People casually use terms like “I’m on a fixed contract now” or “I’ ve just landed a permanent job,” without truly pausing to consider the legal weight and implications of such seemingly simple phrases. What really happens when an employment contract reaches its end? Do all employees, regardless of their contract type, receive the same benefits upon termination? Or are there hidden distinctions that could dramatically alter what an employee is entitled to when their working relationship concludes? This series will delve into these questions, exploring how Zambian law treats different employment contracts and the benefits payable under them.

In 2024, the Court of Appeal of Zambia repeatedly examined Section 54 of the Employment Code Act (ECA), clarifying what payments are due at the end of an employment contract and which categories of employees are entitled to receive them. Section 54 of the ECA provides for the severance pay payable to an employee by an employer at the termination or expiration of the employment contract. Whether or not an employee is entitled to severance pay is dependent on the type of contract under which one was engaged as well as the manner in which the contract terminates. Indeed, the way employment contract terminates determines whether or not the employer is legally obligated to make payments to the departing employee.

Despite the severance pay provisions in the ECA appearing relatively straight for ward, the Cour t of Appeal in recent decisions meted out conflicting positions in the interpretation of these sections. For example, in one case the Court of Appeal held firstly that employees on permanent and pensionable contracts were not entitled to severance pay and secondly that employees who were summarily dismissed cannot claim severance pay. Yet, in another judgment delivered less than one month from the first judgment, the same Court held that employees engaged on a permanent and pensionable basis are in fact entitled to a severance package under section 54(1)(c) of the ECA. These conflicting decisions unsettled the employment landscape, leaving both employers and employees uncertain about the entitlements of workers under permanent contracts. 

The Court of Appeal seized an opportunity to bring clarity through its decision in the case of Kingfred Phiri v Life Master Limited (the “Kingfred Judgment” ) delivering what currently stands as the binding interpretation of section 54 of the ECA. The Court addressed two critical issues that had sparked ongoing debate in Zambia’s labour law landscape: (i) whether a dismissed employee is entitled to gratuity in the form of severance pay and (ii) whether section 54 of the ECA applies to an employee who served on a permanent and pensionable contract of employment. Given the central role severance pay plays in this conversation, it is essential to understand what it encompasses. Under the ECA, severance pay is defined to mean the wages and benefits paid to an employee whose contract of employment is terminated in accordance with section 54. Section 54(1) of the ECA provides as follows: 

1. An employer shall pay an employee a severance pay, where the employee’s contract of employment is terminated or has expired, in the following manner: 
   (a) where an employee has been medically discharged from employment, in accordance with section 38(5); 
   (b) where a contract of employment is for a fixed duration, severance pay shall either be a gratuity at the rate of not less that twenty-five percent of the employee’s basic pay earned during the contract period or the retirement benefits provided by the relevant social security scheme that the employee is a member of, as the case may be;
   (c) where a contract of employment of a fixed duration has been terminated, severance pay shall be a gratuity at the rate of not less than twenty-five percent of the employee’s basic pay earned during the contract period as at the effective date of termination; 
   (d) where a contract of employment has been terminated by redundancy in accordance with section 55, the severance pay shall be a lumpsum of two months’ basic pay for each year served under the contract of employment; or 
   (e) where an employee dies in service, the severance pay shall be two months’ basic pay for each year served under the contract of employment. 

Severance pay is generally calculated at 25% of the employee’s basic pay earned during the contract period and can be prorated accordingly.

In the Kingfred Judgment, the Court of Appeal took the opportunity to address the clear contradiction of itself in the two previously highlighted judgments to finally set the record straight. In this landmark ruling, the Court confirmed that employees dismissed for disciplinary reasons, and those whose permanent and pensionable contracts end for other reasons, such as resignation, are not entitled to severance pay under the ECA, regardless of the nature of the contract. In effect, dismissal following proper disciplinary procedures automatically disqualifies an employee from severance entitlement.

Likewise, termination of a permanent and pensionable contract for reasons not related to disciplinary action does not give rise to severance pay. According to the Kingfred Judgment, employees on permanent and pensionable contracts are only eligible for severance under section 54(1) of the ECA under the following circumstances: 

1. the employee has been medically discharged;
2. the employee is terminated for redundancy; and
3. the employee dies in service.

While permanent and pensionable contracts offer stability in terms of employment continuity, they offer limited mandatory compensation upon termination. The Kingfred Judgment now stands as the binding interpretation of Section 54(1), setting a clearer framework for both employers and employees navigating end-of-contract scenarios. Whether this interpretation has been adequately considered, however, is a question best reserved for another day.