Frequently asked questions on the Employment Code Act No. 3 of 2019

Introduction

The Employment Code Act (the “Code”) was enacted on 11 April 2019 and came into operation on 9 May 2019.  The Code provides for amongst other things, the employment of persons, the form and enforcement of contracts of employment, employment entitlements and other benefits, the protection of wages of employees, prohibition of discrimination at an undertaking, the protection of wages of employees, registration of employment agencies, and constitutes the Skills and Labour Advisory Committees and their functions. Further, the Code repeals and replaces the Employment Act, the Employment (Special Provisions) Act, the Employment of Young Persons and Children Act and the Minimum Wages and Conditions of Employment Act.

Q: As the Code repeals the Minimum Wages and Conditions of Employment Act, what becomes of Orders made under it such as the Minimum Wages and Conditions of Employment (General) Order, 2011 as subsequently amended?

A: The position is that the Orders made under any of the repealed laws remain in force as long as they are not inconsistent with the Code or until repealed by new Orders. This position finds support in Section 15 of the Interpretation and General Provisions Act, Chapter 2 of the Laws of Zambia. It enacts as follows:

"15. Where any Act, Applied Act or Ordinance or  part thereof is repealed, any statutory instrument issued under or made in virtue thereof shall remain in force, so far as it is  not inconsistent with the repealing written law, until it has been repealed by a statutory instrument issued or made under the provisions of such repealing written law, and shall be deemed for all purposes to have been made thereunder."

Q: Who is entitled to a gratuity payment Are permanent employees entitled to a gratuity payment?

A: Only employees on a long-term contract are entitled to gratuity. A long term contract does not include casual employees, employees on probation, on a short term contract nor indeed, those on a permanent contract.

Q: For employees on long-term contracts and the contract is silent on a gratuity payment or the contract specifically states that a gratuity payment shall not be paid, does this negate the obligation of the company to pay a gratuity payment. Would an employee still be eligible for a gratuity payment even if the letter of employment stated that no gratuity will be paid?

A: On payment of gratuity, the Code is couched in mandatory terms. "An employer shall, at the end of a long-term contract period, pay an employee gratuity...". This means that parties to a long-term contract of employment have no option but to include gratuity in those contracts. Even if they choose not to include it and in fact purport to contract that it shall not apply, it shall still apply as parties cannot contract outside mandatory legal prescriptions. It would have been different if the law had subjected itself to any contrary agreement between the parties.

However, as will be seen later, the Code currently only fully applies to those who contracted after its commencement. For those who contracted earlier, they have until May 9, 2020 to reconcile with the Code any material inconsistent terms.

Q: What is a permanent contract and who is entitled to severance pay?

A: The Code defines “permanent contract” to mean:

"...a contract of employment, if not terminated in accordance with this Act, expires on the employee’s attainment of the retirement age specified under a written law."

The Code also defines "severance pay” to mean:

"...the wages and benefits paid to an employee whose contract of employment is terminated in accordance with section 54."

In terms of Section 54(3) of the Code:

"The severance pay under this section shall not be paid to a casual employee, a temporary employee, an employee engaged on a long-term contract or an employee serving a period of probation."

From the above, it can be observed that employees on a permanent contract of employment are among those entitled to severance pay (the other being employees on short-term contracts). Upon attaining retirement age, it would appear for employees under a permanent contract, severance pay is the retirement benefits provided by the relevant social security scheme that the employee is a member of. (Section 54(1)(b)).

If a permanent employee is however terminated before the age of retirement (60), it would seem they would be entitled to a 25% basic pay earned during the contract period as severance pay as they would not be entitled to their pension benefits before the age of retirement. (Section 54(1)(c) as read together with Section 54(1)(b)).

A permanent employee would also be entitled to severance pay if terminated by redundancy. (Section 54(1)(d)).

Lastly, a permanent employee would also be entitled to severance pay if termination is as a result of the employee's death. (Section 54(1)(e)).

Whereas permanent employees are not entitled to gratuity, it would seem they are entitled to severance pay which is generally calculated on the same basis as gratuity.

Q: For foreign nationals on a work permit, can they be employed as a permanent employee, or is there a limitation based on the work permit timeline?

A: As noted above, a permanent contract is one that expires at the employee's attainment of the retirement age, that is, at 60. It would appear foreign nationals cannot be employed as permanent employees although there exists no specific statutory provision to that effect.

By implication, it seems they cannot. First, under the Immigration and Deportation Act No. 18 of 2010, an employment permit is capable of extension for a further period or periods to a maximum of five years from the date of its issue. Secondly, the application for an employment permit prescribes that an Employment Permit shall not be valid beyond the date of expiry of the passport of its holder. As passports generally do not exceed a period of 10 years, it follows logically that no employment permit can exceed 10 years.

Most recently under the Code (Division 3.4: Sections 60-62), there are restrictions placed on the employment of expatriates. The general legislative intention seems to permit the employment of expatriates on a temporary basis that would transfer 'critical skills' to local employees. It would appear employing expatriates on a permanent basis would defeat such legislative intention.

Q: All employees should contribute to the National Pension Scheme (NAPSA), is there any requirement for an employee or employer to contribute to a private pension/provident fund?

If there is a requirement to pay a gratuity, can an employer rather contribute towards a pension/provident fund?

A: Private pension schemes are optional. They need only meet the requirements of the Pension Scheme Regulations Act, Chapter 255 of the Laws of Zambia. This Act serves to provide prudential regulation and supervision of all pension schemes except for National Pension Scheme Authority (NAPSA). It has a bearing on both public and private pension schemes. It ensures that they operate in a prudential manner and protects  scheme member's rights and benefits.

Where an employer has established a pension scheme approved by the relevant Minister, the retirement benefits of the employees shall be paid in accordance with the pension scheme. This only applies to employees on permanent contracts as they are the only ones entitled to retirement benefits. Gratuity would remain payable to those on long-term contracts as retirement benefits do not apply to them.

The only contract of 'fixed' duration contemplated by Section 54 it would seem, is actually a short-term contract. Although Section 54(1)(b) appears to only talk about expiration of a contract of a fixed duration, it is our considered view that it also covers a permanent contract as "retirement benefits" it makes reference to only apply to such contracts.

When an employee on a permanent contract attains the retirement age, they are entitled to retirement benefits. This is calculated based on the relevant pension scheme.

If an employee on a permanent contract is terminated before attaining the retirement age, we are of the considered view that it was Parliament's intention that such employees do not walk away empty handed but receive a benefit in form of severance pay generally calculated on the same basis as gratuity as opposed to a pension scheme which only applies when the age of retirement is attained and employment terminates as a consequence of that.

We do appreciate the confusion Section 54 poses. This is a new piece of legislation and there currently exists no judicial interpretation on the same. The relevant Minister is yet to prescribe the formula for the minimum computation of severance pay. The above is just about the legislative intention we were able to discern from the convoluted wording of Section 54.

To further understand Section 54, we found it necessary to examine Section 54 and how it was couched in its precursor being Clause 54 of the Employment Code Bill No. 3 of 2019.

We observe that the Bill did not spell out any computation of severance pay but left the same to be entirely prescribed by the Minister.

When the Bill was passed into law, some changes were made to it. For our present purposes, Section 54 happens to be one of those provisions under the Act which took a marked departure from the Bill. In particular terms, whereas the Bill did not include any computation of severance pay, the Act does. Oddly, however, the provision on the Minister to prescribe the formula for the minimum computation of severance pay exists in both.

It is readily appreciated why that provision made sense under the Bill as no computation of severance pay was included. It is difficult to appreciate the relevance or even applicability of that provision under the Act as it clearly spells out how severance pay is to be computed in particular circumstances.

As the provision on the Minister to  prescribe the formula for the minimum severance pay is not expressly stated to only apply to permanent employees but to severance pay in general, we cannot authoritatively say that it only applies to permanent employees like  some have suggested.

We are of the considered view that the provision on the Minister to prescribe the formula for minimum severance pay was an oversight having its origins in a Bill which did not spell out any computation of severance pay.

We therefore reiterate our opinion that when an employee on a permanent contract attains retirement age, they are entitled to retirement benefits. This is calculated based on the relevant pension scheme. (Section 54(1)(b)).

If an employee on a permanent contract is terminated before attaining retirement age, they are entitled to a benefit in form of severance pay generally calculated on the same basis as gratuity (Section 54(1)(b)).

It is our considered view that it would seem there is actually no formula for minimum severance pay to be prescribed by the Minister as the Act, in contrast to the Bill, appears to spell out the minimum formulae for computation of severance pay in different circumstances which we believe include permanent employees.

Most importantly however, for Employees to benefit from the Code, they must have been contracted after May 9^th 2019 being the date the Act came into operation. All Employees contracted prior to the said date continue to be regulated under the old law and gratuity is generally at the discretion of the employer.

Transitional provisions

Section 138 (1) of the Code repeals a number of laws including the Employment Act, Chapter 268 of the Laws of Zambia.

Section 138 (2) of the Code tells us where to find the savings and transitional arrangements for every law the Code repeals. These savings and transitional arrangements are found in the Fourth Schedule to the Code. Of relevance for our present purposes, is the following provision:

Paragraph 5 (1) and (3) of the Fourth Schedule provides (in part) as follows:

"5. (1) A contract of employment entered into before the commencement of this Act in accordance with the repealed Acts shall, in so far as it is not inconsistent with the provisions of this Act, be deemed to be a contract of employment entered into under this Act.

(2) ...

(3) Despite sub-paragraph (1), where a contract of employment made prior to the commencement of this Act is materially inconsistent with the provisions of this Act, an employer shall comply with the provisions of this Act within one year of the commencement of this Act."

From the above provisions, the Code upholds all existing contracts of employment that were entered into under the repealed laws. It is only in the presence of noticeable inconsistency between the existing contracts of employment and the Code that the employer is required to ensure the contract is reconciled with the Code within a one year grace period.

In the case of Nawa v Standard Chartered Bank Zambia PLC (SCZ Judgement No. 1 of 2011), it was stated that:

"It is trite law that unless expressly stated, a law does not operate retrospectively. It could not therefore have been the intention of the framers of this law to invalidate agreements that were perfectly legal at the time that they were executed."

The above decision was followed in a recent Court of Appeal decision of Konkola Copper Mines v Nyambe and Others Appeal No. 12 of 2018, in which the respondents’ contracts of employment, provided that they would retire at fifty-five years were held to be binding and could not be varied on the basis of a later law that raised the retirement age to sixty-five but came into effect after parties had contracted. It was held that such later law cannot apply to relations that were consummated under a previous law.

However, there is an important new aspect under the Code that requires careful consideration. This is that existing contracts are only valid if they are not materially inconsistent with the Code. The Code does not define what is meant by "materially inconsistent". But taken in their natural and ordinary meaning, the words would mean noticeably or importantly at variance with the Code.

For example, gratuity under the former law was generally at the discretion of the Employer. Under current law, it is mandatory for all employees under a long-term contract and the manner of its calculation is provided for. Thus, if an existing long-term contract of employment says an employee is not entitled to any gratuity, such term of the existing contract would be noticeably at variance with the Employment Code.

The Code does not seem to invalidate such existing contracts there and then upon proof of inconsistency with the Code. It gives a grace period of one year within which reconciliation with the Code is to be made by the employer.

Conclusion

Parties to a long-term contract of employment have no option but to include gratuity in those contracts. Even if they choose not to include it and in fact purport to contract that it shall not apply, it shall still apply as parties cannot contract outside mandatory legal prescriptions. Only employees on a long-term contract are entitled to gratuity. A long-term contract does not include casual employees, employees on probation, on a short-term contract nor indeed, those on a permanent contract. Permanent employees are entitled to severance pay (not gratuity although they may be broadly computed on the same basis). It is optional for employers to maintain a private pension scheme. An approved private pension scheme entitles parties to compute retirement benefits in accordance with such scheme. This has no bearing on gratuity at the end of a long-term contract. It would appear expatriates may not be employed on a permanent basis although there is no express statutory provision to that effect. The new Employment Code applies to those who contracted after its commencement. All others have a grace period of one year within which to comply with the Code. Failure to which existing contracts will be rendered void to the extent of their inconsistency with the Code.