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COVID-19 pandemic in Mozambique: is the suspension of employment contracts a viable alternative?

COVID-19 alert

By Gimina Luís Mahumana Langa

Since the COVID-19 pandemic is already a reality in Mozambique, with the confirmation of the 8th coronavirus case in Mozambique on Sunday, 29 March 2020, it is becoming increasingly urgent to make decisions about how employment relations should be structured and regulated.

The issue has come to the forefront since His Excellency Filipe Jacinto Nyusi, President of the Republic, in his statement to the nation on 20 March 2020, mandated the closure of all public and private schools, from pre-schools to universities, as one of the preventive measures, and also because some companies, through unilateral initiatives and as a way of preventing contamination, decided to release their employees from the obligation to come to work.

These measures accelerate the need to consider and implement alternatives for the performance (or not) of work activities, taking into account that many employees, as parents, will be unable to attend the workplace because of childcare duties at home.

In our last article about the topic, we alluded to the possibility of telework and work from home (situations not yet regulated in Mozambique’s legal system, but acceptable through the prevailing legal doctrine and in labor uses), as well as the conditions for its effectiveness and the limitations of this regime, due to the lack of specific regulations.

However, it is important to keep in mind that not all activities can be carried under the telework or working from home regimes and that, therefore, there will be employees who will not be able to carry out their tasks from home.

One of the regimes that has been discussed in different legal forums is the suspension of the employment contract for reasons relating to the employer, provided for in Article 123 of the Labor Law (Law No. 23/2007, of 1 August).

Under the terms of the abovementioned article, the employer may suspend employment contracts for economic reasons, which are understood to mean reasons attributable to the market, technological reasons, disasters and other events that affect or may foreseeably come to affect the normal business of the company or establishment.

During the suspension period, parties’ rights, duties and guarantees that are inherent to the effective performance of work shall cease, but the duties of mutual respect and loyalty shall remain (Article 122 (4), applicable under Article 123 (3), both of the Labor Law).

Furthermore, during the suspension period, employees’ monthly remuneration is gradually reduced, with employees being entitled to 75%, 50% and 25% of their respective remuneration for the first, second and third months, provided that such remuneration shall in no event be less than the national minimum wage (see paragraph 5 of article 123 of the Labor Law). As of the fourth month, should the impediment persist beyond three months, the payment of remuneration shall be suspended, as per the first part of paragraph 6 of article 123 of the Labor Law.

On one hand this regime can be envisaged as an alternative to ensure the quarantine mechanism without employees losing the entirety of their remuneration, and, on the other hand, the employer can gradually reduce the cost of remuneration in a period of low or, in some cases, no production. However, some more conservative employers may resist to opt for this approach.

This regime was conceived as an alternative to the termination of the employment relationship, i.e., for cases in which the employer has all the legal conditions to terminate the employment contract with prior notice, but chooses to suspend the relationship, in the expectation of being able to overcome the impediment that justifies it. Under this regime, if the impediment persists beyond three months, the parties can agree on the termination of the employment contract, however ensuring employee compensation which shall be calculated under the terms of Article 128 of the Labor Law. This compensation regime is a financial burden for the employer, especially in the case of indeterminate employment contracts, since employees will be entitled to 45 days' wages for each year of service, regardless of the employees’ length of service and base salary.

This regime is in itself contradictory, since, on one hand, paragraph 6 of Article 123 of the Labor Law provides that the termination of the employment contract may be by agreement, on the other hand, paragraph 7 of the same Article does not allow the compensation to be agreed between the parties, by establishing that “the employer shall make monetary compensation available to the employees, calculated in terms of Article 128 of this law.”

Therefore, unless within the scope of the measures to be implemented by the government and to be established by law (understood as a legislative act of the Assembly of the Republic, given the need to ensure the principle of hierarchy of laws), an exception to the compensation criterion is considered, some employers may not consider this regime attractive due to the financial risks associated with it if the impediment exceeds three months, in the event of a termination of the employment relationship as from the fourth month of the suspension, taking into account the unpredictable duration of the reasons that justify it.

This fear on the part of employers to resort to the suspension of the employment contract regime may be detrimental to employees who do not have annual leave acquired and not taken them, insofar as employers can choose to terminate their contracts, even with the right to compensation.

Thus, in our view, as part of the measures to safeguard the economic and social environment, the government could amend the law to add some rules on this regime when establishing the legal regime to be applied in case of a state of emergency and or mandatory quarantine has to be determined, as a way of ensuring payment of remuneration for at least the first 3 months. However, it is necessary to make some changes, especially regarding the criteria for calculating compensation in case of a need to terminate the relationship, in order to make this regime less cumbersome for employers.

Until now, for employers who do not feel comfortable exposing themselves to the above risk, the alternative is to agree with employees who cannot continue to carry out their activities other measures such as reducing working hours or having annual leave with or without salary as an alternative to terminating employment contracts. In this regard, it is important to note that the advancement of annual leave is limited to 30 days per year (Article 101(3) of the Labor Law), thus, it would be necessary that the law to be approved would also allow the advancement of more than 30 days of annual leave.  

If the coronavirus pandemic lasts for more than 4 months, it can be detrimental to employees for the reasons mentioned above, but also to employers, because in addition to losing their workforce, which already cost a huge investment for their technical and professional training, it adds the burden of paying compensation in view of the regime provided for in the final part of paragraph 6 and paragraph 7 of Article 123 of the Labor Law.

In light of the above, the best solution would be the submission, at the initiative of the government and as a matter of urgency, of a bill to be approved by the Assembly of the Republic to, among other areas, regulate the labor regime during the quarantine period or the state of emergency if this is decided.