Shifting Labour Regulations in Zimbabwe: The Need for Clarity to create a Stable, Investor-friendly Economy

This publication explores the direct and indirect concerns emanating from shifts in Zimbabwe’s labour regulations. The country’s ailing economy is in desperate need of Foreign Direct Investment to stimulate economic growth; the implementation of policy that mitigates fluctuations and instability in the labour market is therefore vital to employers and employees, alike. The publication puts forward recommendations through which Zimbabwean legislators can develop clear(er) labour regulations that result in a stable, investor-friendly labour market and where there is balance between labour and capital to spur much needed growth in the economy.

Introduction

In a shocking ruling in July of 2015, the Supreme Court of Zimbabwe ruled in favour of a petroleum company that had been accused of wrongfully dismissing two senior management officials. In accordance with Common Law, the courts ruled that it is lawful for an employer to terminate an employment contract without compensation or disciplinary hearing, provided the employee is given three months’ notice.[1] This ruling set precedent for the lawful termination of employment across the country, large numbers of terminations were reported to both the Labour Board and to trade unions following the ruling, and news reports estimate that 25 000 people lost their jobs within a month of the ruling.[2]

While the July ruling was a welcomed escape for many Zimbabwean businesses suffering under harsh economic conditions, hyperinflation and increasing operating costs – the ruling caused widespread public outcry, and a steep increase in already high national unemployment rates. Zimbabwe’s economic descent has captured the attention of economists across the world. At its worst, hyperinflation in Zimbabwe reached a record high of 89.7 sextillion percent in November 2008,[3] in 2009 the country formally scrapped its currency in favour of the more stable US dollar, and now uses among others the British Pound, the Euro and the South African Rand.[4] Even after implementing various policies, attracting new investments and regaining access to international credit, the Zimbabwean economy has failed to recover. GDP growth decelerated sharply from 10.6% in 2012 to 4.5% in 2013 and was marked at 4% in 2014. At present the country is at high risk of debt distress, with an unsustainable external debt estimated at USD 8.4 billion at the end of 2014.[5]  The country’s high unemployment rate is mainly attributed to persistent de-industrialisation, consisting of  large losses in the manufacturing sector between 2011 and 2014 that led to at least 4 610 companies closing down in that period, resulting in a loss of 55 443 jobs.[6] These trends have led to a growing informal sector, translating to large tax revenue loses for the government and slow economic growth.

The July ruling and concomitant job losses are symptomatic of an ailing economy, struggling to recover from a significant downturn. Parliamentarians responded under pressure from trade unions and the public at large and rushed to place an amendment in the form of the Labour Amendment Bill before the president to change the law and stop further terminations. Many concerns have been raised about the new labour bill. While it correctly sought to protect the job security of vulnerable employees, the lack of nuance in the bill regarding the particular economic environment it is to operate in is apparent. Zimbabwean businesses and employers have contested the bill, and have gone as far as approaching the High Court of Zimbabwe to challenge it.[7] Some parliamentarians have acquiesced that more consultation and amendments are needed to fine tune the new labour laws. This publication will detail the new labour bill and explore the direct and indirect concerns emanating from these shifts in labour regulations. As a result of large-scale job loss the Government of Zimbabwe hurriedly tabled a new labour law that does not adequately account for the unique needs of the country’s economic climate. While it is vital to ensure the job security of the labour force it cannot be denied that Zimbabwe’s economy is in desperate need of Foreign Direct Investment (FDI) to stimulate economic growth and a more investor-conducive environment. The balance between labour and capital remains elusive in every modern economy, Zimbabwe however, has put forward a bill that is unfavourable to both labour and capital. This publication puts forward mechanisms through which Zimbabwean legislators can develop clear labour regulations that result in a stable, investor-friendly labour market.

The new labour bill and its ramifications

The Labour Amendment Bill, 2015 was signed into law on August 25, 2015 in direct response the July supreme court ruling.[8] The amendments were focused on Chapter 28:01 of the national Labour Act.[9]  The key amendments refer to Section 12 (b) (4a) which states that:

“No employer shall terminate a contract of employment on notice unless:—

(a) the termination is in terms of an employment code or, in the absence of an employment code, in terms of the model code made under section 101(9); or (b) the employer and employee mutually agree in writing to the termination of the contract or (c) the employee was engaged for a period of fixed duration or for the performance of some specific service; or (d) pursuant to retrenchment, in accordance with section 12C.”[10]

The bill entitles employees to a minimum retrenchment package of not less than one month’s salary or wages for every two years of service as an employee, while also requiring employers who are unable to fulfil these obligations due to insolvency to apply for partial or full exemption from the Retrenchment Board.

The bill makes necessary changes to align the labour laws to the 2013 Constitution, such as raising the minimum age of employment from 13 to 16 and limiting the influence of the Minister on the operations of trade unions. The final clause concludes by asserting that:

“The Section 12 of the Labour Act [Chapter 28:01] as amended by this Act applies to every employee whose services were terminated on three months’ notice on or after the 17th July, 2015.”[11]

Herein lies the first contention.

The bill includes a retrospective clause, essentially nullifying the legal terminations that took place in July. This is of concern for two reasons. Firstly, as a concern of principle; legislators are cautioned to reserve retrospective laws for grave matters – for instance over turning injustices that were legal under repressive regimes, such as apartheid South Africa. The passing of retrospective laws are not favoured because they create uncertainty, instability and are prone to abuse. If legislators are freely allowed to deem previously legal actions illegal or vice versa, political parties and influential social groups are given leeway to use legislation to ensure their survival, side-line opposition or oppress minority groups.  The casual use of retrospective laws not only sets a precedent to invalidate lawful acts, but encourages an air of impunity.[12] Secondly, retrospective legislation specific to labour regulations create significant concern regarding the viability and stability of current and future investments. Business owners and investors require stable environments to operate in. An economy that is volatile and open to significant influence from popular politics will fail to attract significant long term investors, and decrease the productivity and longevity of those businesses already operating.

From a practical perspective, it is not clear how legislators propose the judiciary and terminated employees go about reversing the terminations that lawfully took place in July. A majority favours the compensation of employees while others are calling for employees to be re-instated. In reality, this clause may produce few benefits for the terminated employees. Simply put, most Zimbabwean businesses just do not have the money to pay these packages or to re-hire the terminated individuals. The courts for their part interpret retrospective laws very strictly, opting to not take away rights that were already accrued at the time of the amendment.[13]  Logistically, potentially making judgements on the estimated 25 000 terminations would be a tall task for any court on the globe.

The amendment lumps together employees who are employed on a permanent basis, on a fixed term contract, and those who are dismissed due to disciplinary reasons or by mutual agreement, extending the minimum retrenchment package to them all. The bill states that:

“a package…shall be paid by the employer as compensation for loss of employment (whether the loss of employment is occasioned by retrenchment or by virtue of   termination of employment pursuant to section 12(4a)(a) , (b) or (c)).”[14]

It is not clear why legislators neglected to distinguish between the different employee classes but this clause essentially renders disciplinary hearings redundant as the employer must compensate an employee whether they are retrenched or fired.  Additionally, both permanent and temporary workers will be entitled to the same package.  Encouraging employers to issue fixed term contracts rather than permanent positions, as fixed term employees are entitled to less company benefits.

Section 12 (3a) seeks to limit the number of times an employer is allowed to renew the contract of a fixed term employee without making them permanent. The employee is extended the right to negotiate for a permanent position at the National Employment Council. In essence this is beneficial to the employee, but because both the Law Act and its amendment bill are unclear what the maximum renewal limit is, this may lead employers to not renew contracts with employees. Opting to rather source new employees for new contracts and avoid possible litigation. Considering Zimbabwe’s flooded employment pool, sourcing new skilled employees will not be difficult for companies.

From a policy perspective the Labour Amendment Bill of 2015, lacks sufficient detail and consideration for the current economic landscape. It asserts that, “a consultative process was carried out by Government, by including its two other social partners, labour and business,”[15] yet major stake holders like the Employer’s Confederation of Zimbabwe (EMCOZ) report that they were largely excluded from the legislative process.[16] The amendments speak solely to the popular need, indicative of legislators that are more concerned with matters of politics, than of economy or capital. The various and significant ambiguities in the bill are not favourable to the employer or the employee in the long-term. While it protects employee from abrupt termination, it does not adequately ensure advantageous conditions thereafter. Similarly, these ambiguities create an unstable environment for existing businesses and de-incentives long-term investment in Zimbabwe. As all laws are open to further amendments, the remainder of this publication puts forward recommendations for a labour law that is more advantageous for labour and capital.

Towards a Win-Win

The first recommendation is that the use of retrospective laws, particularly with respect to labour regulations, should be avoided or effectively outlawed (pun intended). While the national indigenisation programme and China’s investments in retail, manufacturing and mining have given the economy a significant boost, the need for further FDI cannot be negated. The speculation and uncertainty caused by retrospective labour regulations do not reflect an investment friendly climate. Companies will always run the risk of having actions taken legally being deemed illegal when political or popular opinion change. Increased FDI in specific sectors will increase national economic activity, lower unemployment, raise tax revenues and generate capital for local-led wealth generating enterprises. In light of this Zimbabwe must enact laws and policy that not only protect labour but also attract FDI.

While it is assumed that companies favour lax labour relations, research shows that while decreasing labour market regulation does raise FDI inflows into a country, after a threshold the relation turns negative.[17] A minimum optimal level of regulation is required for companies to work effectively, to establish secure wage bills and ensure they meet profit projections. Palokangas (2003) shows that a minimal amount of labour market regulation may result in less negotiation power for the foreign investors with labour unions, leading to unreliable wage contracts and profits being channelled to local elites.[18] Laws regarding hiring and firing and minimum wages must be clear and firm. Absolutely no regulation in the labour market would make the sector unorganised and be a more difficult environment for foreign investors to operate in.

Further amendments require more distinct and detailed definitions and prescriptions. For instance, distinctions need to be made between the compensation packages for specific categories of employees. Companies should not be expected to compensate an employee who was under performing or violating company policy in an equal manner as individuals being retrenched. Compensation requirements should be amended to align with international standards for specific fields, sectors and levels of employment.[19] While a minimum retrenchment package is necessary, it opens employees to exploitation particularly in high risk fields such as mining.

Attention must be paid to wording, ambiguities and their consequences, the expiry of a fixed term contract really should not be classified as a ‘termination on notice’ as there technically is no need for either party to serve notice. This technicality could translate into various outcomes, and only requires small wording adjustments for clarity. The ‘one size fits all’ approach currently utilised by the amendment bill is not beneficial to labour or capital.

It is clear that this bill was rushed, and while the urgency to respond was clear, legislators should not be exempt from exercising precision and diligence in mapping national legislature.  Laws that are not carefully crafted yield short term results, are open to abuse and often fail to address the challenges they are aimed at. Considering Zimbabwe’s dire economic concerns, focusing labour regulations at political concerns alone is extremely short-sighted. Zimbabwe’s unique economic landscape requires more attention. While other African states have skill shortages Zimbabwe has a large skilled labour market, juxtaposed with shrinking industries, and decelerating GDP growth – requiring strategic approaches that promote FDI inflow while simultaneously protecting workers.

The recently passed Labour Amendment Bill, 2015 does not adequately speak to the economic climate in Zimbabwe and is not sufficiently beneficial to capital or labour, this paper has put forward recommendations that could be made to the current law in order to remedy these disparities.

NOTES

[1]  “Supreme Court in Shocking Labour Ruling” NewsDzeZimbabwe, July 17, 2015. Accessed on Sept 20, 2015 http://www.newsdzezimbabwe.co.uk/2015/07/supreme-court-in-shocking-labour-ruling.html

[2] Richard Chidza “Mugabe Signs Labour Amendment Bill” News Day, August 27, 2015. Accessed on October 3, 2015. https://www.newsday.co.zw/2015/08/27/mugabe-signs-labour-amendment-bill/

[3] Hanke, S. H. (2008, December 2). New Hyperinflation Index (HHIZ) Puts Zimbabwe Inflation at 89.7 Sextillion Percent. Accessed September 30, 2015, from CATO Institute: http://www.cato.org/zimbabwe

[4]Hungwe, B. “Zimbabwe’s multi-currency confusion” BBC News, February 6, 2014. Accessed October 3, 2015 http://www.bbc.com/news/world-africa-26034078

[5] Mary Manneko Monyau & Amarakoon Bandara “Zimbabwe” African Economic Outlook, May 28, 2015. Accessed October 3, 2015. http://www.africaneconomicoutlook.org/en/country-notes/southern-africa/zimbabwe/

[6] Ibid.

[7] Fidelis Munyoro, “Employers contest new labour law” The Herald, October 2, 2015. Accessed October 4, 2015. http://www.herald.co.zw/employers-contest-new-labour-law/

[8] Government of Zimbabwe, Labour Amendment Bill, 2015. August 25, 2015. PDF of the bill available at: http://www.zimlii.org/files/Labour%20Amendment%20Bill,%202015.pdf

[9] Government of Zimbabwe, Zimbabwe Labour Act Chapter 28:01. Last amended 2002.  PDF of the bill available at: http://www.osall.org.za/docs/2011/03/Zimbabwe_Labour_Act_Chap28_01.pdf

[10] Government of Zimbabwe, Labour Amendment Bill, 2015, Section 12 (b) ( 4a)

[11] Government of Zimbabwe, Labour Amendment Bill, 2015

[12] Alex Magaisa. “Zimbabwe’s Labour Bill: The trouble with retrospective legislation” Nehanda Radio, August 23, 2015. Accessed October 3, 2015. http://nehandaradio.com/2015/08/23/zimbabwes-labour-bill-the-trouble-with-retrospective-legislation/

[13] Ibid.

[14] Government of Zimbabwe, Labour Amendment Bill, 2015

[15] Ibid.

[16] The Zimbabwean. “Employers fume over labour bill” August 18, 2015. Accessed October 4, 2015. http://www.thezimbabwean.co/2015/08/employers-fume-over-labour-bill/

[17] Nabamita Dutta and Sanjukta Roy (2009). What attracts FDI: A closer look. Economic Affairs. Accessed October 3, 2015. file:///C:/Users/Munyati/Downloads/SSRN-id1484159.pdf

[18] Palokangas, T. (2003) ‘Foreign Direct Investment, Labour Market Regulation and Self-interested Governments’, University of Helsinki and IZA Bonn Discussion Paper No. 793

[19] The most extensive list of international labour standards can be found in the database of the International Labour Organisation (ILO) : http://www.ilo.org/global/standards/lang–en/index.htm

RECOMMENDED GOV-ENHANCEMENTS

For Zimbabwe’s Labour Regulations to be favourable to both labour and capital to spur economic growth:

• further amendments require more distinct and detailed definitions and prescriptions, eg. distinctions need to be made between the compensation packages for specific categories of employees; compensation requirements should be amended to align with international standards for specific fields, sectors and levels of employment

• laws regarding hiring and firing and minimum wages must be clear and firm

• a minimum optimal level of regulation is required for companies to work effectively, to establish secure wage bills and ensure they meet profit projections

• the use of retrospective laws, particularly with respect to labour regulations, should be avoided where possible, as the regulations do not reflect an investment friendly climate