Striking a balance

Employment laws should strike a balance between promoting the rights of workers, and ensuring businesses remain profitable enough to provide for broad employment. 

The Employment Code Act (ECA) has been widely criticised for disrupting this balance since it was first issued as a Statutory Instrument on 10th May 2019. Preliminary analyses showed that the ECA would drastically increase the cost of labour – by as much as 40% according to one mining company that Mining For Zambia spoke to. The impact of the ECA, compounded by the extraordinary economic pressure following COVID19, would have been disastrous for Zambian businesses.

The government is therefore to be commended for its recent efforts to revise the legislation. But do the amendments go far enough?

Former Finance Minister Felix Mutati has warned that, unless the ECA is further reassessed — and, ideally, suspended — protecting workers will no longer be an option because, without businesses’ survival, there will simply be no jobs to safeguard. 

In this article we look at the implication of the ECA’s amendments, how effective they are likely to be, and what else could be done to ensure that there is an economy to repair, post-COVID-19.

What were the ECA’s major issues?

As a piece of legislation, the ECA did not sufficiently take into account employers’ concerns, even before COVID’s economic ramifications. “Ultimately, if one is talking about improving employment conditions, one must first have jobs,” says Professor Oliver Saasa of Premier Consult who — along with Felix Mwenge, a research fellow in the Human Development Unit of the Zambia Institute for Policy Analysis and Research — co-authored Critical Assessment of the Employment Code Act (22 April 2020). The report is understood to have informed Government’s decision to introduce a series of exemptions on 7 May 2020.  

“When employers are forced to close down, the economy starts to collapse, which wasn’t taken into account in the Act,” says Saasa. Instead, the ECA introduced significant red tape to labour and employment legislation in Zambia, and requires urgent review before it irreversibly affects growth prospects.

Increasing labour costs could come at the expense of employment

At face value, increased labour costs may sound like a financial win for workers. But a prohibitively high cost of labour — as evidence from other countries shows — results in a relatively small, highly-protected workforce, with high barriers to entry for the non-working population.

The amendments to the ECA no longer make some of the harshest aspects of the legislation mandatory. Among these is the requirement that 25% of an employee’s basic pay for their entire contract period worked is paid out as severance pay or gratuity when contracts are terminated under Section 54. This would have previously resulted in an employee who worked at a company for four years being paid out the equivalent of one entire year (100%) of their basic pay. Again, at face value, this seems like a result for employees, but such stringent conditions are a major disincentive to recruitment and, in the long-term, encourage temporary contracts, informality, and broadly lower levels of employment. If the balance of employment law is weighted too heavily in one direction or the other, it has the same ultimate consequence of hindering the creation of sustainable jobs.

“When employers are forced to close down, the economy starts to collapse, which wasn’t taken into account in the Act.”

Other important exemptions will hand back to Zambia’s companies some flexibility in restructuring their operations, and staff availability during this crisis period, without it being prohibitively expensive. The first exemption allows employers a grace period to pay an employee’s terminal benefits, in the event that they are made redundant – provided that companies can prove to the Ministry of Labour that they are in financial distress. Secondly, the Government has also suspended the statutory requirement of paying overtime to management employees (and expatriate staff, most of whom are in management), along with mandatory cash pay-outs for unused leave days. These exemptions will certainly aid companies’ cashflow during this time of crisis.

Yet, the most urgent issue for employers right now is the lack of practical provisions on forced leave, at a time when more and more companies find themselves in no position to pay salaries.

Forced leave in the time of COVID-19

The ECA did not previously allow for forced leave under any circumstances. Now, rather than watch scores of companies go out of business, the Government will allow employees to be put on forced leave, when absolutely necessary. Furlough schemes such as those being rolled out in Europe — in which governments support employees who cannot work as a result of COVID-19’s economic backlash by paying 70-100% of their salaries — are not an option for Zambia’s cash-strapped government. Instead, forced leave legally requires Zambian companies to provide employees with their Basic Pay, which generally amounts to 40-60% of their gross salary, and excludes Duty Facilitating Allowances such as housing and transport allowances. 

This amendment will go some way towards giving companies the agility to keep their companies afloat, and to facilitate the quick return to work of employees on their payroll as soon as economic conditions permit — if it is implemented sensibly.

But as always, the devil is in the details. In order to put an employee on forced leave, companies must apply to the Ministry of Labour and provide extensive documentation to demonstrate that they are under financial distress, after which the Ministry will decide which companies qualify for this exemption.

The problem with insisting that applications are made to the Ministry is two-fold, in Saasa’s view.  

“Firstly, my concern is that the Ministry — like any Ministry of Labour outside of Zambia — does not have the professional skills mix to conduct financial due diligence or make assessments of which companies should be exempted from the provisions of the Act. You are therefore likely to have a situation where the decision as to who qualifies for exemptions will be arbitrary and uninformed, which of course is not good for the economy,” says Saasa.

Secondly, financial stimulus is required across the board — a fact that has been addressed via government stimulus packages, furlough schemes, and cash transfers elsewhere in the world, but not so far in Zambia.

“Right now, literally everybody is financially stressed: every employer, every employee — and Government itself,” says Saasa. “COVID has brought about a dimension that has left nobody untouched. What we need is a macro approach to addressing this issue, rather than dealing with the problem individual by individual, especially by a Ministry that clearly lacks the requisite capacity to manage this in a timely and efficient manner.”

Putting out fires  

“Imagine 20 or 30 000 Zambian companies — small, medium, and large — applying to the Ministry of Labour for exemptions. Where is the capacity of the ministry to assess those applications in a meaningful manner and, ultimately, to grant these exemptions? That is really the issue,” says Saasa. 

It may take months for the Ministry of Labour to build the capacity to conduct assessments on this scale, and the application process will involve time-consuming submissions on companies’ profitability and performance. We are in a crisis, and time is one of the few commodities that could prevent companies from closing their doors.

“It’s as if, while the house is burning, you are demanding the procurement of a fire engine that will take years to arrive,” says Saasa. “The process being proposed by the Ministry of Labour, in its amendments to the Act, does not recognise that we are in an emergency situation.”

Are the exemptions enough? Or what would give businesses a greater chance of survival? 

“Companies have welcomed these exemptions because they give employers much-needed liquidity, especially with the additional challenges caused by COVID-19,” says Kuda Chitanga, a Legal Specialist at First Quantum Minerals (FQM) Zambia. “But, what we need is a review of the entire statute, rather than just piecemeal exemptions.”

“We are in a crisis, and time is one of the few commodities that could prevent companies from closing their doors.”

According to Mutati, implementing the ECA may also dilute the impact of Zambia’s COVID-19 tax relief measures and the Bank of Zambia’s K10 billion stimulus facility, while also making it extremely difficult to sustain even reduced levels of employment. “The whole Act should go through a surgical review to make sure that it is used as a tool to support economic recovery, whilst protecting the interest of the workers,” he said.

Saasa agrees that suspending the Act outright would give businesses a greater chance of survival. Setting up a task force in order to undertake a comprehensive review of the ECA, with membership from relevant stakeholders, would be a sensible next step, according to Mutati, Mwenge, and Saasa. 

“A task force is essential because it allows for a much more comprehensive assessment, and also one that takes into account the interests of a more representative group. That way, you’re far more likely to create legislation that reflects what Government policy should be,” says Saasa. 

Unusual times require unusual responses — and urgency, Mutati recently said, adding that the challenges of the existing economic environment called for “hard policy choices” and the need to implement “difficult reforms”.

“Once the economy improves, one can start addressing ways to secure benefits that accrue to employees in a sustainable way,” said Saasa. But to do that, Government needs to ensure that employers and businesses are sustainable — and profitable enough to ultimately provide much-needed jobs post-crisis.

See also: The cheque’s in the post!