Introduction
We have stressed on several platforms that labour law is not static. It changes every day. Employers and employees must actively be on the lookout for the changes that happen in the law.
One of the glaring changes and challenges that came with Act 11 of 2023 was the absence of a definition of a minimum retrenchment package under section 12C of the Labour Act. This created a legal challenge. In the Contemporary Employment Law in Zimbabwe , we noted this legal challenge in the following terms:
“Section 12C (2) shows that the minimum retrenchment is payable in the absence of an agreed enhanced retrenchment package. Without ascribing a meaning to the minimum retrenchment package some of the provisions in section 12C become difficult to comprehend. For example, if an employer alleges that he or she cannot pay any part of the minimum retrenchment package it becomes mandatory for the same employer to still notify the retrenchment board and indicate that “the portion of the minimum retrenchment package that he or she can pay” is not “less than twenty-five per centum of the total package.” The reference in this section to 25% of the total minimum retrenchment packages means that the legislature envisaged that the “minimum retrenchment package” would be known beforehand. In the absence of the definition of a minimum retrenchment package in the Act, there is no objective way of calculating the 25% that should be strictly paid by an employer that cannot afford the minimum retrenchment package. This is a legal problem.”
Fortunately, it seems that this issue has now been resolved. In this article, we outline the contemporary minimum retrenchment package and discuss the legal implications of its definition.
Statutory Instrument 191 of 2024
Through a Supplement to the Zimbabwean Government Gazette dated the 6th of December 2024 a fresh statutory instrument was born. It designates the retrenchment board, defines the minimum retrenchment package and comes up with a set of forms that parties can make use of during retrenchment. Of particular interest in this article is the definition of the minimum retrenchment package.
The minimum retrenchment package
Section 5 of Statutory Instrument 191 of 2024provides that:
“Unless better terms are negotiated and agreed between the employer and the employee or employees concerned or their representatives, a minimum retrenchment package of one month’s salary or wages for every year of service as an employee or the equivalent, lesser proportion of (one month’s salary or wages for a lesser period of service) shall be paid as compensation for loss of employment”.
The minimum retrenchment package as defined in this statutory instrument is higher than what was provided under Act 5 of 2015 which designated the minimum package as “two weeks salary” for every year served by the employee. The minimum package is also applicable to employees who have been with an employer for less than one year and will be paid on a pro-rata basis.
Defining the minimum package as has been done provides legal certainty and gives parties in the employment relationship a starting point in negotiating their separations. It also gives the retrenchment board the capacity to consider and resolve retrenchment issues.
Legal implications of the well-defined minimum retrenchment package
Compared to the minimum retrenchment package outlined in Act 5 of 2015, the package introduced under Statutory Instrument 191 of 2024 is higher. It shifts from providing two weeks’ salary for each year of service to one month’s salary for every year of service.
The presence of a definition of a minimum retrenchment package does not make this the only package one can pay a retrenched employee. Employers and employees are still under an obligation to negotiate and if there is room allow employees to get an enhanced package.
The companies with pending retrenchment exercises are compelled to comply with this legal development. Those parties who were relying on the minimum retrenchment package of 2015 have changes to make.
Those retrenchment exercises that had not been finalised and were based on the 2015 minimum package would have to be revisited in due compliance with the law.
The definition of the minimum retrenchment package would also now affect those contemplating mutual separations under section 12(4a) of the Labour Act. Section 120(4b) provides as follows:
“Where an employee is given notice of termination of contract in terms of subsection (4a) and such employee is employed under the terms of a contract without limitation of time, the provisions of section 12C shall apply with regard to compensation for loss of employment.”
Section 12(4a) provides for the peremptory provisions that ought to be followed when ending a contract of employment including the use of mutual separation agreements for the termination of contracts of employment. Section 12(4b) of the Act provides for the compensation of employees who may be affected by the termination of the contract on notice under section 12(4a)including those under mutual separation conditions.
A mutual separation agreement remains an agreement between the parties. Parties contemplating mutual separation agreements now have to start their negotiations by taking into cognizance the minimum package payable. After the statutory instrument parties cannot agree on anything that is below the minimum package payable.
One would add that section 12(4b) of the Labour Act should not be used to imply that the minimum package is payable to an employee who would have resigned or who would have been dismissed. These circumstances of ending the employment relationship do not constitute a situation where “an employee is given notice of termination of contract” as outlined in Section 12(4a).
What is the salary or wage for retrenchment calculations?
A contentious yet essential issue we must address in this article is the definition of “salary or wage” for each year of service. This question is contentious because, to the best of our knowledge, it remains unresolved by the courts. It is further complicated by the structure of payslips in Zimbabwe, which typically distinguish between “basic salary,” “gross salary,” and “net salary.” The basic salary refers to the amount paid to an employee excluding allowances, the gross salary includes allowances, and the net salary is what remains after statutory and permissible deductions. Each of these components constitutes a form of salary.
In our considered view, the gross salary reflected on the employee’s final payslip should serve as the basis for calculating the minimum retrenchment package. We argue that the purpose of a retrenchment package is to fairly compensate an employee for the loss of their employment. Excluding the gross salary from this calculation fails to achieve full compensation for the purposes of retrenchment. While this is our respectful position, we acknowledge that the courts may decide differently in the future.
Conclusion
With the minimum retrenchment package now clearly defined, we believe that the ambiguities surrounding the implementation of Section 12C of the Labour Act have been effectively addressed. We applaud the authorities for heeding nationwide calls to at least make compulsory retrenchment available to parties contemplating utilising this method of ending the employment relationship. We are confident that employers and employees now have a solid foundation for retrenchment negotiations.