This legal alert highlights the provisions of the Employment Code (Exemption) Regulations, Statutory Instrument No. 48 of 2020 (the Exemption Regulations) which came into effect on 11 May 2020 pursuant to Gazette Notice No. 394 of 2020.

12 May 20

Annual Leave and Leave Benefits
The provisions of section 36 and 37 of the Employment Code which provides for annual leave, and payment of accrued and unused leave days and annual leave benefits are no longer applicable to employees. It is not certain why the provision relating to annual leave has been included in the
exemption. From a literal point of view and if the exemption is read together with the heading in the Schedule, this could imply that employees are no longer entitled to statutory annual leave and that this will be purely contractual. The exemption could also mean that employees no longer have to wait for 12 months before accruing and proceeding on leave. However, if the provision is read together with regulation 3, another possible meaning is that only the employee and not the employer can invoke the exemptions applying to annual leave and annual leave benefits.

Forced Leave
Employers who are assessed by the Labour Commissioner or a labour officer (“an authorised officer”) to be in financial distress are exempt from paying employees on forced leave their basic pay. The assessment of financial distress will be based on the following guiding principles (the “Guiding Principles”):

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

Gratuity/Severance Pay
The provisions of section 54(1)(b) and (c) providing for severance payment on the termination or expiration of a contract of employment are no longer applicable to expatriates and employees in management engaged in permanent contracts or short-term contracts. In our view, this means that
employers are exempt from paying a gratuity of 25 percent of the basic pay earned during the contract period or retirement benefits provided by a social security scheme the employee is a member of. Further, the provisions of section 73 of the Employment Code providing for gratuity at the rate of 25 percent of the basic pay earned during the contract period are no longer applicable to expatriates, employees in management who have written contracts providing for gratuity, and employees in the agricultural sector and the domestic sector, engaged under long term contracts (i.e. contracts for a period longer than 1 year and renewable).

The effect of the exemption relating to employees in management is not apparent and could be subject to different interpretations. Our interpretation is that if the contract of employment for an employee in management provides for gratuity, such an employee will not rely on section 73 which provides for gratuity at 25 percent of the basic pay earned during the contract period. The gratuity payable to a such employee will be as provided in the contract of employment. However, if the contract of employment for the employee in management does not provide for gratuity, so the provisions of section 73 providing gratuity at 25 percent will apply.

An employee in management means an employee who is the head of an institution or undertaking and has the authority (i) to hire, suspend, promote or demote an employee; (ii) in the financial, operational, human resource, security or policy matters of the employer; (iii) to make decisions in the financial, operational, personnel or policy matters of the employer and who represents and negotiates on behalf of the employer in collective bargaining or negotiations with any trade union; or (iv) with written institutional authority to perform the functions referred to in (i), (ii) or (iii).

Employers who are assessed by an authorised officer to be in financial distress based on the Guiding Principles or who are under circumstances that warrant immediate termination of the contract of employment are exempt from complying with section 55 (2).

Accordingly, this means that employers can now declare employees redundant without complying with the timelines provided under section 55 (2) of the Employment Code, such as the 60-day notification to the Labour Office and 30 days’ notice to the employee before declaring such employee redundant.

The provisions relating to overtime pay in section 75 do not apply to expatriate employees and employees in management.

What Employers Should Note
As employers were required to comply with the Employment Code immediately in respect of new contracts entered into after 10 May 2019 and to amend existing contracts by 9 May 2020, it is likely that most contracts have already made provision for some or all of the exempted benefits. Employers should therefore review their contracts of employment to assess whether any of the exemptions apply to them. If the existing contracts are silent on a particular provision that has been exempted, the exemption in the Exemption Regulations will automatically apply.

However, if the provisions are entrenched in the contracts of employment and have become conditions of service, any amendments to the contracts to exclude any benefits falling under the Exemption Regulations should be consented to by the relevant employees. This is because the law does not apply retrospectively and will not invalidate benefits that have already been contractually agreed upon. Employers should note that a unilateral variation to the employees’ detriment without the consent of the employee amounts to a redundancy and entitles an employee to a redundancy payment. Employers should also note that the exemptions could be subject to different interpretations in that regulation 3 suggests that the persons listed in the Schedule are the ones exempted from the provisions of the Employment Code. This could mean that it is only those persons who can invoke the exemptions provided.

Should you have any questions on this legal alert, please do not hesitate to contact Chanda Musonda-Chiluba.