The Duty to serve: Cassation Bench on the legal effects of employer-sponsored Tuition Assistance
As an employee, you have a duty to serve your employer diligently. But, you don’t have a duty to continue serving your employer for life. If you ever feel like leaving, you are free to resign even without any valid ground (Article 31 of the labour proclamation No. 377/2003.) The only procedural requirement is giving a one month prior notice. Failure to give notice results in your liability to pay compensation (a maximum of your thirty days wages) to the employer (Article 45 of the labour proclamation No. 377/2003.)
But, is it always true that an employee does not have a duty to continue serving his employer at least for a limited period of time? There is one exception (limitation?) to the freedom of the employee to leave his employment. That is when the employer has covered education expenses of the employee and there is an express of employee to continue his employment for a limited period of time. The nature of this contractual obligation is not absolute rather it is alternative. This is to mean that the employee has still a choice either to serve his employer or reimburse all the expenses of education.
The following is a very brief summary of the position of the Cassation Bench of the Federal Supreme Court on issues related to the duty to serve.
My summary is based on the following six cases decided by the bench
1. Applicant: W/o Harsema Solomon
Respondent: Arba Minch University
Cassation File Number: 33473
Date: 16-3-2001 (E.C.)
2. Applicant: Ethiopian Agricultural Research Institute
Respondent: Ato Teferi Mamo (ex parte)
Cassation File Number: 49453
Date: 19-9-2002 (E.C.)
3. Applicant: Government Communication Affairs Office
Respondent: Ato Dereje Mekonen
Cassation File Number: 48476
Date: 12-8-2002 (E.C.)
4. Applicant: Hawasa University
Respondents: 1. Yonas Kassa (ex parte)
2. W/o Beletu Agotalem
Cassation File Number: 46574
Date: 9-7-2003 (E.C.
5. Applicant: Addis Ababa City Administration General Auditor Office and respondents:
Respondents: 1. Ato Aesaw Meaza
2. Ato Zerhun Mulat
3. W/o Tesefanesh Tesema
Cassation File Number: 49041
Date: 2-3-2003 (E.C
6. Applicant: Oromia Roads Authority
Respondent: Ato Abo Gobena
Cassation File Number: 59666
Date: 4-9-2002 (E.C.)
Express agreement necessary
The duty of an employee to continue serving his employer or alternatively reimburse costs of education is not an inherent part of the ordinary employment contract. In the absence of a clear contractual agreement, the employer is not legally entitled to demand expenses of education be paid by the employee. The fact that the employer has actually covered all the costs of education is not by itself sufficient to create an obligation against the employee.
As can be deducted from the decisions of the Cassation bench in Cassation File Number (Hereinafter CFN) 33473 and CFN 49453, the duty of the employee emanates from the additional contract between the parties. Such contract should clearly specify, that the employee has agreed to serve his employer for a limited period of time upon completion of his education in return for coverage of the necessary expenses.
The duty to reimburse
In most of the ‘education contracts’ between employer and employee, there is usually a clear statement regarding the alternative obligations of the employee. These obligations are the duty to serve and the duty to reimburse. In most of the cases the employee agrees to serve his employer for a definite period of time upon completion of his education, or alternatively (in case of refusal) to reimburse all the expenses. The exact amount is usually stated at the time of conclusion of contract.
One question in this regard is whether the employee has still a duty to reimburse, when the contract only provides for the duty to serve? In Ethiopian Agricultural Research Institute vs. Ato Teferi Mamo (ex parte) [CFN 49453] the Federal First Instance Court and Federal High Court rejected applicant’s claim against respondent for the reimbursement of Birr 326,092.57 including interest.
The lower courts relied on the terms and conditions of the contract for their respective decisions. The contract made between applicant and respondent provides that in order to enable the respondent pursue his MSC education, applicant will pay tuition fee, research allowance and salary until completion of education.
In return, respondent, agreed to serve the applicant for a time equivalent to two months for every one month he stayed pursuing his education. In short respondent will serve twice the time he spent on education. However the contract is silent as to the effect of breach of duty to serve by respondent. This is the ground both the Federal First Instance Court and Federal High Court rejected applicant’s claim.
The lower court’s decisions were reviewed for fundamental error of law by the cassation bench. As a result they were reversed, but the bench remanded the case back to the Federal First Instance Court, instructing the court to determine the exact amount of compensation payable to applicant. The bench in its reasoning stated that once the corresponding obligations of the contracting parties are clear, the effect of failure to perform that obligation in accordance the contract is entitlement to the other contracting party to claim compensation for non-performance. In order to reach at this conclusion, the bench referred to article 1771(2) and 1790(1) of the civil code and its earlier decisions in this regard (CFN 29169, 29170 & ‘other files’)
By of way of summary, in ‘education contracts’ even in the absence of a contractual provision of a duty to reimburse, a clear contractual provision imposing a duty to serve on the employee, is by itself sufficient to entitle the employer to claim compensation in case of non-performance of obligation by the employee.
Whose expense? No distinction made between third party and employer’s expense
In ordinary ‘education contracts’ the employer directly assumes responsibility to cover all the necessary expenses of education. Since a contract imposes a corresponding obligation on both contracting parties, there is no valid ground that one of the parties should be entitled to demand performance or claim compensation for non-performance without having any obligation in reality. This usually happens when all the expenses of the education are covered not by the employer but by another third party. Does the employee still have an obligation to serve or alternatively ‘reimburse’ the expense (which actually is covered by third party institution not a party to the contract) to the employer?
In the case of W/o Harsema Solomon vs. Arba Minch University, the applicant argued that respondent does not have vested interest to bring action, because all the tuition fee and related expenses were actually covered by a third party institution by way of a scholarship opportunity. Applicant also alleged that the scholarship opportunity was obtained through her own effort and personal correspondence with the third party institution.
The case was first submitted by respondent to the Southern Peoples, Nations and Nationalities Regional State, Gamo Zone High Court. The court found that respondent University has granted annual leave to applicant and wrote her recommendation letter to the third party institution. Relying on these facts, the Zonal court concluded that the scholarship opportunity was obtained through the university and not by the personal efforts of the applicant. Consequently it rejected applicant’s objection of lack of vested interest. An appeal to the Federal High Court by applicant was rejected and the Federal Supreme Court Cassation bench held the same position as the lower court on this point.
Calculation of expenses: The need for supporting evidence
Once the nature of the duty and liability of the employee is determined, the next important issue will be the extent of his/her liability. In this regard, the cassation bench has set an important precedent for lower courts. In CFN 33473 and 49453 the bench stated that the amount to be paid by the employee, for breach of his contractual duty to serve his employer, should be determined based on the actual costs and expenses incurred by the employer. The employer has a burden of proof and his claim should be supported by evidence. The fact that the employee has agreed to pay a specified amount of money in the contract is irrelevant. Employee’s liability is not to pay the amount stated in the contract, but the amount to be calculated based on tangible evidence.
In the case of W/o Harsema Solomon and Arba Minch University the Gamo Zonal court accepted respondent’s claim for an amount of Birr 290, 961.00 simply because it was stated in the contract.
The cassation while reversing and remanding the case back to the Zonal court stated that the respondent relied on what has been stated in the contract to claim Birr 290, 961.00, but didn’t produce any evidence establishing such expense was actually incurred by it or by the third party institution.
‘Upon successful completion of education’: The time of performance
When should the employee start serving the employer? Most of the contracts usually indicate the time needed for completion of education. Hence, the employee is expected to resume work upon the expiry of this time. In some cases, the period of time in the contract may be extended for two reasons:
A) External factors (like natural calamity, war, etc.) and internal factors (associated with the employee, like sickness, grade, research etc…)
B) The employee after completing the employer sponsored tuition program, may be awarded an additional education opportunity by a third party
There is no precedent as regards the first factor. In relation to the second factor, an additional education opportunity was accepted by lower courts to reject a claim for reimbursement by the employer. In the case between Hawasa University and 1.Yonas Kassa (ex parte) 2.W/o Beletu Agotalem, the Hawasa High Court rejected applicant’s claim on the ground that 1st respondent is pursuing additional PHD study after completing his master’s education provided to him by applicant. On appeal the decision was affirmed by the Federal High Court.
However, the cassation bench criticized the decisions of the lower courts for failing to take in to consideration the clear terms and conditions of the contract. The contract clearly imposes an obligation on 1st respondent to serve the applicant for six years, after completing his master’s education in Belgium. However, 1st respondent went to America for further PHD study without the consent of applicant. Accordingly the bench concluded that the time of performance begins immediately after completion of master’s study not after successful completion of PHD.
Alternative duty and alternative judgment
In W/o Harsema Solomon vs, Arba Minch University it was said that the duty to serve is an alternative duty. An alternative duty gives an option to choose one of the alternative duties, i.e. to serve or to reimburse. Being an alternative duty, fulfilling one of the duties will be considered as performance of contract. In other words, it will not entail liability for non-performance.
This notion has got acceptance even by the employer. If one looks in to the contents most of the statements of claims, the employer usually seeks relief in the alternative: either defendant continue serving his employer as per his contract, or alternatively (if defendant does want to serve) pay all the costs of his education. As a result judgment will be given taking into account the alternative nature of the duty. This has its own implication in case of execution. Since the judgment is in the alternative, it will be executed alternatively through continuous employment or reimbursement.
But, is it really true that the duty to serve is an alternative duty? Or is it the legal effect of breach of the contractual duty to serve?
In Ethiopian Agricultural Research Institute vs. Ato Teferi Mamo (ex parte) the bench considered resignation or failure to serve as a matter of non-performance of contract. It then determined the liability of respondent based on Article 1771(2) and 1790(1) of the Code and instructed the lower court to determine amount of compensation based on the ordinary rules of compensation provided in 2090(1) and 2091. No option was given to respondent to choose either to serve or reimburse. Contrary to W/o Harsema’s case the bench concluded that the duty to reimburse is an immediate effect of breach of duty to serve, not an alternative duty to serve
Other effects of the duty to serve: Clearance and certificate of service
The case between Government Communication Affairs Office and Ato Dereje Mekonen (CFN 48476) deals with the validity of the action of an employer to refuse the issuance of certificate of service to an emplyee who breached his contractual duty to serve. The respondent Ato Dereje Mekonen was a civil servant in applicant’s office. During his service, he left the office for education for three years. All the expenses of education was covered by applicant. The contractual agreement of the two parties provides that respondent will continue providing service in applicant’s office for six years upon successful compeletetion of his education. However he only stayed for twenty months and five days.
Upon resignation by respondent, applicant didn’t bring an action for breach of contract. However, it declined the respondent’s request for the issuance of a certificate of service . As a result respondent lodged an appeal to the Federal Civil Service Tribunal. The tribunal gave decision in favour of respondent. The Federal Supreme Court which reviwed the decision of the tribunal affirmed the dcision. Finally applicant submitted a petition to the Cassation on grounds of fundamental error of law.
The basic point of the argument of applicant before the bench is that certificate of service should not be issued before applicant successfuly discharges his obligation and delivers property belonging to respondent.
In response to applicant’s argument the bench first made a clear distinction between certificate of service and clearance. The issuance of a clearance is always subject to settelement of debt and delivery of employer’s property.
However, an employer does not have any valid ground to decline a request made by the employee for the issuance of a certificate of service . The bench refered to article 87 of the civil servants proclamation No. 515/2007 to conclude that the right of a civil servant to be provided with a certificate of service upon his request is not subject any condition. Respondent is entitled to get certificate of service eventhogh he failed to serve his employer or reimburse expenses of education. If applicant has any claim against respondent it should bring an action and seek a legal remedy.
Other effects of the duty to serve: Set-off and deduction
In the case between Government Communication Affairs Office and Ato Dereje Mekonen, the bench ruled that any remedy for reimbursement should be obtained by bringing an action in court. This holds true in determining the validity of an action as regards set-off and deduction. In the case between Oromia Roads Authority and Ato Abo Gobena, the applicant’s action to deduct costs of education from the severance pay of respondent was invalidated as unlawful.
Guarantor’s Liability: Future or conditional obligations
Unlike the primary ‘education contract, (which is solely governed by the terms and conditions of the contract) in contract of guarantee, the relevant provisions of the Civil Code apply in conjunction with the contract of guarantee to determine the respective rights and liabilities of the contracting parties. The advantage of the existence of legal provisions is that the terms and conditions of the contract are not totally left to the freedom of contracting parties. In ‘education contracts’ the employer, who has a stronger bargaining power determines the contents of the contract ensuring the maximum protection of his interest.
As a matter of fact, being a guarantor in ‘education contract’ could be characterized as inconvenience if not a burden. One the one hand, you give your guarantee for someone, but in return you don’t get any guarantee. You don’t have any guarantee that the principal party will return to his country or serve his employer as per his contract. Sometimes you will lose contact with the principal party. He doesn’t respond to your calls and emails. If you become a judgment debtor, one third of your insignificant salary will be deducted by a court order, and all this happens without any help from the principal debtor.
The second aspect of inconvenience relates to the length of time you will be bound by the contract of guarantee. For instance, if you become a guarantor to a sales or loan contract, everything will be settled one way or another within one or two years. In ‘education contracts’ you may be bound by the contract of guarantee for about ten years.
In the case between Addis Ababa City Administration General Auditor Office and respondents: 1. Ato Aesaw Meaza 2. Ato Zerhun Mulat 3. W/o Tesefanesh Tesema it took seven years for first respondent to complete his education. He also agreed to serve the applicant for six years in return for the financial assistance. Second and third respondents have jointly and severally guaranteed the performance of the contract. This means in effect it will take thirteen years to be totally free from their obligation.
When a person becomes a guarantor for a very long period of time, is there any means he could be relieved from his contractual duty? This issue was examined in the case between Addis Ababa City Administration General Auditor Office and respondents: 1. Ato Aesaw Meaza 2. Ato Zerhun Mulat 3. W/o Tesefanesh Tesema.
The Federal First Instance and Federal High Court relying on article 1925 sub article 2 of the civil code held a view that 1st respondent and 2nd respondent have put an end to their undertaking since the time during which they are to be bound is not stipulated in the contract of guarantee.
However, the Cassation bench took a different position and reversed both decisions of the lower courts. The bench giving meaning to article 1925 sub article 2 of the Code stated: “As can be understood from the provision, when the principal obligation is dependent on uncertain events, likely or not likely to occur in the future, there is a possibility that the guarantor may put an end to his undertaking so long as the primary debt is not yet due”
Applying this interpretation to the facts of the case, the bench reasoned that since the principal contract clearly specifies the time of completion of education and the time first respondent is bound to serve his employer, it could not be said it is conditional upon uncertain events.