is therefore deemed to have been employed indefinitely, which means that when the eighth contract was not renewed he was dismissed, and the employer needs a fair reason and a fair procedure it does not have.

The benefits are a separate issue. On the same facts he is entitled not to be treated less favourably than a comparable permanent employee, and the employer would have to justify the difference.

What would have changed the analysis is a genuine reason written into the contracts from the start. A contract tied to a client account with a defined end date, or to a seasonal peak, is not what the section was aimed at.