Ethiopia | New Labour Proclamation: Highlights of Key Changes
On July 5 2019, the House of Peoples’ Representatives approved a draft Labour Proclamation (Proclamation) that will repeal Labour Proclamation No. 377/2003 (Labour Proclamation) together with its amendments. The Proclamation replaces a law that has been in place for the last 16 years. This has been a period where Ethiopia saw a major shift in investment and business environment as well as the overall labour market. The new Proclamation acknowledges the key role of a skilled and disciplined workforce to Ethiopia’s industrialization efforts and improve its global competitiveness by expressly stating in its preamble the need to create a favourable environment for investment. In this issue of our legal update, we present some of the key changes introduced by the new law with our observations included at the end.
More obligations to Employers: The new Proclamation maintains the obligations of the employer under the existing law, such as providing work to the employee, paying wages, respecting the dignity of the employee etc. In addition, the new law obligates the employer to: a) deduct union dues from the employee’s regular wage, and transfer the cash into the trade union’s bank account, if so requested by the employee b) raise awareness of employees on work rules of the organization c) register information on workplace location and work-related data and transfer to the Ministry of Labour and Social Affairs (MoLSA).
New Rules on Minimum Wage: the idea of introducing a minimum wage has been a topical issue for the Ethiopian government for quite some time. Previous administrations have commissioned studies on minimum wage, though none of these were able to see the light of day. Under the new Proclamation, the government has gone one step forward to establish a Wage Board comprising of representatives of government, employees and trade unions together with other stakeholders that will carry out studies for setting and periodically revising minimum wages.
Increased Minimum Working Age: the Proclamation raises the minimum working age from fourteen years of age to fifteen while maintaining the list of tasks and conditions permitted to young workers.
Added Employee Benefits: The new Proclamation extends existing maternity leave from 90 consecutive days to 90 working days. The 30 working days are granted prior to the mother giving birth and 60 working days subsequent to birth. Furthermore, the law introduces, for the first time, paternity leave of three consecutive days for male employees. This is less generous from the 5 working days paternity leave that is granted to civil servants under the Civil Service law.
Amendment to Annual Leave Entitlements: The new Proclamation increases employees’ annual leave days from 14 working days on the first year of service to 16 working days. An additional one leave day will be granted for every two years of services as opposed to every year of services as it was currently provided.
Extended Probation Period: probation period is doubled from 45 consecutive days to 60 working days. A probation period gives an employer the opportunity to test the suitability of the employee for the position. Both employees and employers will have the right to terminate contracts without notice and with no legal consequences prior to the expiry of the probation period. The new proclamation retains the existing rules that a probation period must be agreed between the parties and it must be done in writing. The law does not presume probation to exist in the absence of a written undertaking. At the completion of a probation period, if the employment is not terminated, then a contract of employment for an indefinite period is presumed to have been created.
Adjustment to Overtime Work and Payment: the new Proclamation retains the maximum working hours to 8 hours a day and 48 hours a week. Work done in excess of these hours is considered overtime work. Under the new law, maximum overtime work is capped at 4 hours per day and a maximum of 12 hours per week. The maximum monthly and annual overtime hours of 20 and 100 hours respectively were removed. Depending on the time of work, the rate of payment for overtime work has also slightly increased from 1.5 multiplied by daily hourly rates to 1.75 multiplied by the daily hourly rate. As the previous legislation, the new Proclamation does not offer any flexibility for parties to agree on the extension of overtime beyond the limit stipulated by law.
Vicarious Liability for Employers: under the existing labour law, employers will be liable for any unlawful acts prohibited by law. These unlawful acts are those including but not limited to, discrimination of employees based on ethnicity, sex, religion, political outlook, HIV/ AIDS or disability or any other grounds; terminating a contract of employment contrary to the law; compelling employees to execute any task which is hazardous to life; committing sexual harassment or sexual assault at workplace; and physically abusing anyone in a workplace. The new Proclamation holds the employer liable if these acts are committed by any of its management employees. The effect of commission of these acts by either the employer or the managerial employee is that it will expose the employer, depending on the nature of the act committed, to a fine of up-to ETH 60,000 (approx. USD 2,000) or if repeated more than three times, for the closure of its organisation.
Employee Liability: the Proclamation expands the list of unlawful acts by employees (which under existing law include endangering life and property of the employer, taking away properties, reporting to duty while intoxicated, refusing to observe safety and accident prevention and refusing to submit to medical examination with the exception of HIV/AIDS), to include the following acts: a) making use of falsified document or an attempt thereof: b) conducting meetings during working hours in disregard to the time assigned by the collective agreement or without obtaining the permission of the employer; c) commit sexual harassment or sexual violence at workplace; and d) physically abusing anyone in a work place. The implication of the above unlawful acts is that the employer will be able to terminate the contract of employment without prior notice to the employee within 30 days of knowing the existence of commission of such acts.
New Rules on Sexual Harassment and Sexual Violence: The Proclamation introduced a new regime to regulate workplace sexual harassment and sexual violence. Sexual harassment includes any act that is made to persuade or convince another through utterances, signs or any other manner, to submit for sexual favor without his/her consent. Sexual violence includes any sexual harassment accompanied by force or any attempt thereof. Accordingly, employees that have suffered sexual harassment or sexual violence will be entitled to terminate their contracts without notice, and will also be eligible for severance payment and compensation. The law provides a higher amount of compensation payment for employees who are forced to terminate their contract, without notice, for reasons of sexual harassment and sexual violence. Forced termination of contracts by employees for reasons that are unlawful acts of the employer will entitle the employee to one month compensation payment whereas sexual harassment and sexual violence victims will be granted three months of compensation payment.
Grounds for Termination of Contracts: the existing Labour Proclamation allows employers’ ability to terminate contract of employments only to specific conditions provided by law. Any termination that is not in line with the labour law will be deemed as unlawful termination. An unlawful termination of a contract by an employer may have two consequences. a) It may either allow the employee to be reinstated to his/her previous position or b) it may entitle the employee severance and compensation payments. Under the new proclamation, the same approach is retained and grounds for termination of contracts (with notice and without notice) are exhaustively listed. However, there were some adjustments made to the maximum number of days that employees may be late or absent from work. Failure to adhere to these numbers of days will entitle the employer to a summary termination of employment contracts. Accordingly, the new law provides that reporting late to work eight times in six months period; and absence from work for a total of five days in six months’ period while being warned in writing of such a problem will lead to termination of contracts without notice. Furthermore, employers will be able to terminate contracts of employment with prior notice, if there is a manifested loss of capacity or skills on the part of the employees. Employer must, however, prove this by creating a performance evaluation system.
Redundancy: Under the existing law, if an organization is compelled to reduce its work-force, the organization is permitted to prioritize and retain those employees that have the highest skills and level of productivity. In case where there are employees with equal skills and rates of productivity, the law provides for the order of reduction that should be made. Thus, employees that have the shortest length of service and those having fewer dependents will be reduced first while expectant mothers and mothers within 4 months of post-natal will be reduced last. The new Proclamation adds those employees with disability (regardless of how the disability was acquired) not be subject to reduction prior to others. Other than this slight amendment, the law maintains the strict rules and procedures that must be followed in order to reduce any workforce.
Administrative penalties: the Proclamation increases the administrative penalties to be imposed on employers violating the rules of the Labour Proclamation. Accordingly, the range for fines attributed to various violations under the Proclamation has increased from 300-1200 to 5,000-70,000. In practice, these administrative penalties were seldom enforced by the MoLSA.
Revision of the labour law has gone through various drafts and discussions over the past years. Since the enactment of the previous law in 2003, the Ethiopian labour force has dramatically changed in the last 16 years, with new industries requiring a new set of skills and a shift in employer-employee relations. A large majority of the provision of the Proclamation 377/2003 were directly transplanted to the new law verbatim. Although the Proclamation attempts to address some practical challenges encountered due to gaps in legislative drafting, the new law does not introduce a new conceptual framework or shift to create a more private sector/investment-friendly legal regime. Compared to the length of time it took to revise the law and the changes that were seen on the ground, many of the revisions under the Proclamation are not fundamental in nature. The new law does not exhibit any shift in policy, for example, in terms of relaxing some of the more restrictive rules on the ability of the employer to terminate contracts. It does not offer contractual freedom to the parties and flexibility to allow an employer and employee to on agreed terms different from what is stipulated under the law. Unless it is included in a collective agreement, the law leaves little space for a worker and an employer to independently agree with the terms of employment.
Secondly, the scope of the labour law is applicable to all employment relations and does not offer industry-specific exceptions. With the exception of managerial employees and the diplomatic community, the Proclamation is applicable to all sectors across the board. This does not take into account industry-specific labour needs and requirements and the different labour dynamics that should be subject to different regulatory considerations. By way of an example, countries adopt different labour rules for industrial undertakings and for service sectors. Although manufacturing and industrialization is a key development vision for the country, this is not sufficiently reflected in the labour law.
Consultant and Attorney at Law
The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.