Fixed-term contracts and the three-month rule

What counts as a fixed-term contract

A fixed-term contract is not simply one with an end date. The Act defines it by what ends it, and gives three options:

The event, the task or the date must be specified — identifiable in advance from the contract itself. As the cases below show, “until our client contract ends” is not a specified event; it is a business risk dressed up as one. And a contract that ends at retirement age is not a fixed-term contract at all; it is an ordinary permanent contract with an agreed retirement date. If you are unsure whether a fixed term is the right instrument, the which contract do I need tool asks the questions in order.

Who the section covers

Section 198B is one of the three non-standard employment regimes added to the LRA in 2015, and like the other two it is switched on by the earnings threshold and switched off for small and young employers:

So the section applies to a given contract only if all three are true:

• the employee earns at or below R269 600,90 a year (see the earnings threshold);
• you employ 10 or more people, or 50 or more if the business is under 2 years old — and the small-employer exception does not apply to you if you run more than one business or the business was split off from an existing one; and
• no statute, sectoral determination or collective agreement separately permits the fixed term.

Count the headcount honestly. The exclusion is about the employer, so it is your total staff that matters, not the number of fixed-term employees. Where the section does not apply, the general law of unfair dismissal — including the expectation-of-renewal rule below — still does.

The three-month rule and the nine reasons

Inside the section, the rule is short. You may keep an employee on a fixed term, or on successive fixed terms, beyond three months of employment only for a reason the law regards as justifiable:

The Act then lists nine situations that will count as justified. The list is not closed, but it is where every argument starts:

Notice what is not on the list: “we want to see if they work out”, “we are not sure the business can afford a permanent post”, and “our client contract might be cancelled”. Those are reasons to use probation, to plan properly, or to accept an operational risk — not reasons to fix a term.

In writing, with the reason

The consequence of breaching the rule, the form the offer must take, and who has to prove what, all sit together in the next three subsections:

Three practical rules follow. Every fixed-term offer, renewal and extension must be in writing and must state the reason. An unwritten fixed term at a covered employer fails on its face — the Labour Appeal Court dismissed an employer’s appeal in Piet Wes Civils partly because no written offers could be produced. The onus is on you: in any dispute it is the employer who must prove the reason and the agreed term, not the employee who must disprove them. And the deeming is automatic: a contract concluded or renewed in breach is of indefinite duration by operation of law, without any tribunal having to say so.

The written particulars under the BCEA reinforce this. Item (m) of section 29(1) requires you to record, for a fixed term, the date the employment is to end. Put the end event and the reason in the same document.

Equal treatment and project severance

Once a fixed-term employee has been with you for more than three months, the Act requires parity with permanent colleagues doing the same or similar work, unless a justifiable reason — seniority, experience, merit, the quality or quantity of work — explains the difference:

That includes equal access to apply for vacancies. Benefits, bonus schemes and training cannot be reserved for permanent staff simply because they are permanent.

There is also a payment at the end of a long project contract that surprises employers. If the reason for the fixed term was a specific project (reason (d)) and the contract has run for more than 24 months, you owe severance-style pay on expiry:

The payment falls away if, before the contract expires, you offer the employee — or procure for them with another employer — work on the same or similar terms starting when the project ends. Budget for it on any multi-year project engagement.

The expectation of renewal

Even where section 198B does not apply — a small employer, an above-threshold employee — a fixed-term contract is not a free exit. The LRA treats a failure to renew as a dismissal where the employee reasonably expected renewal, and since 2015 also where they reasonably expected to be kept on permanently:

The test is objective. It is not what this employee hoped for, but what a reasonable employee in the same position would have expected, judged on the facts as they stood at the time — the number of previous renewals, what managers said, whether the work was continuing, whether others were kept on:

The Labour Appeal Court had earlier held that a string of renewals does not, on its own, create an expectation of a permanent job — only of another renewal on the same terms:

Parliament answered that in 2015 by adding paragraph (ii), so that a reasonable expectation of indefinite employment now also counts. The practical lesson is to manage expectations in writing: say in each contract that it will end on the date and that no renewal is promised, and do not let managers say otherwise.

What the courts have done with it

The leading decision on section 198B concerned civil-engineering contractors who employed workers on terms that ended whenever the mine that gave them work cancelled its contract. The Labour Appeal Court held that this was not a specified event, task or date at all, and that no written offers had been produced as the section requires:

The court’s reasoning is the point. A contract whose duration is tied to whether your client keeps giving you work is not tied to a specified event in the future; it is tied to an operational risk under which every business operates. Below the threshold, that risk cannot be converted into a fixed term.

Contrast the earlier position, which still governs contracts that section 198B does not reach. In Enforce Security security guards were employed until a client site contract ended; when the client cancelled, the Labour Appeal Court held that the agreed event had happened and there was, in principle, no dismissal:

The same judgment warned, at [41], that an automatic-termination clause will not be enforced if, in the circumstances, it was designed to sidestep the employer’s fair-dismissal obligations — the wording of the clause, who chooses which workers stay, whether the event has a real commercial basis, and whether it is being used to target someone, all count. So even outside section 198B, the clause must be honest.

The deeming provision has now been applied at appeal level:

Taken together: below the threshold, at a covered employer, a fixed term is a documented exception with a reason on its face. Everywhere else, it is a contract that must still end honestly and without an expectation you created.

The fixed-term employment contract explainer sets out the clauses the firm uses. If the reason is a foreign national’s work permit, see employing foreign nationals; for a student or graduate, see internships; and if a placement is coming through a labour broker, the three-month rule works differently — see labour brokers and secondment.

Figures last reviewed 9 September 2026.

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