RETRENCHMENT LAW FOR ZIMBABWE, AN ASSESSMENT OF THE PARADIGM SHIFTS FROM THE 1990S TO DATE.
In terms of the Labour Act, (Chapter 28:01), retrenchment means the act of terminating an employee’s contract of employment for the purpose of reducing expenditure or costs, adapting to technological change, reorganizing the undertaking in which the employee is employed, or for similar reasons, and includes the termination of employment on account of the closure of the enterprise in which the employee is employed. Therefore, an employee hereby finds himself/herself out of employment at the instance of the employer and not because of being found guilty of dismissible misconduct in terms of an employment code of conduct.
It is critical to note that there are distinct ways in which an employment contract can be terminated and these include termination by resignation, mutual agreement, retirement, natural effluxion of time, dismissal, or retrenchment among others. The term ‘termination’ in relation to employment relates to the situation whereby a person leaves an employment contract through a specified manner and form. It is indisputable that our law provides for the regulations that guide and govern each and every method that can be used in the termination of an employment contract.
Retrenchment is another distinct method in which an employment contract can be terminated. When an organization is faced with compelling reasons or reasons to retrench as provided for above, it ultimately has to follow the provided retrenchment process and procedures.
A SUMMARY OF THE RETRENCHMENT LAW FROM THE 1990S - 2015
One of the critical pieces of legislation that provided for the elaborate retrenchment process and procedures with this period in question is the Labour Relations (Retrenchment) Regulations, 2003 (SI 186 of 2003). It is important to note that SI 186 of 2003 followed the promulgation of the Labour Amendment Act No.17 of 2002. This law is argued to have been much stricter and more protective to the employee as much as the retrenchment process was concerned. During its reign, employers were found stuck with a large number of employees that they ordinarily would have retrenched had the retrenchment law been found relatively permissive.
The works council, the employment council and/or the Retrenchment Board all used to be very powerful structures to reckon as much as the retrenchment process was concerned. Retrenched employees used to get meaningful retrenchment packages, if not exorbitant so to speak during this period.
The major challenge that prevailed during this period was the rigidity or inflexibility of the retrenchment process especially with regards to struggling and financially stifled companies. The retrenchment law could not allow such companies to then quickly adjust and attain a strategic fit structure. Instead, the financially incapacitated companies that desperately needed to retrench, could not readily opt to such a process as hefty sums of money would be demanded to pay for the affected employees’ retrenchment packages.
During this era, the calculation of an employee’s retrenchment package was basically a function of common law. In most circumstances, the retrenchment packages would consider three months’ notice period, gratuity, severance package and relocation or stabilization allowance. For instance, in the case of Mazarire v The Retrenchment Board & Anor (Civil Appeal SC 1019 of 2017; SC 105 of 2020) [2020] ZWSC 105 (17 July 2020), gratuity equivalent to one month’s salary for every year of service, a stabilization allowance equivalent to two month’s salary and a severance payment equivalent to 13,5 month’s salary was approved as the fair package by the then Minister of Public Service, Labour and Social Welfare. (This is a retrenchment dispute that started in March 2014 that got settled by the by the Supreme Court only in 2020).
During this era in question, a number of companies would find themselves chocked by an undesirable wage bill owing to the highly prohibitive retrenchment law that was in place. The wait and see attitude became more of a default setting that most companies found themselves entangled in whenever a recommendation for retrenchment was reached as the most objective option.
In the end, a number of companies inevitably found themselves out of business but with a perpetually bulging wage bill in the hope that one day a miracle could come and see their business catapulted out of the sinking ship. Imagine that companies would inevitably find themselves stuck with excessive number of employees on their wage bills for more than 12 consecutive months and with the same employees further accumulating arrear salaries mainly due to the too restrictive retrenchment law of the time. Retrenchment process became only a preserve of the few successful companies that had financial capacity to pay the package as they would be realigning and structuring their processes with the obtaining new technology.
The writer would wish to also highlight the fact that the Labour Amendment Act No.17 of 2002 as read together with SI 186/2003, all came after the nation transformed from the Free Market Economic model (laissez-faire) to more of a Socialist Economic model. The Economic Structural Adjustment Programme (ESAP), which the government adopted in the 1990s is a historic one. The adoption of ESAP by the government saw the relaxation of the labour market policies by the government with employers empowered to easily hire and fire employees. The advent of ESAP saw a number of people being easily retrenched from their employment and with the employers not bearing much cost to that effect in terms of retrenchment package. Employment security was at stake during this period.
The most unfortunate coincidence with ESAP was that of a severe drought that affected the 1991 – 1992 farming season. The poor employees incurred multiple fatal blows of losing employment and at the same time suffering from the consequences of the severe drought and hyperinflation.
Ultimately, the legislature realised that ESAP and its consequent policies was a futile and catastrophic undertaking as much as the nation’s socio-economic developmental issues were concerned. Instead, ESAP exacerbated the nation’s socioeconomic woes hence the promulgation of the Labour Amendment Act No.17 of 2002 and the accompanying SI 186/2003 which among other national policies came to restore employment security by way of restrictive retrenchment process inter-alia.
The Zuva Judgement of 2015 and the Labour Amendment Act No. 5 of 2015 as a reaction
The landmark Supreme Court judgement in the case of Don Nyamande and Kingston Donga V Zuva Petroleum (Pvt) Ltd, SC 43/15 is so critical as far as the development of retrenchment law in Zimbabwe is concerned. The complexity and financial burden emanating from the retrenchment law ushered by the Labour Amendment Act No. 17 of 2002 as read together with SI 186 of 2003 saw employers desperately looking for legal loop holes that could see them circumvent such cumbersome and expensive retrenchment process
For long, the business has been advocating for labour law reforms that would allow for the easy of doing business and this included the relaxation of the retrenchment law among other labour laws of the land.
On the 17th of July 2015, the Supreme Court of Zimbabwe issued a landmark judgment that ruled that termination of an employment contract (by employer) on notice was still part of our common law. This proclamation by the Supreme Court opened a floodgate of termination of contracts of employment by companies merely on notice. The companies have after a long time come to discover a ‘pressure release valve’ with regards to their overwhelming headcount burden.
It is unequivocal that there was anarchy, pandemonium and despondency mainly on the part of the employees, their families and trade unions as employers went on a rampage of terminating contracts of employment enmasse and without any compensation whatsoever.
Job security became a major issue of concern for every employee as all forms of contracts of employment literally became equally precarious as the employer could then just exercise his common law right and terminate any contract of employment merely on notice. It has been indeed identified as a ‘mfacane period’ for all workers as the employers would at any time wield an axe against an employee’s contract of employment without any much legal constrain and cost. The mischief that the legislature wanted to address through the promulgation of the Labour Amendment Act No. 17 of 2002 with regards to advancement of decent work agenda consequently became elusive or fragile owing to this unforeseen legal gap.
It is profound that in the history of Zimbabwe, the legislature was found to quickly intervene and came up with a piece of legislation that helped to stop the resultant carnage of contracts of employment. Following the issuance of the Zuva judgment on the 17th of July 2015, the Legislature passed the Labour Amendment Act No.5 of 2015 on the 26th of August 2015.
Basically, the legislature further regulated and/or restricted the employer’s common law right to terminate contracts of employment on notice. The resultant law saw permanent contracts of employment becoming terminable only through dismissal in terms of the employment code of conduct, retrenchment process or by mutual agreement made in writing.
The Labour Amendment Act No. 5 of 2015 categorically brought the prohibition of the employer’s common law right to terminate employment on notice for permanent employees. For the first time ever in the history of Zimbabwe, the Labour Amendment Act, No.5 of 2015 again introduced the statutory regulation on the computation and payment of retrenchment package. The minimum retrenchment package or alternatively called the minimum compensation for loss of employment was introduced. Whenever the employer has compelling reasons to retrench any number of employees, the employer would only be required to write a notice of intention to retrench to the works council, the employment Council and/or the Retrenchment Board whichever was applicable.
The notice of intention to retrench required the employer to incorporate the names of the affected employees, their jobs, terms of service, the reasons for retrenchment and the offered retrenchment package which was supposed not to be lower than the minimum retrenchment package. The employer was supposed to offer three months’ Cash-in-lieu of notice and compensation for loss of employment calculated at the rate of one month’s salary for every two years of completed service, and pro-rata with regard to lesser periods. The law also provided that the retrenchment package was to be payable to the employee in full on the very date that the employer issues the notice of termination of the contract of employment to the concerned employee.
However, in the event that the employer declares incapacity or incompetency with regards to payment of the minimum retrenchment package, the law required the employer to then make an application for exemption in writing before the employment council or to the Retrenchment Board, whichever is applicable. The application for exemption could be granted if the employment council or the Retrenchment Board was convinced. However, the employment council or the Retrenchment Board was supposed to respond to the herein application within fourteen working days of receipt of the application for exemption or otherwise the application for would be deemed to have been approved by default.
However, the granting of the exemption from payment of the statutory minimum retrenchment package by the employer would follow a rigorous enquiry of the employer’s financial statements and other proofs thereof. The employer could be ordered to pay the full minimum retrenchment package but in the given specific instalments. The employer could also be ordered to consider for special measures to avoid retrenchment as provided for under section 12D of the Labour Act.
Some profound facts about the Retrenchment Law ushered by Labour Amendment Act No.5 of 2015
It is evident that as far as the employer was offering the minimum retrenchment package to the affected employees, the retrenchment process has been made easier and affordable for the business. The Retrenchment Board’s role has been rendered to mere administrative with regards to the retrenchment process provided that the employer was offering at least the minimum retrenchment package. The employers have been accused of abusing and capitalizing on the relaxed retrenchment law to falsify on paper the reasons that work to justify retrenchment of certain employees, but with the unfortunate truth being that of personal persecution and reprisal.
The provisions of section 12D which talks of short-term measures to avoid retrenchment were in practice made redundant as employers would only write a notice of intention to retrench with attachments of just but procedural consultative works council meeting minutes (where applicable) among other required information.
The statutory minimum retrenchment package of a month’s salary for every two years of service has been ruled to have been mean by the employees and this was further worsened by the Finance Amendment Act, SI 33 of 2019 which brought the US$1:ZWL1. The Finance Amendment Act, SI 44 of 2020 saw the government reintroducing a sole legal tender, the ZWL and the ‘temporary suspension’ of the multicurrency system. Covid19 that ravaged the world further worsened the job security of employees as the employers could just easily retrench.
The massive weakening of the local currency that followed the short removal of the multiple currency system saw many employers maintaining salaries in the local currency which they then incorporated some cost of leaving adjustment allowances (COLA) which could not be included in the computation of retrenchment package.
LABOUR AMENDMENT ACT NO. 11 OF 2023 AND THE OBTAINING RETRENCHMENT LAW
The labour body had raised serious concern over the severed employment security issue and the consequent compromization of the decent work agenda (that has probably been created unintentionally by the Labour Amendment Act No. 5 of 2015). As the Labour Amendment Act No.5 of 2015 categorically prohibited the employer’s common law right to terminate permanent employment on notice from one hand, it however made it much easier and cheaper than ever (arguably) for the employer to now retrench a permanent employee.
The new retrenchment law ushered by the Labour Amendment Act No.11 of 2023, arguably came as a result of the pressure made by the labour side with regards to the obtaining precarious job security, to include those in permanent employment positions as they could easily get retrenched without any (much) difficulties. The current retrenchment law has seen the retrenchment process made cumbersome and laborious once again. Thus, the retrenchment process has shifted again to become more pro-employee just like what happened with the Labour Amendment Act, No.17 of 2002 (as read together with the SI 186/2003) where the legislature reacted to the devastative socio-economic effects of ESAP.
The current retrenchment law again entitles an employee with what is calleda ‘minimum retrenchment package’ or alternatively called the ‘minimum compensation for loss of employment’. However, the current retrenchment law unlike the previous one, did not specify the formular, quantum or the method that has to be used in obtaining one’s minimum compensation for loss of employment.
Maybe the legislature deliberately yielded to such a lacuna with the intention that the Minister of Labour (with the powers vested in him in terms of section 17 of the Labour Act), would accordingly work and come up with a definitive statutory instrument to address on this obtaining lacuna.
Of importance, section 17 of the Act provides for the regulatory powers of the Minister and it states that: –
(1) Subject to this Act, the Minister, after consultation with the appropriate advisory council, if any, appointed in terms of section nineteen, may make regulations providing for the development, improvement, protection, regulation and control of employment and conditions of employment
……..
(3) Without prejudice to the generality of subsection (1), the Minister may make regulations in terms of that subsection providing for—
(q) regulating and restricting the circumstances in which employers may suspend or terminate the employment of any of their employees;
(r) specifying or otherwise restricting the circumstances in which contracts of employment may be terminated summarily or otherwise;
……………….
(u) any other matter relating to or connected with employment which it may be necessary to regulate.
With this line of thinking, the Minister of Labour would be expected to accordingly publish the respective regulation that will specify on how one’s minimum compensation for loss of employment is computed, whenever retrenchment is contemplated upon by the employer.
The new law also protects employees against the employer’s deliberate, reckless or gross negligence and/or any calculated actions done in contemplation of retrenchment within the past 12 months that diminishes or apparently diminishes the capacity to pay a minimum or an enhanced retrenchment package.
The Labour Court is now empowered to do the piercing of the corporate veil process for the respective directors found guilty of gross negligence in the management of business causing the liquidation of the organisation and the resultant failure to pay minimum retrenchment package. The piercing of corporate veil process would see the director or owner of the company personally responsible, without limitation of liability, for the total amount of the minimum retrenchment package.
The new retrenchment law allows for negotiation of better retrenchment terms between the employer and the employee or employees concerned or their representatives.
In a situation where the employees assert that the concerned employer has the capacity to pay above the given minimum retrenchment package (an enhanced retrenchment package) and satisfy the Retrenchment Board to that effect, the enhanced retrenchment package shall then be made payable to the concerned employees with effect from the notification of the Retrenchment Board’s decision. Basically, the employees need to have compelling evidence about the employer’s capacity to pay the so-called enhanced package and present the same before the Retrenchment Board.
The Retrenchment Process
Whenever an employer is of the intention to retrench any number of employees whatsoever, he/she is obliged to give fourteen days’ written notice of the intention to retrench with details of every employee whom the employer wishes to retrench and of the reasons for the proposed retrenchment to the works council of the undertaking or employee(s) concerned (whichever is applicable), and/or employment council and the Retrenchment Board.
When no agreement is reached at works council level (or the majority of the employees fail to agree) with regards to payable retrenchment package, the matter escalates to the employment council or the Retrenchment Board for need of determination.
Where negotiations for a retrenchment package better than the minimum retrenchment package are done after the notice given to the Retrenchment Board, a (written and signed) agreement on the quantum and date(s) of payment is reached, then the payment of the retrenchment package must be made in terms of the agreement made thereto. However, this agreement shall be notified in writing to the Retrenchment Board by no later than the end of the notice period or seven days thereafter.
When the employer accordingly notifies the Retrenchment Board of the fact and the particulars of the agreed retrenchment package (including the payment arrangement thereto), the Retrenchment Board will no later than fourteen days from the date of respective notification issue to the employer with a “notification certificate” if is satisfied that the agreed retrenchment package is indeed better than the minimum retrenchment package. It is critical to note that in terms of the law, the retrenchment package to which the notification certificate relates shall be binding on the employer and the employees concerned.
Claim for an enhanced retrenchment package
Where an employer has given notice of intention to retrench and with him/her stating capacity to pay only the minimum retrenchment package and to have then been accordingly issued with a notification certificate by the Retrenchment Board, without prejudice to the payment of the minimum retrenchment package, it is allowed for the retrenched employee(s) to claim for an enhanced package against the employer by way of an application to the Retrenchment Board on the leverage that the employer has such capacity.
The Application for an enhanced retrenchment package ought to be made within 60 days from the date on which the notification certificate was issued by the Retrenchment Board. This application should to be accompanied with the respective evidence or particulars of any proof to that effect and at the same time should specify the amount which is being sought as the enhanced retrenchment package.
Thus, the retrenched employees after receiving the minimum retrenchment package, they can still be able to demand for an improved payout from the employer as much as they have compelling evidence to leverage on. The success of employees in this regard depends on their competency in financial and business analytics as well as the access to the required information that could prima facie give weight to their application for an enhanced package.
Any retrenched employee (if he/she is the only retrenchee) or any retrenched employee acting with the written authority of the majority of any group of the retrenched employees or any trade union representing retrenched employees or representative can competently lodge such application for an enhanced retrenchment package against an employer. Thus, the concerned employees
are free to choose a comparatively much competent representative to explain and argue for their matter.
The employment council or the Retrenchment Board shall call for a hearing of the parties before making its determination and the determination shall be made within thirty days from the date of receipt of the application. The process mandates the employer to disclose its audited financial statements and the employment council or the Retrenchment Board may as well require the employer to respond by way of affidavit to any specific allegation concerning its ability to pay an enhanced retrenchment package made by any employee, group of employees or any representative thereof.
The employer’s audited financial statements are taken to reveal the generally acceptable financial status of the organisation. The requirement to furnish audited financial statements works in the favour of the employees as the employer’s deliberate diversion or stripping of funds in contemplation of retrenchment so as to disadvantage the employees can be objectively assessed or unearthed. The legislature’s herein thrust is seen to be on the promotion of good corporate governance, where transparency, professionalism, integrity,
responsibility and accountability become integral values and principles in every organisation and the basis for enhancing sustainable socioeconomic development.
However, a lot of informal companies do not carry out these financial audits for their businesses and this can then pose a challenge.
It will be a criminal offence for an employer to fail to comply with the orders and demands by the employment council or by the Retrenchment Board. Accordingly, the employer would be deemed to be guilty of the crime of contempt of court contrary to section 182 of the Criminal Law (Codification and Reform) Act [Chapter 9:23]. The legislature has demonstrated to the respective parties the criticality or seriousness that the retrenchment process ought to be accorded by criminalizing the herein issues. The employment council and the Retrenchment Board have been vested with more powers as far as the retrenchment process is concerned.
If the employment council or the Retrenchment Board fails to make a determination within the given thirty days’ period, the aggrieved party may appeal to the Labour Court within twenty-one days of the expiry of the said period of thirty days. However, if any party is aggrieved by any determination of the employment council or the Retrenchment Board, the aggrieved party may appeal to the Labour Court within twenty-one days from the date on which the determination was issued.
Breach of the retrenchment package agreement by the employer
If an employer breaches the retrenchment agreement and as per the notification certificate issued by the Retrenchment Board, the concerned employees and in 21 days after the breach, can legally file a complaint of noncompliance against the concerned employer to the Retrenchment Board. After a due enquiry of the matter and with the allegation thereto being confirmed as true, the Retrenchment Board can then issue a ‘non-compliance certificate’, which would clearly spell out the extent of the non-compliance.
It is critical to note that when the Retrenchment Board issues a ‘notification certificate’ in terms of the retrenchment process, The Retrenchment Board is legally obliged to post a copy of it on any actual or virtual notice board of the Retrenchment Board for a period of not less than seven consecutive days. This will enable any concerned party to be privy of the developments thereof.
After being equipped with a notification certificate as well as non-compliance certificate from the Retrenchment Board, the concerned employees may then make an application to the Labour Court for an order enforcing payment of their package as outlined on the non compliance certificate. In terms of the law, the Labour Court shall then deem the non-compliance certificate to be a liquid document, determinable by default judgment proceedings in the same way as such documents are determinable in the Magistrate’s Court or High Court.
Upon the obtainance of an order by the Labour Court Order in respect of the Court application, the concerned employees may then submit for registration a copy of the order to the court of competent jurisdiction, (which could be either the Magistrate Court or High Court depending on the quantum in question) for need of enforcement of the payment of the retrenchment package.
The Labour Court does not have powers to enforce its own judgements unlike in the cases of the Magistrate’s Court and the High Court, hence the need to then register the orders by the Labour Court with the Magistrate’s Court or the High Court (whichever is appropriate) for need of enforcement. Upon registration of an order by the Labour Court before the Magistrate or High Court, it shall then have the effect, for purposes of enforcement, of a civil judgment of the appropriate court.
It is unfortunate that the notification certificate by the Retrenchment Board is not a liquid document unlike what has become the Certificate of Settlement issued by the Labour Officer or Designated Agent. Had the legislature made the notification certificate registrable before a court of competent jurisdiction, this would at least have shortened the retrenchment process and procedure in some way.
Empowerment of the Labour Court and adorning it with power to enforce its own judgements looks to be long overdue. The procedural processes of taking a Labour Court judgement and have it registered with either the Magistrate or High Court for need of enforcement of the judgment is not only monotonous but also expensive for the employees. It is more often that employees would end up engaging lawyers to register their Labour Court judgments/orders with the Magistrate Court or the High Court owing the inherent technical complexities. The long and winding process can be so frustrating and expensive to the poor employees.
Application for exemption from paying the minimum Retrenchment Package
When an employer wants to retrench but alleges incapacity to pay the full minimum retrenchment package, the law requires such employer to give 14 days’ written notice of intention to retrench to the works council, the employees, the employment council and/or the retrenchment board. Again, the employer shall no later than fourteen days when any employee is retrenched, notify the Retrenchment Board in writing about the details and particulars of the employees concerned and stated portion of the minimum retrenchment package that he or she is able to pay not being less than twenty-five per centum of the total package.
The employer shall apply in writing to the employment council or the Retrenchment Board, if there is no employment council for the undertaking concerned, for exemption from paying the full minimum retrenchment package, providing such evidence as is necessary in support of its application and such additional evidence as the employment council or the Retrenchment Board may require in making its determination.
The employer’s copy of the application for exemption from paying the minimum retrenchment package as well as all the corresponding evidence filed before the Retrenchment Board shall also be furnished before the employees concerned or their representatives.
After hearing the parties, the employment council or the retrenchment board shall then consider the application and make its determination within thirty days of the date of receipt of the application. In the event that the employment council or the Retrenchment Board fails to make a determination within the specified thirty days then the aggrieved party may appeal to the Labour Court within twenty-one days of the expiry of the said period of thirty days. If any party is aggrieved by a determination of the employment council or the Retrenchment Board, then the aggrieved party may appeal to the Labour Court within twenty-one days of the date of the determination.
The employer has a critical duty to furnish audited financial statements among other proofs that has to be interrogated by the employment council or retrenchment board.
Criminalization of the employer’s failure to notify the Retrenchment Board about the retrenchment of employees.
An employer who purports to retrench any employee without giving notice of retrenchment to the Retrenchment Board as required at law shall be guilty of an offence and liable to a fine not exceeding level 12 or to imprisonment for failure to pay the fine in full within six months. The employer for the purpose of imprisonment shall be a reference to any member of the governing body of a corporate employer. Therefore, company directors would be made liable to this regard.
The legislature saw it fit that the government ought to be aware of all retrenchments that are taking place such that it can be able to ensure fairness especially on the side of the vulnerable employees. The central government would also be assured of the correct and reliable statistical information like sex and age groups of the retrenchees, the industry from which the retrenchment took place among other issues, which data can then be used in various analytics and intervention strategies/programmes for the furtherance of social protection and economic development.