Workforce Reduction in Ethiopia: Key Legal Considerations
This blog explores the Ethiopian legal framework governing workforce reduction (redundancy exercises). It draws on the Ethiopian Labour Proclamation No. 1156/2019, Workforce Reduction Directive No. 43/2021, and Directive No. 833/2021 (Directive on the procedure to lay off workers).
1. Minimum selection criteria or specific approach needs to be taken by the Company/organization when determining who should be made redundant
There are legal minimum selection criteria or a specific approach that needs to be taken by the Company/Organization when exercising the reduction of workforce. The general procedure set forth under sub-Article 29 (3) of the proclamation is that whenever a reduction of a workforce takes place, the employer shall conduct consultation with a trade union or workers' representatives in order to retain workers who have skills and a higher rate of productivity in their post. Shortest length of service
In case of comparable skill and rate of productivity, the worker to be affected first by the reduction shall be in the following order:
a. Those having the shortest length of service in the undertaking;
b. Those having fewer dependents;
c. Those who sustained employment injury in the undertaking;
d. Workers and mothers within four months post-natal.
2. The legislative requirement in respect of redundancy, specifically whether or not there are collective agreements in place that supplement legislation
If no collective agreement was bargained, negotiated, and agreed upon by the worker representatives of the employees and the Management.
Thus, in respect of the redundancy process, the applicable legislation is the Labour Proclamation No. 1156/2019, Workforce Directive No. 43/2021 and Directive No. 833/2021 (Directive on procedure to lay off workers).
3. An overview of the minimum process, and consultation process required when undertaking a redundancy termination exercise
As per Article 6 of both the Directives; Directive No. 43/2021 and Directive No. 833/2021, the employer is expected to notify the trade union or the worker's representative in writing about the ensuing workforce reduction process 30 days prior to its implementation. Since there is no existing trade union in the Company/Organization, a representative who will participate in the consultation shall be elected in a meeting where at least more than half of the workers are present. The workers are expected to select their representatives through the facilitation of a nominating committee, where representatives are elected by a majority vote.
The content of the notification letter shall be required to specify:
Inviting the workers representative to attend the consultation.
The reason for the reduction of the workforce;
The number of employees that shall be affected by the process;
The positions (posts) that will be affected;
The longevity of the reduction period, and
The criteria for the implementation of the reduction.
In this connection, it needs to be noted that the Company/Organization has to establish, prior to the implementation of the reduction process, the justifiable reasonings and facts to be relied upon for the redundancy exercise do indeed fall under sub-Article 28(3) of the Proclamation.
During the consultation process, the Company/Organization and the worker representatives shall deliberate and discuss issues like the possibility of the worker being retrenched through the pension framework, prioritizing re-employment opportunities to the reduced employees, on condition by which workers with high product and service output are to be retained or trying to find ways to avoid reduction of workforce altogether. The discussion shall be expected to be completed in 30 calendar days.
4. What documentation needs to be provided to affected staff members during the minimum consultation process required by law
The Company/Organization is expected to issue a notification letter to the worker representatives concerning the reduction process.
Further, a document containing a Board of Directors or management resolution that comprehensively describes the justification which prompted the reduction process needs to be communicated to the employees.
Except for the aforementioned requirements, the relevant and applicable law does not require the employer to produce documents as appertaining to the process.
5. Notification to Authorities
Pursuant to Article 7 of both the Workforce Directive No. 43/2021 and Directive No. 833/2021, before entering into the implementation of the redundancy exercise, the Company/Organization is obliged to notify in writing to the Ministry of Labour and Skill by including the raison d'être for the reduction of the workforce, the numbers of employees affected by the retrenchment process and their position, the time the layoff exercise takes, the criteria applicable for the implementation of the reduction process, the overall number of workers employed, and the related data.
The Ministry reviews compliance but does not grant or deny permission.
6. Company/organization obligation to redeploy affected employees, prioritizing the re-hiring of redundant employees post-restructuring
The Company/Organization shall not be under obligation to redeploy affected employees if the retrenchment is due to the cancellation of the post of worker (workstream) caused by the elimination of a specific job position and given that there are no other suitable roles available within the Company/Organization to which the employees can be transferred.
However, prioritizing re-employment of redundant staff should be discussed during consultations.
7. Minimum Severance / Redundancy payment, Tax exemptions applicable to such payments
Employees are entitled to:
Severance pay, per sub-Article 39(1)(c), and 40 of the Proclamation, based on their service year.
Notice payment, pursuant to Sub-Article 28(3) and Article 35 of the Proclamation.
Two months’ average wage.
Compensation for unused holiday entitlement.
Any other additional benefit defined under the Internal Rules of the Company/Organization.
There is no such designation as exit payment prescribed under the Proclamation.
8. Company/organization entitlement to request the employees to enter into an exit settlement agreement
Exit agreements are permissible if minimum legal payments are made. However, waivers of rights are legally ineffective. Registration of such agreements is not required.
9. Consequences of Non-Compliance
If a court determines that a workforce reduction was carried out in violation of the law, the employees affected shall be entitled to receive compensations such as:
Notice payment as per Articles 35 and 43 of the Labour Proclamation (from 1 to 3 months' salary).
3 months of salary for payment delay per Article 38 of the Labour Proclamation.
Severance payment as per Article 39(b) of the Labour Proclamation.
6 months' salary compensation payment on account of unlawful termination per sub-Article 43(4) of the Proclamation.
Any unused holiday entitlement accrued over a period of two years shall be compensated to the retrenched employee, per Articles 77 and 79(4) of the Proclamation.
Penalty payment for delay of payment after termination of three months' of the worker's wage, per Article 38 of the Proclamation.
Any additional benefit as per the Internal Rules of the Company/Organization (if any).
Conversely, the employee, as per Article 43 of the Proclamation, may seek and obtain a court order directing the Company/Organization to reinstate them to their former position on the ground that the termination measure enforced was unlawful.
However, the Labour Tribunal may order reinstatement or may affirm termination of the employee upon payment of compensation even if the employee requests reinstatement, where the tribunal is of the view that reinstatement is likely to give rise to serious difficulties.
10. Distinction between Permanent and Fixed-term employees
Contracts are presumed indefinite unless they fall under specific categories in Article 10 of the Proclamation. The distinction depends on the nature of the work, not the contract duration.
Notes
The procedure and substantive requirement outlined herein above applies to the reduction of a workforce affecting at least 10% of workers or, in undertakings with 20–50 staff, termination of at least five employees over a continuous period of not less than ten days.
Managerial contracts or Employment Contracts not made under Ethiopian Law (International Contracts or contracts under the laws of other jurisdiction) contracts are not governed by Ethiopian labour law.