By Mahlet Mesganaw, Partner
Email: mahlet@dmethiolawerys.com
Stamp Duty Proclamation No 110/1998 provides by whom, when and how much stamp duty is paid on employment contracts. Stamp duty is paid by the Employer and not the Employee. Stamp Duty should be paid before or at the time of signature of the employment contract. Customarily paying stamp duty at the end of probation period is not the acceptable legal way. The amount is 1%(One Percent) of the one month salary.
In addition to this the payment of a stamp duty under Birr 50 shall be effected by affixing stamp of appropriate value to the instrument. When the stamp duty exceeds Birr 50 or where the type and nature of instrument so requires, the Federal Government Revenues Board may by directive provide that stamp duty be paid by means other than affixing stamp. And whoever executes or receives an instrument bearing an adhesive stamp shall at the time of execution cancel the same, so that it cannot be used again.
Thus, stamp duty is a legal requirement for employers to implement when hiring employees. This will avoid confrontation with the regulatory body and possible penalties.
The Council of Ministers has adopted a State of Emergency following the Covid-19 pandemic. As a result, Companies that administer their employees as per Labor Proclamation 1156/2019 are prohibited from terminating the employment contact of their employees during this time of the state of emergency outside of the procedure identified by the Ministry of Labor and Social Affairs. The Ministry of Labor and Social Affairs is expected to come up with the new directive. For the Amharic version of the Regulation click:- https://mail.google.com/mail/u/0/#inbox?projector=1
By Dagnachew Tesfaye
Management of a hotel business by itself requires expertise and good will. Major brands are eyeing the hotel industry of Ethiopia. These world renowned brands will share their trademark and good will by managing the hotel. They do so through Hotel Management Agreement (HMA) and Technical Service Agreement (TSA). The article briefly highlights thirteen general terms incorporated in HMA and TSA.
1. Parties’ intentions
The parties intentions are mentioned in the agreement. The owner is developing (building and equipping) an economy hotel (the “Hotel”) located in Ethiopia and is willing to use the Manager’s experience, services, and know-how in accordance with the applicable Brand standards. The Manager wishes to perform this service in accordance with the applicable terms and conditions of a hotel Management Agreement and Technical Services Agreement.
2. Brand– Brand type shall be identified clearly. The Manager or sometimes called Operator may have different brands under its umbrella. So the brand that it is developing with the Owner should be clearly mentioned.
3.Hotels Description
The description of the hotel include the location, plot size, number of guest rooms, double ad twin, all day dining and/or lobby bar, some meeting spaces and a minimum number car parks. All these should be mentioned.
4. Hotel Management
Subject to the conclusion of a Hotel Management Agreement (the “HMA”) between the Parties, the Hotel shall be managed by the Operator under its Brand according to the terms and conditions set out in the HMA. The HMA is a detailed contractual agreement with terms and conditions that govern the relationships of the Owner and the Operator.
5. Hotel Design and Construction
The Hotel shall be built in compliance with the Brand standards and with compliance local laws and regulations. For that purpose, the Parties shall enter into a Technical Services Agreement (the “TSA”) through which the Operator shall provide the Owner with its Brands standards and various Hotel Consultancy Services.
6. Development Fees
Developmental Fees are two types. The first is technical assistance fee and the second is pre-opening fee. The Technical assistance fee includes IT fees. The payment of such fee shall be in percentage due between the signing date of the TSA and the Opening of the hotel. The second is the Pre-opening fee to be paid to the Operator for its service of preparation of the hotel for the public. Sometimes the later fee is waived by the Operator as a good gesture of managing the hotel for the Owner.
7. Management Fee
Management fee is divided into two types of fees i.e basic management fee and incentive fee. Basic management fee including Trademark fee is a percentage of the hotel Total Gross Revenue. The Owner and Operator shall agree on the percentage. The other fee i.e the Incentive fee depends on the Adjusted Gross Operating Profit (AGOP) percentage of the Hotel every year. AGOP means Gross Operating Profit minus Basic management fee. The more the profit, the more percentage the incentive fee will be.
8. Mandatory Billable Services
Mandatory billable services are fees payable to the Manager. These include Marketing fee in percentage of the hotel total Room Revenue and Distribution & Reservation Fee.
9. Taxation and Payment
Many of the HMA and TSA mention that all fees or royalties to be paid under the Agreement are quoted net of any taxes, levies, imports, duties, charges, fees or withholding taxes (including value added tax) of any nature now or hereafter imposed by any governmental, fiscal or other authority. In addition to the net fees, the Owner shall pay to the Manager, if applicable, all value added taxes or all sums due to the Manager according to the law and at the rate in effect, other than income taxes which the Manager is liable to pay. Such additional taxes shall be added, if appropriate, to the fees invoiced by the Manager to the Owner. If the tax treaty between the State of the Owner and the State of the Manager provides a withholding tax on certain fees paid by the Owner, which gives right to an equivalent tax credit for the Manager in its State, the Owner shall withhold at source the tax due, at the treaty rate, and provide the Manager with a tax certificate, in order for the Manager to obtain the right to use the tax credit in its State.
All payment shall be made in USD, when it comes to Ethiopia.
10. Contract Term Length
Contract term is the duration of the management of the hotel by the Operator. There is Initial term years and Renewable terms. The initial terms may range from 10 years to 25 years and renewable may be for one or two terms of each five years.
11. FF&E Reserve Contribution
A cash reserve for Furniture, Fixtures and Equipment of the hotel shall be made for the purpose of replacing or repairing the FF&E. The Hotels’ contribution to this cash reserve shall be from 1%- 4% of hotel total revenue each year for the duration of the HMA.
12. Governing Law and Jurisdiction
The Governing law for big brands is that of their home countries. Requesting and negotiating the Ethiopian Law be applicable is important. The governing language is usually English language. Dispute settlement shall follow normally arbitration under the arbitration rules of the selected entity. Arbitration may be preceded by mediation, as the later may settle the dispute in a short time without affecting the operation of the hotel.
13. Other Contract terms
Confidentiality is an important aspect in HMA and TSA. Each Party hereby undertakes for a period of one year from the date of the signature of the letter of intent (LoI) that it will keep confidential any information concerning the subject matter of this and any draft agreements mentioned herein which either Party may divulge or supply to the other and that it will use all reasonable endeavors to procure that their respective employees, agents and professional advisers observe the same obligation of confidentiality. An exception should be there where by such confidentiality undertaking will not apply to any information which (i) is for the time being in the public domain, (ii) is acquired through a third party on a non-confidential basis; or (iii) is required to be disclosed by law or pursuant to any requirement of any governmental, official or regulatory body.
Restricted Area is the area where by the Operator is prohibited from competitive operation of similar brand in the same locality is where the hotel is located. Commencing the execution of the Hotel Management Agreement till the end of the term or a certain number of years, Operator shall not operate another “ (the “Brand”)” within 2 or 3 kilometres radius measured from the center point of the lobby desk of the Hotel.
Performance Test is the test the Operator should meet every year guaranteeing profit of the hotel. If the Operator fails to achieve a certain percentage of profit for consecutive years of the budgeted GOP and of the (Revenue per available room (REVPAR) Index of the competitive benchmark to be defined, then (a) Owner has the right to terminate the agreement (b) Operator has a right to cure by paying the shortfall between budgeted and actual GOP
To sum up, a HMA and TSA are important documents that set a long term relationship between the Owner and Operator. Each contractual term should be well understood and balanced. Not only the above terms but also other negotiated terms will be included in the HMA and TSA. Our Law Office has participated in several of these agreements and would be glad to legally assist.
1. Definitions
“Sexual harassment” means to persuade or convince another through utterances, signs or any other manner, to submit for sexual favor without his/her consent.
“Sexual violence” means sexual harassment accompanied by force or an attempt thereof.
2. Scope of Application
3(1). Without prejudice to Sub-Article (2) of this Article, this Proclamation shall be applicable to employment relations based on a contract of employment that exist between a worker and an employer including recruitment process.
3. Probation
11(3). When the parties agree to have a probation period, the agreement shall be made in writing; in such a case, the probation period shall not exceed 60 working days beginning from the first date of employment.
4. Prohibited Acts
14(2)g). Conduct meeting during working hours in disregard to the time assigned by the collective agreement or without obtaining the permission of the employer; h) Commit sexual harassment or sexual violence at workplace;
i) Physically abuse anyone in a work place.
5. Tardiness
27. 1/ Unless otherwise determined by a collective agreement, a contract of employment shall be terminated without prior notice only on the following grounds :
a) Unless the reason for being late is justified by the collective agreement, work rule or contract of employment, being late for duty eight times in six months period while being warned in writing of such a problem;
6. Absence
27/1/b) Absence from duty for a total five days in six months period while being warned in writing of such a problem; and where the absence cannot be classified in any of the leaves provided under the Proclamation;
7. Performance test
28(2) Any loss of capacity of work referred to in SubArticle (1) (a) of this Article shall, unless otherwise provided by a collective agreement, be verified by a periodical job performance evaluation.
8. Termination without prior notice by Employee
32(1) (b) Where the workers has been a victim of sexual harassment or sexual violence by the employer or a managerial employee;
9. Severance payment
39(1)d. Where the worker resigned due to sexual harassment or sexual violence by the employer or managerial employee; or where such act was committed by a coworker and the incident was reported to the employer but the latter failed to take appropriate measure in due time;
10. Compensation
41(2) However, where the termination is based on Article 32 (1) (b) the worker shall, in addition to severance pay, be entitled to compensation of his daily wage multiplied by ninety. This provision shall also apply to a worker covered by the relevant pension law.
11. Employee to pay compensation to Employer
45. 1/ A worker who terminates his contract of employment in disregard of the provisions of Article 31 or 35(2) of this Proclamation shall be liable to pay compensation to the employer.
2/ However, the compensation payable by the worker in accordance with Sub-Article (1) of this Article shall not exceed 30 days’ wages of the worker and be payable from the remaining payment due to the worker.
12. Deduction from Salary more than 1/3
59. 1/ The employer shall not deduct from, attach or set off the wages of the worker except where it is provided otherwise by law or collective agreement or work rules or in accordance with a court order or a written agreement of the worker concerned.
2/ Unless the worker expresses his consent in writing, the amount that may be deducted at any one time, from the worker’s wage shall in no case exceed one-third of his monthly wage.
13. Overtime Payment
68/ 1/ In addition to his normal wage, a worker who works over-time shall be entitled at least on the following rate of payments:
a) In the case of work done between 6:00 a.m. in the morning and l0:00 p.m. in the evening, at the rate of 1.5 multiplied by the ordinary hourly rate;
b) In the case of night time work between 10 p.m. in the evening and 6 a.m. in the morning, at the rate of 1.75 (one and three fourth) multiplied by the ordinary hourly rate;
14. Weekly Rest
69/4/ Notwithstanding the provisions of Sub Article (1) of this Article, where the nature of his task did not enable the worker to make use of his weekly rest day, the employer shall grant 4 working days of rest in a month.
15. Annual Leave
77(1) A worker pursuant to this Article shall be entitled to uninterrupted annual leave with pay. Such leave shall in no case be less than:
a) Sixteen (16) working days for the first year of service;
b) Sixteen (16) working days plus one working day for every additional two years’ service.
16. Paternity Leave
81/2/ A male employee shall be entitled to three consecutive days paternity leave with full pay
17. Leave for events
81/3/ A worker shall be entitled to leave without pay for up to five consecutive days in the case of exceptional and serious events. However, such leave may be granted only twice in a budget year.
18. Maternity Leave
88/3/ A pregnant worker shall be granted a period of 30 consecutive days of leave with pay of pre-natal leave and a period of 90 consecutive days of leave post- natal.
