Employment Considerations in Business Restructurings and Modes of Termination of Contracts of Employment in Zambia

EMPLOYMENT CONSIDERATIONS IN SHARE ACQUISITIONS

• In the Zambian employment law context, a sale of a company’s shares is merely a change of shareholders and does not affect the employment relationship. Therefore, the company continues to exist as it did prior to the share sale and the employees remain employed by the same legal entity as the employer remains the same.

• Therefore, no transfer or redundancy provisions under the law will be triggered.

EMPLOYMENT CONSIDERATIONS IN ASSET SALE TRANSACTIONS

• Employees are not considered “assets” of a business. Therefore, employees do not transfer automatically upon the sale of a business/assets. For employees to be transferred, the procedure in the Employment Code Act, 2019 (the “ECA”) must be followed, i.e., the employees must be consulted and must give their consent before they are deemed to be transferred to a new employer, and the transfer must be endorsed by an authorised officer.

• As an employee cannot be compelled to work for another employer without their consent, a refusal to be transferred to another employer would trigger a redundancy event, thereby requiring an employer to follow the redundancy procedure in the ECA.

MODES OF TERMINATION UNDER ZAMBIAN LAW

• A contract of employment can only be terminated by an employer for cause. This means that the employer must provide a valid reason for the termination and that reason must be connected to the conduct or capacity of the employee or based on the operational requirements of the business.

Termination by way of notice

• A written contract of employment can be lawfully terminated before its expiration date by either party giving the requisite notice to the other as provided under the contract of employment or any applicable conditions of service, or payment in lieu of notice. 

Termination by way of redundancy

• An employer is considered to have terminated a contract of employment of an employee by reason of redundancy if the termination is wholly or in part due to:

(a) the employer ceasing or intending to cease to carry on the business by virtue of which the employees were engaged;

(b) the business ceasing or diminishing or expected ceasing or diminishing the requirement for the employees to carry out work of a particular kind in the place where the employees were engaged; or

(c) an adverse alteration of the employee’s conditions of service which the employee has not consented to.

• The ECA requires an employer to undertake the following procedure when effecting a redundancy:  

1. to notify the Labour Commissioner of the impending redundancy not less than sixty days prior to the termination of the contracts of employment;

2. to notify the employees or the union (should the employees be unionised) of the impending redundancy at least thirty days before termination of the contracts; and
3. to afford the employees or the union an opportunity to consult on the measures to be taken to minimise the termination and the adverse effects on the employees. 

• An employee declared redundant is entitled to a redundancy package computed at a minimum rate of two months’ pay for each year served. This is in addition to any other benefits which would have accrued to the employee.

• The law also requires that the redundancy payment should be made no later than the last day of duty of the employee. Where this is not the case, the employer shall continue to pay the employee full wages until the redundancy package is paid.

Termination by mutual agreement 

• The law allows for the termination of a contract of employment by way of mutual agreement, which is where both an employer and employee mutually consent, without any coercion or threat, to terminate the contract of employment. 

• No reason is required to be given by an employer as the termination is not at the instance of the employer but mutual. 

Termination by effluxion of time

• A contract of employment can come to an end at the expiration of the term for which it is expressed to be made. 

• No notice is required under the ECA, though it is recommended as best practice. 

Termination by way of dismissal

• An employer can summarily dismiss an employee but only in the following circumstances:

1. where an employee is guilty of gross misconduct inconsistent with the express or implied conditions of the contract of employment;

2. for wilful disobedience to a lawful order given by the employer;

3. for lack of skill  which the employee, expressly or impliedly, is warranted to possess;

4. for habitual or substantial neglect of the employee’s duties;

5. for continual absence from work without the permission of the employer or a reasonable excuse; or

6. for a misconduct under the employer’s disciplinary rules where the punishment is summary dismissal.

EMPLOYEE CLAIMS AND AWARD OF DAMAGES

• Wrongful Dismissal – The practice of the Court’s is to award damages, with the minimum amount of damages being equivalent to the notice period. Should there be special and compelling circumstances proved, the Court can exceed the notice period. 

• Unlawful Dismissal – Damages up to 12 months’ basic salary with interest at the average short term deposit rate per annum from the date of writ to date of judgment on appeal and thereafter at six per cent per annum until final settlement have been awarded.

• Unfair Dismissal – Damages equivalent to his three months’ salary, including all allowances and perquisites; and all withheld salaries, accrued leave pay and gratuity for the period the appellant served up to the date of his dismissal.

• Constructive Dismissal – Damages of up to 36 months’ salary/gross pay have been awarded

For further information and updates, please contact LEX Africa members, Jackie Cornhill Jhala | Partner | Corporate Advisory Department and Coleen Namuyamba-Bwalya | Associate | Corporate Advisory Department  at Corpus Legal Practitioners in Zambia.