The Gratuity and payroll nexus: To keep on payroll or not to keep on payroll, that is the question!

The extensive legislative changes in Zambia between 2016 and 2019 altered the regulatory landscape irreversibly. The Constitutional amendments of 2016 heralded a plethora of seismic changes, many of which we are reading about in the press currently. Not to be left out, the Employment Code Act 2019 also ushered in a revolutionary employment regulatory framework in Zambia. Matters that were previously reserved within the realm of freedom of contract and the negotiating prowess of the parties,  now were statutory imperatives. The payment of gratuity was one such condition that was and is obligatory for fixed and long term contracts.  In terms of the Constitutional amendments, of particular interest to the world of work was the introduction of Articles 187, 189 and 266. These define 'pension benefits' and then mandate that failure to pay pension benefits upon termination of employment would entitle employees to remain on the payroll until paid in full. The perfect employment litigation storm had just been crafted. To employees, gone were the days of being presented with unceremonious terminations accompanied with a promise by their employers to pay them their terminal dues as and when funds would become available. Gratuity would  be paid upon termination, or else, the employee would remain on the payroll. On the other hand, employers were trying feverishly to distinguish gratuity from the Constitutional 'pension benefit' and thereby, find some much needed cashflow relief. 'To keep on payroll or not to keep on payroll, that is the question!' 

The Constitutional Court (‘Con Court’) was recently called upon to disentangle a similar conundrum. In the case of Dickson Ndhlovu & 4 others vs Road Development Agency: 2022/CCZ/005, the Petitioners sued their former employer, requesting the Constitutional Court to pronounce itself upon the Petitioners' supposed Constitutional rights to remain on RDA’s payroll, given RDA’s apparent failure to settle the dues at the time of termination. The Con Court, in its Judgement of 21st September 2022, took the opportunity to review various of its decisions on the subject. It noted that, as per Levy Mwale v ZNBC failure by an employer to pay pension benefits on the last working day entitles such employee to be retained on payroll until settlement of pension benefits. Further, that in Anderson Mwale & 2 others v Zambian Open University the Con Court elucidated that for an employee to lay claim to this entitlement, the employee must show that the benefits in issue are pension benefits provided for by statute. This was in consonance with Article 187(3) which expressly refers to pension law. 

The Con Court proceeded with an evaluation of whether the claimed benefits in the instant case were pension benefits within the Constitutional definition of Article 266. It recalled its decision of Lubunda Ngala & Another v Anti Corruption Commission where it was stated that not every terminal benefit qualifies as a pension benefit. Therefore, where the pension benefit is in issue, the burden of proof that the benefit is in fact, a pension benefit as per Articles 189 and 266,  is on the one claiming it.

In casu, the Con Court found that the Dickson Ndhlovu case was on all fours with it’s earlier decision in Anderson Mwale, wherein its stated that the ‘pension benefit’ envisaged in Articles 187,189 and 266 of the Constitution, was such pension benefit as would be prescribed in a relevant pension law or any other law. Furthermore, that in Gilford Malenji v Zambia Airports Corporation Limited, the Con Court emphasised the evidentiary burden on the Petitioner, when the benefit was in issue. The Con Court found that the claimed benefits (gratuities) were not pension benefits provided under any pension law or other written law and thus, dismissed the petition.

Undoubtedly, the Con Court has laid out clear judicial policy direction as regards the gratuity/payroll nexus as follows:

Firstly, that failure by an employer to pay pension benefits on the last working day entitles such employee to be retained on payroll until settlement of pension benefits;

Secondly, that for an employee to lay claim to this entitlement, the employee must show that the benefits in issue are pension benefits provided for by statute;

Thirdly, that not every terminal benefit qualifies as a pension benefit and in consequence;

Fourthly and finally, where the pension benefit is in issue, the petitioner/claimant must discharge the burden of proof as to whether the claimed benefit is in fact, a pension benefit as per Articles 189 and 266 of the Constitution.

The diligent employer will avoid needless litigation by planning employee emoluments carefully, being ready to pay pension benefits properly so called, when ever they fall due. To fail to do this, is to invite an extended payroll bursting at the seams, on account of former employees. Consider yourselves warned.