The termination of employment can be a distressing experience for any worker. In Zimbabwe, when this termination occurs due to reasons such as cost reduction, technological advancements, business restructuring, or even the closure of an enterprise, it falls under the legal framework of “retrenchment.”
Recent amendments, particularly through the Labour Amendment Act of 2023, have further refined the process and obligations surrounding retrenchment. Understanding these legal provisions is crucial for both employers and employees to ensure a fair and lawful process.
DEFINING THE MOMENT OF RETRENCHMENT
The Labour Act, 2023 clarifies the timing of retrenchment. It defines “retrench,” with reference to the termination date, as any date specified by the employer that is no earlier than the date the employer submits written notice of retrenchment to the works council or employment council and no later than the date the employer notifies the Retrenchment Board. If no specific date is given, the latter date of notification to the Retrenchment Board is presumed to be the intended retrenchment date.
THE GOVERNING LEGAL FRAMEWORK
Retrenchment in Zimbabwe is primarily governed by Sections 12C & 12CC of the Labour Act, 2023. These sections outline the procedures employers must follow and the minimum compensation employees are entitled to.
THE PROCESS OF RETRENCHING EMPLOYEES
The Labour Amendment Act meticulously outlines the steps an employer must take when intending to retrench employees. Subsection 12C(3)[1] mandates that an employer must provide:
- Fourteen days’ written notice:
- Of the intention to retrench (if no agreed package exists), to the works council or, failing that or by agreement, to the employment council.
- Of the intention to retrench or the agreed retrenchment package to the Retrenchment Board.
- Of the intention to retrench (if no agreed package exists), to the affected employee(s).
- Details to the works council/employment council and the Retrenchment Board: In the absence of an agreed package, the employer must provide details of each employee to be retrenched and the reasons for the proposed action.
If negotiations for a better package occur after initial notification to the Retrenchment Board and an agreement is reached, the agreed payment terms must be adhered to, and the signed agreement must be submitted to the Retrenchment Board within the notice period or seven days thereafter.
Crucially, within fourteen days of any retrenchment, the employer must notify the Retrenchment Board of either the agreed package (if better than minimum) or the intention to pay the minimum package, along with details of the retrenched employees. Failure to comply with this notification requirement can result in the immediate vesting of the full retrenchment package in the employees, regardless of any staggered payment arrangements, allowing them to pursue enforcement.
THE ROLE OF THE RETRENCHMENT BOARD
The Retrenchment Board, established through regulations under the Labour Act of 2019, plays a crucial role in overseeing the retrenchment process. It is responsible for considering matters related to retrenchment referred to it. The specific composition of the board is detailed in the relevant regulations.
RECOURSE FOR NON-PAYMENT OF THE MINIMUM PACKAGE
Employees who believe they have not received the minimum or agreed-upon retrenchment package have a clear legal recourse. They must first lodge an affidavit with the Retrenchment Board detailing the non-compliance. The Board will then notify the employer and provide an opportunity for rebuttal. If the Board is satisfied that the package has not been paid, it will issue a “non-compliance certificate.”
Armed with this certificate, the employee(s) can apply to the Labour Court for an order enforcing the package. The non-compliance certificate is treated as a liquid document, allowing for expedited default judgment proceedings. Once an order is obtained from the
Labour Court, it can be registered with a Magistrate’s court or the High Court for enforcement as a civil judgment.
THE RETRENCHMENT PACKAGE: MINIMUM ENTITLEMENT VS. NEGOTIATION
A key aspect of the law concerns the retrenchment package. Section 12C(2)[2] of the Act states that “Unless better terms are negotiated and agreed between the employer and the employee or employees concerned or their representatives— (a) a minimum retrenchment package shall be payable by the employer as compensation for retrenchment not later than days from the date on which the retrenchment takes effect…”
A common misunderstanding arises from the phrase “Unless better terms are negotiated and agreed.” While this provision opens the door for enhanced packages, it does not obligate employers to negotiate better terms. The primary legal duty of the employer is to ensure that the retrenched employee receives at least the minimum retrenchment package.
Negotiations for a more favourable package are permissible and may be pursued by employees or their representatives, particularly if they believe the company has the financial capacity to offer more, especially in cases where retrenchment is due to restructuring rather than financial distress. However, the decision to negotiate and agree on a better package remains largely at the employer’s discretion. Only when a better package is indeed negotiated and agreed upon can the employer deviate from paying the minimum.
UNDERSTANDING THE RETRENCHMENT PACKAGE
While the law refers to a “minimum retrenchment package” and the possibility of “agreed retrenchment packages,” the Labour Amendment Act of 2023 notably lacks a specific definition of what constitutes the minimum. This omission creates a lacuna in the law.
Previously, the Labour Act of 2019 defined the minimum retrenchment package as “not less than one month’s salary or wages for every two years of service as an employee (or the equivalent lesser proportion of one month’s salary or wages for a lesser period of service).”
Despite the repeal of the old act, it is reasonable to adopt this prior definition as a guideline for what constitutes a minimum package. However, the absence of a statutory definition in the current law leaves room for judicial activism.
EMPLOYER INCAPACITY TO PAY
The law acknowledges that employers may face genuine financial difficulties. If an employer claims inability to pay the full minimum retrenchment package, they must, within fourteen days of the retrenchment, pay at least 25% of the total minimum package and notify the Retrenchment Board accordingly. Simultaneously, they must apply in writing to the employment council (or the Retrenchment Board if no council exists) for exemption from paying the outstanding portion, providing supporting evidence. The employees or their representatives must receive a copy of this application.
The Employment Council or Retrenchment Board then has thirty days to consider the application, holding a hearing for all parties involved. Failure to make a determination within this timeframe, or dissatisfaction with the decision, allows either party to appeal to the Labour Court within twenty-one days.
CONSEQUENCES OF FAILING TO NOTIFY THE RETRENCHMENT BOARD
Employers who fail to notify the Retrenchment Board of a retrenchment are committing a serious offense, liable to a significant fine or imprisonment for failure to pay the fine.
SEEKING AN ENHANCED RETRENCHMENT PACKAGE
Even after the minimum package notification, the law allows for further claims. Within 60 days of the Retrenchment Board issuing a notification certificate for the minimum package, a trade union or the retrenched employee(s) can allege in writing to the Board that the employer has the capacity to pay an enhanced package, providing supporting evidence. The Employment Council or Retrenchment Board will then conduct a hearing, requiring the employer to disclose audited financial statements and respond to allegations. Again, failure to comply with the Board’s directives can lead to contempt of court charges.
ADDRESSING EMPLOYER MISCONDUCT
The Labour Amendment Act also introduces provisions to address situations where an employer’s inability to pay may stem from fraudulent, reckless, or grossly negligent conduct. If, during proceedings related to incapacity to pay, there are indications of asset
stripping or improper business practices, the Retrenchment Board or employment council can issue a provisional statement outlining these concerns.
Subsequently, the affected employees or their representatives can apply to the Labour Court for a declaration confirming the employer’s misconduct and potentially holding the employer, directors, or other involved parties personally liable for the full minimum retrenchment package. The court has broad powers to issue orders to enforce such liability.
What section 12CC (2) of the Labour Act, 2023 does is to introduce a powerful and, at first glance, a potentially controversial mechanism for holding employers accountable. While the doctrine of “piercing the corporate veil” is a well-established principle in corporate law, its application in this context presents a unique dimension that warrants close examination.
Traditionally, the corporate veil is a fundamental tenet of company law, as established in the landmark case of Salomon v A. Salomon & Co. Ltd. It dictates that a company is a separate legal person, distinct from its shareholders, directors, and managers. This principle of limited liability is a cornerstone of commerce, encouraging entrepreneurship and investment by shielding individuals from personal responsibility for the company’s debts. Piercing this veil is considered an exceptional remedy, typically reserved for instances of egregious fraud, dishonesty, or where the company is merely a “sham” or “alter ego” of its owners, used to evade existing legal obligations.
The provision in Section 12CC, however, presents a statutory derogation from these common law principles. It establishes a clear, pre-defined process for piercing the veil in a specific labor context.
HOW THE CORPORATE VEIL IS PIERCED UNDER THE LABOUR ACT
The process begins when an employer, facing retrenchment, claims an inability to pay the legally mandated retrenchment package. During these proceedings before the Retrenchment Board or an Employment Council, indications arise that the employer’s financial distress may be the result of a deliberate act of misconduct, such as asset stripping in contemplation of retrenchment, or carrying on the business “recklessly,” “with gross negligence,” or “with intent to defraud.”
The administrative body then gives the employer an opportunity to submit an affidavit to respond to these serious allegations. If the employer fails to respond or the response is deemed inadequate, the Board or Council may issue a provisional statement. This
document serves as the official administrative finding that there are grounds to believe the business was conducted in the specified improper manner.
The provisional statement is a critical document that empowers the retrenched employees or their representatives to initiate the judicial phase. They file a formal application with the Labour Court, and crucially, the Act mandates that this application be made “on notice to the employer and any person to be named” in the proceedings. This step ensures that the individuals who may be held personally liable are legally and formally brought into the court case.
At the court hearing, the named individuals are afforded the opportunity to “rebut any allegations against him or her.” If, after hearing all the evidence, the court is satisfied that the allegations of misconduct are valid, it can issue a specific declaration. This declaration is the moment the corporate veil is legally pierced. The court can declare that any one or more of the following shall be “personally responsible, without limitation of liability”:
- An owner, director, or partner of the business
- Any other named person who “knowingly” participated in the misconduct.
This specific declaration effectively bypasses the limited liability of the company and holds the named individuals directly accountable for the company’s debt to the retrenched employees. The court can then issue further orders to enforce this liability, allowing the employees to recover the retrenchment package from the personal assets of the individuals responsible for the misconduct.
This statutory mechanism for holding directors personally liable is not an isolated development. It must be viewed in conjunction with the broader legislative shift towards enhanced corporate accountability, particularly as codified in the Companies and Other Business Entities Act (COBEA) [Chapter 24:31]. Section 62 of the COBEA provides a general framework for a court to exercise its power to pierce the corporate veil.
Subsection (3) of Section 62 is particularly relevant. It empowers the court to declare a company not to be a juristic person with respect to certain actions if it finds that:
“the juristic form… has been abused by the board, or a manager, director or officer or any one or more members… for their own or some other person’s advantage;” or
“any acts done or omitted to be done… constitutes an unconscionable abuse of the juristic person…”
This provision in COBEA lays down the general legal grounds for veil piercing. The Labour Act’s Section 12CC then acts as a specialised, procedural complement to this general power. It provides a specific trigger—the non-payment of a retrenchment package due to fraudulent or reckless conduct—that allows the Labour Court to invoke the spirit of the COBEA provisions and hold directors personally accountable.
Therefore, this clause in the Labour Act should be understood as a statutory exception to the principle of limited liability. It does not dismantle the corporate veil in its entirety, but rather creates a targeted, policy-driven mechanism for holding individuals accountable when they use the corporate form to engage in misconduct that harms employees. It is a powerful tool designed to prevent the corporate veil from becoming a shield for fraudulent and irresponsible directors, thereby reinforcing the fundamental social contract between employers and employees.
CONCLUSION: NAVIGATING A COMPLEX LEGAL LANDSCAPE
Zimbabwean retrenchment law, as amended in 2023, establishes a clear framework for handling job losses resulting from economic and operational factors. While it sets minimum standards for compensation and outlines specific procedures for employers, it also introduces complexities, particularly concerning the definition of the minimum retrenchment package.
A key development in the amended law is a new dimension of corporate accountability. The legislation provides a direct and enforceable statutory mechanism for piercing the corporate veil. This sends a strong signal that the protection of limited liability is not absolute. When directors or other individuals engage in fraudulent or reckless conduct that compromises the company’s ability to pay retrenchment packages, the law now provides a direct pathway for employees to hold them personally responsible. This statutory derogation from common law principles, which aligns with broader provisions in the Companies and Other Business Entities Act, represents a significant shift in the legal landscape.
However, this powerful new provision is not without its risks. It may be susceptible to abuse, as company directors could find themselves facing unsubstantiated allegations of
fraud and reckless behavior. Even without concrete proof, defending these claims can be a time-consuming and arduous process, forcing individuals to incur significant legal costs. While they may ultimately be exonerated, the mere act of a claim being brought forward can subject them to a burdensome and tiresome legal battle, diverting valuable time and resources.
To ensure a fair and legally sound process, both employers and employees must be well-versed in these provisions. Seeking legal counsel is highly advisable to protect the rights and interests of all parties when navigating the complexities of retrenchment.
Prepared by: Steadfast M. P. Mazorodze
Associate
Reviewed by: Blessing Diza
Partner
This article is provided for informational purposes and general interest only, and does not constitute legal advice. While every effort has been made to ensure the accuracy and reliability of the information presented, Diza Attorneys and the writer expressly disclaim any responsibility or liability for any errors, omissions, or reliance on the information provided. Readers should not rely solely on this article for legal guidance.
[1] Section 12C(3) Labour Act, 2023
[2] Section 9, Labour Amendment Act, 2023
