Resignation and the paradox of Ethiopian pension law

One of the controversies surrounding the new private organization employee’s pension proclamation has been the effect of resignation on entitlement to pension benefits. Based on the length of service of the employee, resignation could have three different effects.

1. When the length of service of the employee is greater than or equal to 10 years but less than 20 years of service, resignation results in reimbursement of the employee’s contribution excluding contribution made by his employer.

2. If the employee resigns after serving for less than 10 years, he will relinquish his right to reimbursement. He will just leave empty-handed.

3. If the length of service is greater than or equal to 20 years but less than 25 years the employee will be entitled to get full retirement pension but payment will be made upon attainment of retirement age.

4. If the length of service of the employee is greater than or equal to 25 years ,  resignation results in entitlement to full retirement pension which will start to be paid beginning five years prior to retirement age.

As indicated above, an employee who resigns after serving for less than 10 years is not entitled to claim his own contribution. Although this has become a point of controversy in light of the new private organizations pension proclamation, a similar limitation has existed for more than 40 years in case of government employees’ pension laws.

In this regard one of the oldest pension laws of the country ( Public servant’s pension decree No. 46/1961) reads:

“A public servant who voluntarily resigns prior to completing 10 years of service shall be entitled to no benefits hereunder” (Article 8(a) of Public servant’s pension decree No. 46/1961)

All subsequent pension legislations have adopted a similar position regarding the effect of resignation before 10 years of service. During this time no strong criticism has been heard against such statutes.

What follows is a brief analysis or criticism of the new law and previous statutes as regards their prohibition of reimbursement of employee’s contribution. I will also try to forward some advice to employees who want to quit their job but still get their own contribution by way of reimbursement even if they have served for less than 10 years.

The meaning of resignation

In order to deny an employee of his own contribution by way of reimbursement, two cumulative conditions have to be established.  First, it has to be proved that the length of service year of the employee is less than 10 years. Additionally, the ground of termination of the employment contract should be one which could properly be categorized as resignation. Establishing the second condition requires legally defining ‘resignation’ and examining the specific circumstances to determine whether they fall under the elements of the definition. Both of the newly enacted pension laws i.e. Government employees’ pension proclamation No. 714/2011 and the private organization employees pension proclamation No. 715/2011 do not define the term resignation. Similarly although, resignation by the employee is one of the grounds of termination of employment contract in the labour proclamation No. 377/06, no where is the term defined.

Generally speaking, resignation refers to the acts or instances by which an employee willfully or upon his own consent quits his job. The presence of consent is very important to ascertain the existence of resignation. However, the presence of consent could not be taken as a sole test of resignation. In certain cases, a willful act by the employee may not be regarded as resignation. On the other hand, the act of quitting a job by the employee may not be taken as indicative of the presence of consent. It is possible that he may resign but without his consent.

To make things clear let me just raise two questions which are crucial for the clear understanding of the term resignation.

  • If an employee makes an express written agreement with his employer for the termination of the employment contract, could this be taken as resignation for the purpose of the pension laws?
  • If an employee leaves or quits her job due to undue influence or harassment by her employer, is that resignation for the purpose of the pension laws?

The above two questions make it clear that in order to deny an reimbursement to an employee whose length of service is less than 10 years,  it is of primary importance to come up with a valid and clear definition of the term resignation.

In order to provide a logical answer to the above question and come up with a working definition of resignation in light of the Ethiopian pension laws, it will be helpful to refer to some of the relevant provisions of the labour proclamation.

As regards the first question, article 25 of the labour proclamation provides that the employee and the employer could reach at an agreement to put an end to their employment contract. For such an agreement to be considered as valid it has to be concluded in writing. Article 25 is found under section one of chapter two of the labour proclamation. Chapter two is a general provision which lists down all the grounds of termination of employment contract. According to 23 of the proclamation, a contract of employment shall only be terminated;

  • Upon initiation by the employer or worker
  • In accordance with the provisions of the law or a collective agreement or
  • By the agreement of the two parties

Resignation as a ground of termination is categorized under ‘termination of employment contract by the initiation of the worker’

Therefore, this will lead us to the conclusion that a mutual agreement to terminate an employment contract, even though, is clearly a willful act of the employee to quit his job, is not a case of resignation. This means in effect a an employee who has a service year of less than 10 years could avoid the harsh effects of unilateral resignation, by making an arrangement with his employer for a mutual, bilateral agreement.

So my first advice for government employees and private organization employees covered by the pension laws is this:

  • If you decide to quit your job and your service year is less than 10 years try to convince your employer to conclude a written agreement for the termination of the employment contract.

Sometimes, the employment contract may be terminated upon the initiation of the employee (his own unilateral act), but with a defective consent. This happens when an employee quits his or her job due to intolerable undue pressure of the employer. So the question raised above is: “when an employee quits his job because the employer through his conduct has engendered his health and dignity, is it resignation?”  Resignation due to undue influence of the employer is what is known as constructive dismissal in labour law. It is a usually taken as one instance of dismissal by an employer.

The labour proclamation recognizes ‘constructive dismissal’, even though it does not specifically employ such term. The ordinary case of resignation is dealt in article 31.  Accordingly, an employee could at any time resign from his job without any valid ground. He has to simply give a one month notice to his employer.

The employee may terminate his employment contract without notice, provided that one of the grounds in article 32 is fulfilled.   Practically speaking article 32 is a typical case of constructive dismissal. Grounds under this article include:

  • Employer’s act contrary to employee’s human dignity and morals or other acts punishable under the Penal Code
  • Employer’s failure to act in case of imminent danger threatening the worker’s safety or health
  • Repetitive  failure by the employer  to fulfill his basic obligations towards the worker

An employee who quits his job due to one of the above grounds is entitled;

A.   A compensation equal to thirty times his daily wages of the last week of service

B.   Severance pay even though his length of service is below the minimum threshold of five years

This, beyond doubt, indicates that constructive dismissal is recognized under Ethiopian labour law and is not synonymous with resignation. Therefore, resignation as indicated in the pension laws should not be interpreted as if it includes acts or instances of constructive dismissal.

The paradox

Ethiopian law prohibits employee’s own contribution if he resigns and has a service year of less than 10 years. However, an employee having a service year of less than 10 years is still entitled to his contribution if;

  • He terminates his employment contract by a written agreement with his employer
  • If he quits his job due to undue pressure of his employer

There is also another 3rd mechanism. And this makes Ethiopian pension law hard to understand.

Both pension laws provide that an employee who has served for less than 20 years and whose employment contract is terminated for reasons or grounds not mentioned in the respective pension proclamations is entitled to reimbursement of his own contribution.

There are three main grounds of termination of employment mentioned by the pension proclamation. These are attaining retirement age, incapacity due illness or sickness (the specific term used by the proclamation is “health problems”) and incapacity due to employment injury. Resignation is also mentioned as one ground of termination with its own special effect as regards entitlement to reimbursement of the employee’s contribution or pension payment depending on the length of service. Therefore, any ground other than these will validly entitle an employee to his own contribution, if his length of service is less than 20 years.

Grounds not mentioned in the pension proclamations may be dismissal for misconduct, dismissal on operational grounds (reduction of workers), termination due to closure or bankruptcy of the undertaking etc…

Take the case of dismissal.

According to Ethiopian pension law, if you are dismissed for misconduct and your length of service is less than 10 years you will be entitled to reimbursement of your own pension contribution. But, if you simply resign after serving your employer for less than 10 years, you don’t get a penny.

What then would any reasonable employee do to get reimbursement if his/her length of service is less than 10 years?

Resign? Or get dismissed?

If you are absent for five consecutive days, you will be dismissed. If you commit any of the offences listed under article 27 of the labour proclamation, the effect is clearly your dismissal. It is bad that you are dismissed. But it is good if your length of service is less than 10 years, because you can now get reimbursement.   On the contrary, if you simply leave your job peacefully, and have less than 10 years length of service you don’t get any reimbursement.

4 replies »

  1. Why the age of retirement be changed to 65 years for the life expectancy has increased and to maintain long the working Years of experienced proffessionals?

  2. First of all I would like to appreciate your remarkable effort and knowledge. I have the question to you, If the employee take leave without pay for twenty working days out of the total working days of twenty two then what will be the 7% employee contribution of pension? Should the employee pay the pension even if s/he has no any salary paid to him/her?

  3. that’s very surprising issue you have identified, what do you suggest on possible ways to challenge the provisions?

    • My suggestion is to repeal that provisons as there is no logical justification to deny reimbursement of employee’s pension contribution.
      The law should not discourage mobility of workers from one employer to another. Besides, making an exception to resignation does not ensure industrial peace as the preamble of statute proclaims. On the contrary, it will undermine industrial peace, since “getting dismissed!” not “resignation” entails a reward. (If getting your own money back could be considered as a reward after all)

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