CHANGES TO THE EMPLOYMENT CODE ACT: DIGESTING EXEMPTIONS BROUGHT BY STATUTORY INSTRUMENT NO. 48 OF 2020

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The Coronavirus (COVID 19) outbreak has not only caused an international health crisis but also caused major disruptions in the economy. The epidemic has caused significant challenges to companies all around the world, particularly with regard to the legal implications on employer and employees’ rights amid the spread of the virus.

In apparent answer to the concerns of employers and employees as a result of COVID-19, on 11th May, 2020, the Labour and Social Security Minister, Joyce Simukoko signed into law the Employment Code (Exemptions) Regulations, Statutory Instrument No. 48 of 2020 (S.I No. 48 of 2020) which provides numerous exemptions to the Employment Code Act, No. 3 of 2019 (ECA).

This was after consultations with the Tripartite Consultative Labour Council in line with section 2 of the ECA which provides that the Minister may, after consultation with the Tripartite Consultative Labour Council, by Statutory Instrument, exempt any persons or class of persons from the provisions of the ECA. 

The S.I No. 48 of 2020 has provided numerous exemptions to sections 36, 37, 48, 54, 55, 73 and 75 of the ECA. Here, we discuss the exemptions with a view to highlighting the changes to the ECA brought by S.I No. 48 of 2020.

1. ACCRUING ANNUAL LEAVE AND FORMULA

Section 36 of the ECA provides that employees other than temporary or casual employees in continuous employment for a period of twelve consecutive months are entitled to annual leave on full pay at a rate of at least two days per month. This is in addition to any public holiday or weekly rest period, whether fixed by any law, agreement or custom. It further provides that annual leave must be taken in accordance with an agreement between the employer and employee at the beginning of each year. It further goes on to state that where an employer does not grant an employee leave or grants the employee less than the total leave due, the employer shall pay the employee wages in respect of the leave still due at the end of the period of twelve consecutive months. An employer can further enter into an agreement with an employee to pay wages in lieu of any annual leave due to the employee. Further, where annual leave has accumulated by an employee whose contract of employment has been terminated, the employer shall pay wages to the employee for the period of the accumulated leave.

S.I No. 48 of 2020 has now exempted all employees from the application of section 36 on annual leave. This means employees are no longer entitled to claim annual leave in accordance with section 36 of the ECA. This may sound confusing.

S.I No. 48 of 2020’sexemption of section 37 perhaps aids in providing clarity. Employees are also exempted from the provisions of section 37 which provides a formula for payment of accrued annual leave in the fifth schedule of the ECA.

The two exemptions read together therefore means employees are not entitled to annual leave nor calculation of annual leave pay contained in section 36 and 37 of the ECA. This does not entail that employees have lost their entitlements to annual leave or pay entirely, it means the agreement that existed on annual leave before the ECA prevails. Annual leave should accrue in line with the agreement before the ECA and the formula for payment of annual leave pay is also the one which existed before the ECA.

2. PAID FORCED LEAVE

Section 48(1) of ECA provides that an employer shall, where the employer sends an employee on forced leave, pay the employee basic pay during the period of the forced leave.

Further, section 48(2) of the ECA further provides that the Minister may, by statutory instrument, prescribe the circumstances under which an employee is required to be sent on forced leave.

From the above provision, this means that the ECA recognizes that an employer may send an employee on forced leave. In such a case, the employer is obligated to pay the employee his basic pay during the forced leave. Under the ECA, basic pay is defined as the standard rate of pay before additional payments such as allowances and bonuses.

S.I No. 48 of 2020 exempts employers assessed by an authorized officer to be in financial distress based on the guiding principles set out in the Statutory Instrument from paying employees on forced leave. This is obviously a tacit acknowledgement of the negative impact of COVID-19 on businesses. Employers will need to be apply for assessment to the Ministry of Labour and Social Security before they can enjoy the exemption from paying basic pay and to place employees on unpaid leave.

The guiding principles for the successful assessment for the exemption are:

  1. Review current quarterly tax returns and an examination of the extent of reduction in turnover compared to the last returns and consider amended tax returns taking into consideration reduction in projected turnover;
  2. Assess documents showing suspension or reduction of business and impact on turnover;
  3. Assess cash flow projections and verify cash stress or financial constraints on employer;
  4. Review past audited financial statements to check profitability and extent of reserves from previous years; and 
  5. Review staff payroll and compare staff costs with projected income.

From the above guidelines, it can be submitted that the businesses affected by COVID-19 will enjoy some relief from the obligation to pay employees on forced leave.

3. SEVERANCE PAY & GRATUITY TO EXPATRIATE AND MANAGEMENT EMPLOYEES 

Section 54 (1) (b) and (c) of the ECA provides that an employer shall pay an employee on a fixed duration contract a severance pay or gratuity, at the at the rate of not less than twenty-five percent of the employee’s basic pay earned during the contract period as at the effective date of termination, where the employee’s contract of employment is terminated or has expired. 

S.I No. 48 of 2020 has now exempted expatriate employees and employees in management from the right to such a severance pay or gratuity.

4. REDUNDANCY PROCEDURAL REQUIREMENTS

Section 55 (2) of the ECA provides for termination by redundancy. It provides that where an employer intends to terminate a contract of employment by reason of redundancy, a redundancy notice of not less than thirty days must be given to the employees, the employees must be given an opportunity to consult on the measures to be taken to minimize the termination and on any adverse effects on the employee and to notify an authorized officer not less than sixty days prior to the termination and submit information on reasons, category of employees to be affected, period which the redundancy is to be effected and the nature of the redundancy package. Employers are further required to give notice of not less than sixty (60) days’ to an authorized officer of the impending termination by reason of redundancy.

S.I No. 48 of 2020 has now exempted employers assessed by an authorized officer to be in financial distress based on the guiding principles discussed above, from the requirement from complying with the procedural requirements in the ECA. Employers who can also demonstrate to the authorized officer that they are under circumstances warranting immediate termination of employment are also exempted from the need to comply with procedural requirements relating to redundancy.

What is of note is that the exemption does not extend to the payment of the redundancy pay.

5. PAYMENT OF GRATUITY FOR LONG TERM CONTRACTS

Section 73 of the ECA provides for payment of gratuity at the end of a long term contract. The rate of gratuity to be paid should not be less than twenty-five percent of the employee’s basic pay earned during the contract period.

S.I No. 48 of 2020 has now exempted expatriate employees, employees in management with a written contract providing for gratuity, employees in the domestic sector and employees in the Agricultural Sector from the right to gratuity at the end of a long term contract.

6. OVERTIME

Section 75 of the ECA provides that an employer shall pay an employee who works in excess of forty-eight hours in a week, one and a half times the employee’s hourly rate of pay.

S.I No. 48 of 2020 has exempted expatriate employees and management employees from the application for overtime.

COVID-19 epidemic has caused considerable    hysteria among employers and employees who not only need to consider the health and economic impacts of the outbreak, but also its legal implications on employment.

Debates will rage whether S.I No. 48 of 2020 has settled all the major concerns.

What is clear is that the Employment Code Act has been substantially watered down by exemptions contained in S.I No. 48 of 2020. Expatriate and management employees are the biggest losers.

End

Client Legal Alert – Equitas Legal Practitioners@2020

*This scholarly article is a general guide and does not contain definitive legal advice. Readers considering taking action on any of the issues discussed should speak to their legal advisors before taking any such action. Equitas disclaims any liability whatsoever arising from acting on this article

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