When the initial lockdown was announced on 30 March 2020 in an endeavour to fight the Covid-19 pandemic, some employers hastily proceeded to discharge their employees, especially those employed on fixed term contracts to cut on labour costs. There is no doubt the world at large and Zimbabwe in particular is still under siege from the relentless Covid 19 pandemic. With the lock down having been extended and with no certainty on whether another one is on its way, employers once again have to decide whether to retain or discharge their employees. This paper seeks to briefly explore what obligations arise on the part of employers should they decide to discharge their employees on notice including in the case of retrenchment.
Fixed term contract employees are easy targets for employers who might want to downsize their workforce for one reason or another. The right to terminate a fixed term employment contract on notice accrues to employers by virtue of section 12 (4a) of the Labour Act (the Act). The law requires that an employee be given due notice depending on the duration of the contract as stipulated in section 12 (4) of the Act. The employee upon receiving notice may opt to leave the workplace immediately, in which case the employer has to pay cash in lieu of notice in addition to other obligations as shall be highlighted hereunder.
In respect of permanent employees, the employer can terminate the contract on notice only in three instances. The first instance is where the termination is done in terms of an employment code. An employment code that regulates the conduct between employer and employee operates as a contractual obligation which they both willingly entered into and is therefore binding[1]. As such, the employer can terminate the contract by giving notice if the employment code allows for that.
The second instance is termination on notice pursuant to a mutual agreement between employer and employee. The agreement may be in the form of a collective bargaining agreement (CBA) for a particular industry. The employer is at liberty to terminate the employment contract by giving notice if the CBA allows for that. This is because a CBA is binding on employers and employees falling within the industry it regulates. Besides, parties are free to mutually terminate the employment contract at any given time and to determine the terms of such termination.
The third and last instance where the employer is allowed to terminate an employment contract on notice is pursuant to retrenchment which basically deals with termination for operational reasons. There is no doubt many businesses are facing serious operational challenges due to lack of productivity caused by the Covid 19 pandemic. The Act in section 12C sets out a retrenchment process to be undertaken by an employer who wishes to discharge their employees for operational reasons.
In all instances where the employer is allowed to terminate on notice, the Act now imposes an obligation on the employer to compensate the employee for loss of employment[2]. The compensation is in the form of a retrenchment package which is calculated at the rate of one month’s salary for every two years of service as an employee (or the equivalent lesser proportion of one month’s salary or wages for a lesser period of service). The retrenchment package is payable by no later than the effective date of the notice of termination. However, there is room for employers who because of financial incapacity are unable to pay the retrenchment package timeously or at all to apply to the relevant employment council or to the Retrenchment Board for exemption from paying the retrenchment package.
Before the advent of Labour Amendment Act, 2015[3], an employer upon terminating a contract of employment on notice was under no obligation to compensate the employee for loss of employment. In most cases, the employee would simply pay cash in lieu of the relevant notice period. In instances where a contract was terminated pursuant to retrenchment, there was no such thing as minimum retrenchment package. It was up to the parties to negotiate and agree on the package. Now that the package is statutorily prescribed, employers must fully comply with their obligations to avoid unnecessary lawsuits by employees.
Additional obligations arise pursuant to section 13 (1) of the Act which obliges an employer when an employment contract comes to an end for whatever reason, to pay the employee’s wages and benefits up to the end of the contract. Benefits payable include cash in lieu of vacation leave, medical aid, pension and social security (if any) among other things. The law requires that these be paid as soon as reasonably practicable after the contract comes to an end, failing which the employer will be committing an unfair labour practice and a criminal offence.
Alternative to termination on notice
Instead of terminating on notice, employers may agree with their employees to set off any outstanding vacation leave days against the period during which employees are unable to render services due to the lockdown. In other words, the employee is deemed to be on vacation leave during the lockdown such that the employee utilises any outstanding vacation leave days they may have.
In respect of parties in the commercial sector, the Collective Bargaining Agreement: Commercial Sectors of Zimbabwe (CBA Commercial) expressly allows an employer in circumstances where the employee is absent from work because of circumstances beyond the employee’s control, to set off any such period of absence against vacation leave days that may have accrued to the employee. The current lockdown is a situation beyond the control of employees. Accordingly, employers in the commercial sector have a discretion to set off any period of absence against vacation leave days that may have accrued to their employees thereby cutting on costs.
In respect of fixed term contracts, employers may opt to let the contract expire instead of terminating it on notice. The employer has no obligation to pay compensation for loss of employment where the contract is allowed to lapse by effluxion of time without further extension or renewal. One however has to make a value judgment: consider obligations that arise if the contract is allowed to expire vis-à-vis the obligations that arise if the contract is terminated on notice.
The other alternative is to negotiate and agree on salary reductions until such time as both parties are able to fully meet their contractual obligations. It is imperative for parties to agree before the measure is effected as to proceed otherwise would amount to unilateral variation of the employment contract which may be challenged by employees.