A small or medium enterprise in Ethiopia must be aware of the legal requirement when hiring personnel. Some of the legal issues which SME owners, foreign investors and even large businesses face when it comes to employment are as below:

1. General Considerations/ Probation period/ Leave: what are the general conditions of employment? How is annual leave calculated? What is probation period?
2. Fixed time contracts: it’s important to know, especially for foreign investors, about fixed time contracts. Are fixed time contracts allowed under normal circumstances in Ethiopia?
3. Dismissals/ firing: many businesses face legal suits that result from incorrect or unlawful dismissals. What is lawful dismissal? What is unlawful dismissal?
4. Period of Notice: What is notice and how should it be handled?
5. Severance Payment and Compensation: How is severance payment and compensation calculated and when?

This article tries to answer these questions and more based on the following legal documents.

General considerations

The definition of contract of Employment according to Ethiopian Labour Law Proclamation Number 1156/2019 (herein after, the proclamation) 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 for either definite period (for six months, for one year etc), or 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.

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Non-Ethiopian employees

Article 174 of the Proclamation - As a requirement, for a foreigner to be lawfully employed in Ethiopia, he/she needs to possess a Work Permit. Work Permit is to be issued by the Ministry of Labour and Social Affairs. 

Legally stipulated minimum working conditions

• Employment security:  Article 13 Employees are at liberty to terminate the job with or without any cause, provided that they produce prior notice.
• Normal working hours: Normal hours of work shall not exceed eight hours a day or forty eight hours a week.
• Overtime work: Work done in excess of the maximum daily hours of work is deemed to be overtime. Overtime work should not exceed four hours in a day and twelve hours in a week. The payment for overtime work is slightly higher than the wage considered for normal working hours. Overtime is allowed in circumstances provided by law and on the express instructions of the employer. Accordingly, a worker may be compelled to work overtime whenever the employer cannot be expected to resort to other measures and only where there is:

• • An actual or eminent accident;
  • Force majeure;
  • Urgent work;
  • Substitution of absent workers assigned on work that runs continuously without interruption. 

• Annual leave: A16 working days for the first year of service, and one additional working day for every two additional years of service.
• Safe and healthy working conditions: The employer is required to provide safety equipments and train how and when to make use of them. The employee has also a corresponding duty to make use of the protective tools appropriately.
• Employment injuries: Employment injuries could be occupational accident or occupational disease. 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 

On the other hand, occupational disease is any pathological condition whether caused by physical, chemical or biological agents which may arise 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: The employer will be held liable, irrespective of fault, for employment injuries sustained by his/her worker. Nonetheless, 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. 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.

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Contract of Employment for Definite or Fixed Period

This is covered in article 10 of the proclamation

1. A contract of employment may be concluded for a definite period or for piece work in the case of:

1. 1. The performance of specified piece work for which the employee is employed;
   2. The replacement of a worker who is temporarily absent due to leave or sickness or other causes;
   3. The performance of work in the event of abnormal pressure of work;
   4. The performance of urgent work to prevent damage or disaster to life property, to repair defects or breakdowns in works, materials, buildings or plants of an undertaking:
   5. An irregular work which relates to permanent part of the work of an employer but performed on irregular intervals;
   6. 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;
   7. An occasional work which does not form part of the permanent activity of the employer but which is done intermittently;
   8. he temporary placement of a worker who has suddenly and permanently vacated from a post having a contract of an indefinite period;
   9. The temporary placement of a worker to fill a vacant position in the period between the preparation of an organizational structure and its implementation.
2. A contract of employment under Sub-Article (1) (h) or (i) of this Article shall not exceed 45 working days and shall be done only once.

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Probation Period

It is covered under article 11 of the proclamation and acnnot be greater than 60 working days for indefinite period employment

1. A worker may be employed for a probation period for the purpose of testing his suitability to a job position in which he is anticipated to hold.
2. A worker re-employed by the same employer for the same job shall not be subject to probation.
3. When the parties agree to have a probation period, the agreement shall be made in writing; in such a case, the probation period shall not exceed 60 working days beginning from the first date of employment.
4. Unless the law or work rules or collective agreement provides otherwise, the probationary worker shall have the same right and obligation that a worker who has completed his probation period possesses.
5. If the worker, during his probation, proves to be unfit for the post, the employer can terminate the contract of employment without notice and without being obliged for severance payment or compensation.
6. A worker on probation may terminate his contract of employment without notice as well.
7. If a worker continues to work after the expiry of the probation period, a contract of employment for the intended period or type of work shall be deemed to have been concluded from the beginning of the probation period.

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Employment dispute settlement mechanisms

Labor disputes are either individual or collective.

• According to the Proclamation, the following matters 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 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 disputes 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.

Alternative Dispute Resolution (ADR) under the labor proclamation

The Labor Proclamation alternatively provides for the following types of alternate dispute resolution mechanisms:

1. Social dialogue;
2. Conciliation; and
3. Arbitration.

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Termination

Grounds of Termination

1. Termination by law
2. Termination by the agreement of the parties
3. Termination by the initiative of the employer (dismissal)

Without notice: The grounds for termination without notice are:

• Unless the reason for being late is justified by the collective agreement, work rule or contract of employment, being late for duty eight times in six months period while being warned in writing of such a problem;
• absence from work without good cause for a total of five days in six months period while being warned in writing of such a problem and where the absence cannot be classified in any of the leaves;
• deceitful or fraudulent conduct in carrying out duties;
• 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 (2) of the Proclamation, 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; and
• offences stipulated in a collective agreement as grounds for termination without notice.

With notice: See Articles 28 and 29 of the labor proclamation

4. Termination by the initiative of the employeeWith notice/ordinary resignation

1. • Without notice 

Effects of Lawful Termination

1. Provision of Certificate of Service to the employee;
2. Payment instead of unutilized annual leave: in principle it is prohibited to convert annual leave into cash. 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.
3. Severance payment is available to employees whose contract of employment is terminated on specified grounds:
   • Where the contract of employment is terminated because the undertaking ceases operation permanently due to bankruptcy or for any other reason.
   • Where the contract of Employment is terminated by the initiative of the employer against the provision of law.
   • Where the employee reduced as per the condition described under this proclamation.
   • Where the employee terminate his/her contract because his/her employer did things which hurts his/her human honor and moral or the thing done by the employer is deemed as an offence under the penal code.
4. Compensation for 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.

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Effects of Unlawful Termination

This is covered in articles 42, 43, 44, and 45 of the proclamation.

Article 42:

Where an employer or a worker fails to comply with the requirements laid down in the Proclamation or other relevant law regarding termination of a contract of employment, the termination shall be unlawful.

Reinstatement or compensation of a worker (by the employer) in the case of unlawful termination

Article 43: 

1. Where a contract of employment is terminated because of those grounds mentioned under Article 26 (2) of the Proclamation, the employer shall be obliged to reinstate the worker; provided, however, that the worker shall be compensated if he wishes to quit his employment.
2. Without prejudice to the above, where a contract of employment is terminated contrary to the provisions of Articles 24, 25, 27, 28 and 29 of the Proclamation, the labour dispute settlement tribunal may order the reinstatement of the worker or the payment of compensation.
3. Notwithstanding the above, the labour tribunal may affirm the termination of the worker upon payment of compensation even if the worker requests for re-instatement where the tribunal is of the view that the maintenance of the particular worker and employer relations, by its nature or due to the controversy of the parties concerned, is likely to give rise to serious difficulties. Similarly, where a worker who, after obtaining judgment of reinstatement declines to be re-instated, the tribunal may order the termination of the worker upon payment of compensation for the inconvenience he sustained having regard to the nature of the work and other circumstances of the case.
4. The compensation to be paid under the above 3 points to a worker who is not reinstated shall, in addition to the severance pay referred to in Article 40 of the Proclamation, be:
   1. In the case of a contract of employment for an indefinite period, 180 times the average daily wages and a sum equal to his wage for the appropriate notice period in accordance with Article 44 of the Proclamation;
   2. In the case of a contract of employment for a definite period or for piecework. a sum equal to the wages which he would have obtained if the contract of employment has continued up to its date of expiry or completion of the work; provided, however, that such compensation shall not exceed 180 times his average daily wage. The provisions of sub-article (4) of this Article shall also be applicable to a worker covered by the relevant pension law.
5. Where the First Instance Court orders the reinstatement of the worker in accordance with Sub-Article (1) or (2) of Article 43, the court shall order back-pay of wage for a period not exceeding 6 months. Where the decision of reinstatement is confirmed by the appellate Court, it shall order back pay of wage for a period not exceeding one year.

Article 44: Exceptions

Notwithstanding the provisions of Article 43, non-compliance by the employer with the notice requirements specified under Article 35 shall only result in the payment by the employer, wages in lieu of the notice period.

Liability of the Worker to Pay Compensation

Article 45:

1. A worker who terminates his contract of employment in disregard of the provisions of Article 31 or 35(2) of this Proclamation shall be liable to pay compensation to the employer.
2. However, the compensation payable by the worker in accordance with Sub-Article (1) of this Article shall not exceed 30 days' wages of the worker and be payable from the remaining payment due to the worker.

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Period of Notice

This is covered in article 35 of the proclamation

1. The period of notice given by the employer shall be as follows:
   1. One month, in the case of a worker who has completed his probation and has a period of service not exceeding one year;
   2. Two months, in the case of a worker who has a period of service above one year and not exceeding nine years;
   3. hree months, in the case of a worker who has a period of service of more than nine years;
   4. Two months, in the case of a worker who has completed his probation and whose contract of employment is to be terminated due to reduction of work force.

Severance Pay and Compensation

This issues are covered in articles 39 and 40 of the proclamation.

Elgibility for Severance Payment

Article 39: General

1. A worker who has completed his probation period and who is not eligible for pension shall have the right to receive severance pay from the employer where:

1. 1. His contract of employment is terminated because of permanent cessation of operation of the Undertaking due to bankruptcy or for any other cause;
   2. His contract of employment is terminated by the initiative of the employer in violation of the law;
   3. He is laid off as per the conditions prescribed under this Proclamation;
   4. Where the worker resigned due to sexual harassment or sexual violence by the employer or managerial employee; or where such act was committed by a coworker and the incident was reported to the employer but the latter failed to take appropriate measure in due time;
   5. He has terminated his contract of employment because of the employer's maltreatment affecting his human dignity or morale or constituting a criminal offence under the Criminal Code;
   6. He has resigned due to failure of the employer to take measures despite being informed of a threat to his safety or health;
   7. His contract of employment is terminated because of his partial or total disability as certified by medical board;
   8. Where he has given service to the employer for a minimum of five years' service and his contract of employment is terminated because of sickness or death or his contract of employment is terminated on his own initiative provided that he has no contractual obligation relating to training to render service to the employer;
   9. His contract of employment is terminated on his own initiative because of HIV/AIDS.
2. Where a worker dies before receiving severance pay, it shall be paid to his dependents referred to in Article 110(2) of the proclamation.
3. The allocation of severance pay to dependents of the deceased shall be effected in the same manner as in Article 110 of the proclamation.

Amount of Severance Pay

(Article 40)

The severance pay referred to in Article 39 of this Proclamation shall:

1. Be thirty times the average daily wages of the last week of service for the first year of service; and for the service of less than one year, be calculated in proportion to the period of service.
2. In the case of a worker who has served for more than a year, payment shall be increased by one-third of the amount referred to in Sub Article (1) of this Article for every additional year of service; provided, however, that the total amount shall not exceed twelve months' wage of the worker.
3. Where a contract of employment is terminated in accordance with Article 24(4) and 29 of this Proclamation, the worker shall be paid, in addition to payments under Sub-Article (1) and (2) of this Article, an amount equal to the worker's average daily wage of the last week of service multiplied by 60. 

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