Legal Framework for Hiring and Managing Employees for Businesses

employment-contractA small or medium enterprise in Ethiopia must be aware of the legal requirement when hiring personnel; many a business has been facing legal suits resulted from incorrect or unlawful dismissals. It’s important to know, especially for foreign investors, about fixed time contracts. Are fixed time contracts allowed under normal circumstances in Ethiopia? How is severance payment and compensation calculated and when? This article tries to answer these questions and more based on the following legal documents.

The Ethiopian Labour Law Proclamation No. 377/2003 DOWNLOAD
The Ethiopian Labour (Amendment) Proclamation No. 494/2006 DOWNLOAD

General considerations

The definition of contract of Employment according to Ethiopian Labour Law Proclamation Number 377/2003 consists of:

  • Agreement: agreement is the basis for employment relation and this automatically excludes forced labor from the ambit of employment relations. Hence a person cannot be compelled to enter into an employment relation.
  • Personal performance of work: the employee is committing him/her/self to render personal service for the benefit of the employer. The employee, as of right, cannot delegate third parties to perform the job in his/her behalf.
  • Duration of employment:  a contract of employment could be entered into either for definite period (for six months, for one year etc), or for indefinite period (i.e. for the life of the company), or for a specific assignment (to unload sacks of grain from a truck). However, the Ethiopian Labor law clearly stipulates, in article 9 of the proclamation, any contract of employment shall be deemed to have been concluded for an indefinite period except for the cases   provided under Article 10 of the proclamation. The cases where contract of employment for definite period or a specific work is allowed are the following:
    • the performance of specified piece work for which the employee is employed;
    • the replacement of a worker who is temporarily absent due to leave or sickness or other causes;
    • the performance of work in the event of abnormal pressure of work;
    • the performance of urgent work to prevent damage or disaster to life or property, to repair defects or break downs in works, materials, buildings or plant of the undertaking;
    • an irregular work which relates to permanent part of the work of an employer but performed on irregular intervals;
    • seasonal works which relate to the permanent part of the works of an employer but performed only for a specified period of the year but which are regularly repeated in the course of the years;
    • an occasional work which does not form part of the permanent activity of the employer but which is done intermittently;
    • the temporary placement of a worker who has suddenly and permanently vacated from a post having a contract of an indefinite period;
    • the temporary placement of a worker to fill a vacant position in the period between the study of the organizational structure and its implementation.
  • Wage: The employer will be expected and required to pay wage to the employee. Hence employment relation is not a pro bono service. On the contrary, it is a service in return for wages. The mode of payment for wage could be in cash or in kind though ordinarily payment is effected through cash. As regards to the interval of payment, it could be in daily, weekly, bi-monthly, monthly etc.


Non-Ethiopian employees

Article 174 of Proclamation Number 377/2003-As a requirement, for a foreigner to be lawfully employed in Ethiopia, he/she needs to possess double permits – Residence Permit & Work Permit. The power to issue Residence Permit is vested on the Security, Immigration and Refugee Affairs Authority; Work Permit is to be issued by the Ministry of Labour and Social Affairs.


Legally stipulated minimum working conditions

  • Employment security: Article 13 of Proclamation Number 377/2003-Employees are at liberty to terminate the job with or without any cause, provided that they produce prior notice.
  • Normal working hours: Article 61 (1) of Proclamation Number 377/2003-normal hours of work shall not exceed eight hours a day or forty eight hours a week”
  • Overtime work: Article 66 & 67 of Proclamation Number 377/2003-overtime work is in principle prohibited. It is only in cases where exceptional circumstances expressly stated by law have occurred that overtime work is allowed. Over-time may be worked whenever the employer cannot be expected to resort to other measures and only where there is accident, actual or threatened or force-majeure or urgent work or Substitution of absent workers assigned on work that runs continuously without interruption.
  • Annual leave: Article 77 of the Labor proclamation- Provides that 14 working days as an initial leave for the first year of service, and one additional working day for every additional year of service with no maximum limit. Nevertheless, additional annual leave with pay, for workers engaged in a work which is particularly arduous or the condition in which it is done is unhealthy, may be fixed in a collective agreement.
  • Safe and healthy working conditions: Article 92 of the Labor Proclamation- The employer is required to provide safety equipments and train how and when to make use of them. Article 93 of the Proclamation- The employee has also a corresponding duty to make use of the protective tools appropriately.
  • Employment injuries: Article 95 (2) of the Proclamation-Employment injuries could be occupational accident or occupational disease.

Article 97 of the Labor Proclamation-The employee may incur occupational accident, organic injury or functional disorder, in the following instances:

  • while carrying out the employer’s order at a place and time of work;
  • while at the place of work before or after his work or during tea or lunch breaks;
  • while the employee is proceeding tool or from place of work in a transport service provided by the employer

Article 98 of the Labor Proclamation-Occupational disease is any pathological condition whether caused by physical, chemical or biological agents which rise as a consequence of:

  • the type of work performed by the employee or
  • the surroundings in which the employee is obliged to work.
  • Strict Liability of the Employer: Article 96 of the Labor Proclamation-The employer will be held liable, irrespective of fault, for employment injuries sustained by his/her worker.
  • Exemption from Liability: Article 96 (2) of the Labor Proclamation-The employer shall not be liable for any injury intentionally caused by the injured worker himself; any injury resulting from the following acts in particular shall be deemed to be intentionally caused by the worker: 
    1. Non-obedience of express safety instructions or non-observance of the provisions of accident prevention rule specifically issued by the employer; or
    2. Reporting to work in a state of intoxication that prevents him from properly regulating his body or understanding.


Employment dispute settlement mechanisms

Labor disputes are either individual or collective.

According to Article 138 of the Labor Proclamation, the followings could be taken as Individual Labor Disputes:

  • Disciplinary measures including dismissal;
  • Claims related to the termination or cancellation of employment contracts;
  • Questions related to hours of work, remuneration, leave and rest day;
  • Questions related to the issuance of certificate of employment and release;
  • Claims related to employment injury;
  • Criminal and Petty offences not otherwise stipulated in the proclamation.

According to Article 142 of the Labor Proclamation, the followings could be Collective Labor Disputes:

  • Wages and other benefits;
  • Establishment of new conditions of work:
  • The conclusion, amendment, duration and invalidation of collective agreements:
  • The interpretation of any provisions of the Labor Proclamation, collective agreements or work rules;
  • Procedure of employment and promotion of workers;
  • Matters affecting the workers in general and the existence of the undertaking;
  • Claims related to measures taken by the employer regarding promotion, transfer and training.
  • Claims relating to the reduction of workers.

Individual labor disputes are within the competence of the labor divisions of the ordinary Woreda court (first instance courts) while the collective ones are within the power of the Labour Relation Boards. Boards are composed of representatives of the employers’ and employees associations in addition to the appointees of the government.

Articles 137-139 of the Labor proclamation states that labour divisions are also established at the Regional Level. Accordingly, the States’ First Insistance Courts (Woreda Courts) have the jurisdiction to entertain labor disputes.

Arbitration under the labour proclamation

The Labor Proclamation, Article 143:

  1. Notwithstanding the provisions of article 141 of this proclamation parties to a dispute may agree to submit their case to arbitrators or conciliators, other than the Minister for settlement in accordance with the appropriate law.
  2. If the disputing parties fail to reach an agreement on the case submitted to arbitration or conciliation under Sub-article (1) of this Article the party aggrieved may take the case to the Board or to the appropriate court.



Grounds of Termination

  • Termination by law (Article 24 of the  Labor proclamation )
  • Termination by the agreement of the parties (Article 25 of the labor proclamation)
    • Termination by the initiation of the employer-(dismissal)-(Article27, 28, 29 & 30 of the labor Proclamation)
    • Without notice (Article 27 of the Labor Proclamation): The grounds for termination without notice as defined in Article 27 (1) a) to k):
      • repeated and unjustified tardiness despite warning to that effect;
      • absence from work without good cause;
      • deceitful or fraudulent conduct;
      • misappropriation of the property or fund of the employer;
      • returning output which, despite the potential of the worker, is persistently below the quality stipulated;
      • responsibility for brawls or quarrels at the work place;
      • conviction for an offence where such conviction renders him or her unsuitable for the post;
      • responsibility for causing damage intentionally or through gross negligence;
      • commission of any of the unlawful activities defined in Article 14, such as reporting for work in a state of intoxication, refusal to be medically examined (except for HIV/AIDS test) or to observe Occupation Safety and Health prevention rules;
      • absence from work due to a sentence of imprisonment for more than 30 days;
      • offences stipulated in a collective agreement as grounds for termination without notice.
    • With notice (Article 28 of the labor proclamation)
      •  Group termination (Articles 29&30 of the labor proclamation)
    • Termination by the initiation of the employee-(Articles 31, 32 of the Labor Proclamation)
      • With notice/ordinary resignation (Article 31 of the labor proclamation)
      • Without notice (Article 32 of the Labor proclamation)

Effects of Lawful Termination

  • Provision of Certificate of Service to the employee - Article 12 (7) of the Labor Proclamation.
  • Payment instead of unutilized annual leave: in principle it is prohibited to convert annual leave into cash. (Article 76(2) of the Labor Proclamation). However, if the contract of employment is terminated prior to the utilization of the annual leave, the employee is entitled to his pay for the leave he has not taken. (Article 77 (5) of the Labor Proclamation).

Severance Payment

According to Article 39 of the Labor Proclamation and Article 2 (2) of Proclamation No. 494/2006, severance payment is available to employees whose contract of employment is terminated on specified grounds:

  • Where his contract of employment is terminated because the undertaking ceases operation permanently due to bankruptcy or for any other reason.
  • Where his contract of Employment is terminated by the initiation of the employer against the provision of law.
  • Where he is reduced as per the condition described under this proclamation.
  • Where he terminate his contract because his employer did things which hurts the workers human honor and moral or the thing done by the employer is deemed as an offence under the penal code.


Employees whose contract of employment have been terminated due to the permanent cessation of operation of the undertaking because of bankruptcy or any other cause (Article 24 (4)), due to lay off (Article 29  of the Labor proclamation), or employees who resigned on an extra ordinary procedure (Article 32 of the Labor proclamation) are beneficiaries of compensation.

Effects of Unlawful Termination

  • Reinstatement (Article 26(2) & 43 (1) of the Labor Proclamation): Where a contract of employment is terminated because of those grounds mentioned under sub article (2) of Article 26 of proclamation no. 377/2003, the employer shall be obliged to reinstate the worker, provided, that the worker shall have the right to payment of compensation if he wishes to leave his employment. Or where a worker's contract of employment is terminated contrary to the provisions of Articles 24, 25, 27, 28and 29 of this Proclamation, the labor dispute settlement tribunal may order the reinstatement of the worker or the payment of compensation. 
  • Compensation together with severance payment (Article 43 (2), (3) (4) & 39 (1) (b)): the labor dispute settlement tribunal may order the dismissal of the worker upon payment of compensation even if the worker demands re-instatement where it believes that the continuation or severance pay of the particular worker employer relations, by its nature is likely to give rise to serious difficulties.
  • Fine (Article 14 (1) (C) & 184 (2) (C)) of the Labor Proclamation): If the employers terminates the job unlawfully, he/she shall be liable to a fine not exceeding Birr 1200 (Birr one thousand and two hundreds).