Recent decisions by the Court of Appeal (COA) have stirred debate over whether employees on permanent contracts are entitled to severance pay. In Stanbic Bank Zambia Limited v. Natasha Patel (Appeal No. 274/2022), the COA ruled that employees on permanent contracts are not entitled to severance pay under Section 54 of the Employment Code Act No. 3 of 2019 (ECA), as severance pay is reserved for fixed-duration contracts which it concluded that permanent contracts are not fixed duration contracts. Conversely, in Zubao Harry Juma v. First Quantum Mining & Operations Limited-Road Division (Appeal No. 102/2022), the COA seemed to reverse course, ruling that employees on permanent contracts are entitled to severance pay.

Stanbic Bank Zambia Limited v. Natasha Patel (Appeal No. 274/2022)

In this case, Natasha Patel, a permanent employee of Stanbic Bank, was dismissed after a disciplinary hearing. She sought severance pay, but the Court of Appeal overturned a lower court decision that had granted it to her. The COA clarified that Section 54 of the ECA applies strictly to fixed-duration contracts and not to permanent employees, whose contracts end under different circumstances such as retirement or specified conditions. Therefore, the COA ruled that Patel was not entitled to severance pay, as it does not apply to permanent contracts.

Zubao Harry Juma v. First Quantum Mining & Operations Limited-Road Division (Appeal No. 102/2022)

In contrast, the COA held that Zubao Harry Juma, a permanent employee dismissed for misconduct, was entitled to severance pay. His initial fixed-term contract had been converted to a permanent one, and upon termination, he sought severance pay. In this case, the Appellant challenged the decision of the lower court delivered on 23 February 2022 which held that the Appellant was not entitled to accrued service benefits following his summary dismissal for unauthorized removal of company property and theft.

The COA ruled in his favour, citing Section 54(1) of the ECA, which provides for severance benefits even for permanent employees. Additionally, the court referenced Section 127 of the ECA, which states that where an employment contract provides more favourable conditions than the law, the contract terms prevail. As a result, Juma was entitled to one month’s salary for each year of service before 2019, and thereafter, 25% of his basic salary until dismissal.

Conclusion

The two COA rulings present conflicting interpretations of the ECA regarding severance pay for employees on permanent contracts. The Stanbic Bank case suggests that severance pay is exclusive to fixed-term contracts, while the Zubao Juma case allows for severance pay under certain circumstances, even for permanent employees. This inconsistency highlights the need for further clarity on how severance pay applies to different contract types under Zambian law.

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