Ethiopian Labour Law: Annual Leave

By Mahlet Mesganaw, Partner at DMLF

Annual leave is a minimum working condition that cannot be limited by work rules or collective agreement. The FDRE Constitution on Article 42(2) gave recognition to annual leave. Workers have the right to reasonable limitations of working hours, to rest, to leisure, to periodic leave with pay, to remuneration for public holidays as well as a healthy and safe work environment. Similarly, the governing labour proclamation at this time for private organization employees is Labour Proclamation No 1156/2019. Articles 76-80 of the Labour Proclamation cover annual leave. In this article what annual leave is all about, dividing and interruption of annual leave,  carry over, and payment of wage in lieu of annual leave shall be discussed briefly.

Amount of Annual Leave and Related Rights

According to Labour Proclamation 1156/2019, the amount of annual leave for the first year of service shall be uninterrupted 16(Sixteen) working days. Then for every additional two years of service, one working day annual leave is added. Therefore, for the 1st year of service, 16 working days, for the 2nd year of service, 16 working days, for the 3rd year of service 17 working days, for the 4th year of service 17 working days, for the 5th year of service 18 working days, and it continues like this.

Annual leave is taken with a full salary.  The wage a worker receives during his annual leave shall be equal to what he would have received if he had continued to work. What about allowance, bonus, commission or other incentives including service charges from customers? Article 53(2) of the Labour Proclamation provides lists of payments that are excluded from being considered as wages: a) Over-time pay b) Amount received by way of per-diems, hardship allowances, transport allowance, relocation expenses, and similar allowance payable to the worker on the occasion of travel or change of his residence; c) Bonus d) Commission e) Other incentives paid for additional work results and f) Service charge received from customers. Thus the law seems to restrict the employee to receive only his wage/salary and not those listed items that are by law from the definition of wages.

Who is entitled to get annual leave: of a worker under probation or a worker that has completed his probation? For the purpose of annual leave, the labour law doesn’t differentiate between a worker within probation period to a worker that completed his probation period (60 working days). In contrast to annual leave, sick leave is available only for a worker who has completed his probation period. Where a worker, after having completed his probation, is rendered incapable of working due to sickness other than employment injury, he shall be entitled to a sick leave. However, for annual leave, such a distinction has not been made. Thus there is no law that prohibits a worker who is in his probation period to request annual leave and be granted one. The law is silent as to enabling the employer to deduct annual leave balance from a worker that  terminated his employment contract before expiry of the probation period or terminated by the employer while under probation.

The employer is granted the right to come up with a schedule of time in which employees can take annual leave. This right of the employer is based upon two conditions namely the interest of the employee and the need for maintaining the normal operation of the undertaking.

Dividing Annual Leave

Dividing annual leave is possible only in two parts. To apportion annual leave in to two parts, the agreement of the worker and the employer is required. This means annual leave cannot be taken each month for instance 2 days per month. It is the position of the labour law that annual leave be taken in bulk. Annual leave has to be taken consecutively for the full amount or if the worker and the employer agrees, the annual leave can be divided into two equal or unequal parts. Thus there is no flexibility of annual leave to be apportioned multiple times save only two parts.

Interruption of Annual Leave

When a worker on annual leave falls sick and requires medical treatment as an inpatient, his annual leave shall be suspended and his sick leave shall commence. The Labour Proclamation on Article 79(5) restricts sick leave as a reason for suspension of annual leave only to inpatients who happen to be admitted to hospitals. An employee who could present a valid medical certificate attesting he/she needs rest by a duly recognized medical institution without being an inpatient, may not enjoy the suspension of the annual leave. On the other hand, the law is silent as to indicate public holidays falling on the annual leave resulting in suspension of the annual leave.

Carry Over

Annual leave may be postponed for two reasons. One is when the worker requests and the employer agrees. Second is when the employer has to postpone due to operational requirements of the business. However, the Labour Proclamation on Article 79(4) allows postponement for not more than two years. In other words, annual leave postponed for two years has to be taken and put into use in full and total before the third year commences. The understanding circulating with the public that the annual leave not taken above two years expires, is legally unwarranted. The law is clear in the manner that annual leave cannot be taken in wages but has to be taken as a leave, even if there is an agreement between an employee and employer. An agreement by a worker to waive in any manner his right to annual leave shall be null and void. Payment of wages in lieu of annual leave is allowed in restricted circumstances which we will see next. Annual leave not taken for two years is not included as exceptional circumstances that are allowed by law to be paid in wages in lieu of the leave.

Payment of Wages in Lieu of Annual Leave

In principle it is prohibited to pay wages in lieu of annual leave. The two exceptions recognized by the Labour Proclamation are termination of employment and recall of employees on leave. Where a contract of employment is terminated, then the employee has the right to receive pay for the annual leave not taken. The other scenario is when a worker who is on annual leave is recalled back to work. As per Article 80(2) the worker who is recalled from leave shall be entitled to a payment covering the reminder of his leave excluding the time lost for the trip. On recall of employees on leave, the law could have granted postponement of the leave to another time and be used as a leave rather than exchanging the leave for payment. The principle the law propounded has been that leave has to be taken and should not be substituted by payment. In non-conformity to this principle, the law allowed the employer to pay  in cash the remainder of the annual leave of the worker who has been recalled while on annual leave.

In conclusion the main objective of annual leave is to give an employee the right to rest his body and mind from work and be back to work more rested and energetic. The employer has to respect this minimum working condition of the employee to enjoy leave with pay. That’s why the labour law sets the amount of time annual leave has to take and the related rights of the employee on leave. The law attempts to strike the balance between the mandatory exercise of leave for the employee with the business needs of the undertaking. Thus the employer is given the right to frame a schedule for the employees to take annual leave and in dire circumstances where the undertaking is facing unforeseen hurdles, to recall an employee on leave.

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Can a Child that has both Parents be Adopted?

By Dagnachew Tesfaye, Managing Partner at DMLF

A person less than 18 years of age( including conceived child) and under guardianship can be adopted. The parties to the adoption agreement are the adopter and the guardian of the adopted child. The  guardians of the adopted child being his both biological parents, can the child still be adopted? The answer is found in the Revised Family Code Proclamation No 213/2000 and Directive No 48/2020 on Foster Care and Domestic Adoption Services (Directive).

The Revised Family Proclamation on Article 191(1) requires the consent of both the father and mother of the adopted child to be given where both biological parents are alive and known. Then it is up to the court to decide whether or not the adoption is for the best interest of the child. The considerations the court shall take into account include the opinion of the child himself, the capability of the adopter to raise and take care of the child and the availability of information which will enable the court to know that the adopter will handle the adopted child as his own child and will not abuse him.

On the other hand the Directive on Article 28 state that children that have both parents who are eligible for adoption in the following conditions : a) If both parents are living with terminal illness provided that this is medically proven; and b) Upon the submission of a legal evidence issued from the relevant government body that confirms they are economically inefficient to properly care for the child and due to the failure to observe the safety of the child in addition to other mandatory causes. Therefore, the above two conditions have to be fulfilled and evidence has to be submitted in order for the adoption of a child with both parents. 

To sum up, a child that has a father and a mother can be given in adoption to an adopter as long as either the biological parents have provided proof that they are affected by terminal illness or the biological parents have no sufficient economic means to raise their child in a proper way. The court shall ascertain the existence of the conditions from the side of the adoption givers and also confirm that the adopter is also capable of raising the child in a manner that enhances the adopted child’s life. Hence the answer to the question is YES, a child that has a father and mother can still be adopted.

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Travel Ban Request in a Civil Case in Ethiopia

By DMLF Team

A claimant or judgment creditor in a civil case can request for the opposite party in the suit not to leave Ethiopia either before the case is resolved or executed. The request for injunctive order for travel ban has to be made with an oath and affidavit that there is an imminent danger that the defendant or counter defendant or judgment debtor may abscond the country making the claimant or judgment creditor to lose money.

This request has to be made in accordance with Ethiopian Civil Code Article 147 entitled security for appearance. Where the court is satisfied that the defendant or a plaintiff against whom a counter claim has been lodged is about to leave the jurisdiction of Ethiopia,  the court may issue a warrant on arrest of the defendant and bring him before court to show cause why he should not furnish security for his appearance. The law goes beyond travel ban and order the arrest of the defendant or debtors.

If the request is for a travel ban of the defendant or debtor, then the claimants has to request the judge to order the immigration office to execute the order.

The request for travel ban or for that matter arrests has to be made by an affidavit under oath. The request has to satisfy the court that there is a reasonable probability that can result in obstruction or delayance in the execution of any decree that may be passed against the defendant in the suit.

The request for travel ban or arrest can be requested at any stage of the suit. However if the suit is regarding immovable property, security of appearance under Article 147 of the Civil Procedure Code can not be requested.

The claimant is not required by law  to furnish a security or guarantee to compensate the defendant or judgment debtor for unwarranted injunction.

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Ethiopia Joined BRICS

By Dagnachew Tesfaye, DMLF Managing Partner

Ethiopia has been accepted to join the BRICS family starting from January 1/2024. Together with Ethiopia, Saudi Arabia, Argentina, Egypt, Iran and UAE have also joined the BRICS family.  This is part of the BRICS expansion process, said Cyril Ramaphosa, South Africa President. PM Dr.Abiy stated on the announcement that Ethiopia joined the BRICS family due to the fact that Ethiopia’s multi faceted ancient history, huge population with the majority being young and potential for fast economic growth. Green legacy and wheat production were the quintessentials of such potential economic growth. The support of China has been praised together with India and Russia. China even took the step to render a one year grace period for 2023-2024, on all debts Ethiopia has to discharge to China. Science, Military, Trade and Investment deals were also signed with India.

BRICS is an intergovernmental organization that has the core purpose of enhancing political and economic ties among member states. Bilateral relations among BRICS are treated in majority of the cases with the aim of non-interference, equality and mutual benefit. The colonial and unequal world order has been blamed by many to slow down economic development of the developing nations.

BRICS encompasses the New Development Bank(NBD), which assists public and private projects through loans, guarantees, equity participation and other financial instruments. Ethiopia, being a member of BRICS, shall benefit through NBD for its public projects on the pipeline.

In addition to NBD, BRICS has initiatives namely BRICS Contingent Reserve Arrangement (CRA) which is an arrangement for rendering support through liquidity and precautionary instruments in response to actual or potential short term balance of payments pressures. The CRA is considered as a version of the International Monetary Fund (IMF). Moreover BRICS has initiatives of the BRICS Payment System, the BRICS Joint Statistical Publication System and BRICS basket reserve currency.

The latest expansion of BRICS from 5 countries to 11 is aimed at strengthening South-South Cooperation and building a multi polar order that is treated on the basis of non-interference, equality and mutual benefit.

The Ethiopian government has applied, done the diplomacy and met the requirements for being a member of the BRICS. The House of People’s Representatives is expected to ratify the BRICS accession.

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Surrender and Utilization of Foreign Currency

By DMLF Team

The National Bank of Ethiopia issued Foreign Exchange Surrender Requirements of Banks(as amended) Directive No  FXD/83/2023 effective from August 11,2023. The Directive requires a bank to surrender 50% of the receipts from export of goods and services, 70% from private transfer (remittances) and NGO’s transfer to National Bank of Ethiopia. Such surrender has to occur every month within the first five working days of the next month. NBE shall credit the payment and settlement amount of the bank with equivalent amount in Birr at the prevailing buying and selling rate of the day(mid exchange rate).

This latest Directive repealed Directive No FXD/78/2022, effective from January 6,2022, which requires a flat rate surrender of 70% of receipt from export of goods and services, private transfer( remittance) and NGO’s transfer to NBE. 

The 2022 Directive repealed Directive No FXD/72/2021 that was effective as of September 01,2021, that requires a bank to surrender 50% receipt from export of goods and services, private transfer (remittance) and NGO’s transfer to the NBE every month.

On the other hand the Retention and Utilization of Export Earnings and Inward Remittance Directive No FXD/84/2023 effective from August 11,2023 allows exporters of goods and services to retain 40% of their exports earnings; recipients of inward remittance 20% in retention accounts. 10% of the foreign currency shall be surrendered to the client bank. 

The retention account holder shall have the right to utilize the foreign currency for import of goods and services payments without restriction provided that the account holder has the required business license to do so.

In addition, the account holder is free to sell all or part of the foreign currency held in the retention account at any time at a freely negotiating rate not exceeding the selling exchange rate of the day to their respective clients bank.

To sum up, the latest measure taken on surrender of foreign currencies returned the 2021 rate of 50% surrender for exporters but reaffirmed 70% for NGO’s and private transfer(remittance) of the 2022 Directives. The exporters and private remittances receivers are allowed to utilize their 40% and 20% retention respectively.  Utilization rights don’t extend to NGO’s.

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By Dagnachew Tesfaye, Managing Partner at DMLF

The Commercial Code of Ethiopia Proclamation No 1243/2021 provides the definition of good will on Article 112. The definition connotes good will as a result from the creation and operation of a business and is of a value which arises from relations between a trader and third parties who may require from him goods or services. To understand good will more, it is better to look into the definition given under Black’s Law Dictionary:

A business’s reputation, patronage, and other intangible assets that are considered when appraising the business, esp. for purchase; the ability to earn income in excess of the income that would be expected from the business viewed as a mere collection of assets. • Because an established business’s trademark or servicemark is a symbol of goodwill, trademark infringement is a form of theft of goodwill. By the same token, when a trademark is assigned, the goodwill that it carries is also assigned…. “

[Goodwill] is only another name for reputation, credit, honesty, fair name, reliability.” … “Good will is to be distinguished from that element of value referred to variously as going-concern value, going value, or going business. Although some courts have stated that the difference is merely technical and that it is unimportant to attempt to separate these intangibles, it is generally held that going-concern value is that which inheres in a plant of an established business.

Such good will has to be protected from unfair competition. Instances of unfair competition include trademark infringement, dilution of goodwill and trademarks, use of similar trade or firm names, simulation of product packaging or configuration, false advertising, passing off goods for those of another, and theft of trade secrets. 

Hence good will has to be protected. A trader may preserve his goodwill by instituting proceedings for unfair competition or by setting up the legal or contractual prohibitions provided in Article 29,39,53,118,130,131,166, and 167 of the Commercial  Code. 

A trader may claim damages under Article 2057 of the Civil Code from any person who commits an act of competition which amounts to a fault. Details on unfair commercial competition and its effects are prescribed by Trade Competition and Consumer Protection Proclamation 813/2013(TCCPP). No business person may, in the course of trade, carry out any act which is dishonest, misleading or deceptive, and harms or is likely to harm the business interest of a competitor. Article 8 of the TCCPP lists what it calls acts of unfair competition. These are:  a) any act that causes or is likely to cause confusion with respect to another business person or its activities, in particular, the goods or services offered by such business person; b) any act of disclosure, possession or use of information of another business person, without the consent of the rightful owner, in a manner contrary to honest commercial practice; c) any false or unjustifiable allegation that discredits, or is likely to discredit another business person or its activities, in particular the goods or services offered by such business person; d) comparing goods or services falsely or equivocally in the course of commercial advertisement;e) disseminating to consumers or users, false or equivocal information including information the source of which is not known, in connection with the price or nature or system of manufacturing or manufa cturing place or content or suitableness for use or quality of goods or services; f) obtaining or attempting to obtain confidential business information of another business person through his current or former employees or obtaining the information to pirate his customers or to use for purposes that minimizehis competitiveness; g) other similar acts specified by regulation to be issued for the implementation of this Proclamation. Hence, a violation of any of the provisions under Article 8 of the TCCPP is a fault and gives rise to an extra-contractual liability

In any event, where an act of unfair competition has been committed, there are civil, administrative and criminal liabilities. The Commercial Code on Article 113-114 cross connects the remedies to itself, the Civil Code of Ethiopia and TCCPP. A trader may preserve his goodwill by instituting proceedings by setting up the legal or contractual prohibitions provided in Article 29,39,53,118,130,131,166, and 167 of the Commercial Code. Furthermore, a trader may claim damages under Article 2057 of the Civil Code from any person who commits an act of competition which amounts to a fault

Under the TCCPP, the Trade Competition and Consumer Protection Authority Adjudicative Benches has for example judicial power on Article 32 to : c)to order payment of compensation in accordance with the relevant laws to business persons victimized by acts of unfair competition committed in violation of the provisions of Part Two of this Proclamation.

The administrative measures within the TCCPP include ordering: a) the discontinuation of the act pronounced unfair; b) the taking of any other appropriate measure that enables to reinstate the victims competitive position; or c) the suspension or revocation of the business license of the offender.  Any business person who has sustained damages arising from an act of unfair competition and claims payment of compensation may institute an action before the adjudicative bench of the Authority. 

On the other hand, the Administrative Penalties are also provided in the TCCPP. Any business person who violates the provisions of Article 8 of this Proclamation(unfair competition article) shall be punished with a fine from 5% up to 10% of his annual turnover.

In conclusion, goodwill is protected by the relevant provisions of the Commercial Code, Civil Code and special laws including but not limited to trade name, trade mark and intellectual property laws, and trade competition and consumer protection laws. A business may consist of other corporeal or incorporeal elements but a business’s main element is its goodwill. The protection accorded to goodwill in the Commercial Code is a major indicative of the significance of the matter.

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State of Emergency Proclamation No 6/2023

The FDRE Council of Ministers has issued a state of emergency Proclamation as per Article 93(1)(a) of the FDRE Constitution. The Proclamation is intended for safeguarding peace and security of people of Amhara Regional State. The Proclamation shall be effective from the date of promulgation by the Council of Ministers which is as of August 4,2023 and shall be effective for six months. The HoPR may order the cessation time of the Proclamations ahead of the six month as the case may be. As a result, any judicial organ shall have no authority with regards to items covered on the Proclamation until the expiry of the Proclamation. Substantive and procedural laws inconsistent with the Proclamation shall remain suspended during the implementation of the Proclamation save diplomatic immunities indicated under the Vienna Convention on Diplomatic Relations. The Proclamation covers 11 provisions divided into four parts.

Partial Closure of the Federal Courts

As per Federal Courts Proclamation No. 1234/2021, Article 38,  Federal Courts shall be closed from August 7 to October 11 every year(Amharic version). Consequently, this year the courts shall be partially closed from August 7 to October 11, 2023. However, emergency cases shall be tried in courts by judges. Judges will also  work on cases on an over-time voluntarily basis. The judgments or decrees or orders made during the partial closure time shall be revealed to the parties when the court re-opens after October 11/2023.

The Proclamation gives the Federal Supreme Court the power to issue directives to determine what type of cases are emergency cases that are entitled to be seen while the courts are in partial closure. 

Company Secretary for a Share Company

By Dagnachew Tesfaye, Managing Partner at DMLF

In the Commercial Code of Ethiopia 1960, there was no requirement by law to have a company secretary even for share companies. As of April 2021, in the new Commercial Code of Ethiopia, Proclamation No 1243/2021, company secretary appointment became a legal requirement for share companies. The manner of hiring and firing, power and duties and liabilities of the secretary were included. We shall look into the appointment, powers and duties and liabilities of the secretary here below.

The New Commercial Code on Article 340 provides about the legal requirement of hiring a secretary for a share company. The article states in a mandatory manner, ‘a share company shall have a secretary’. Such a legal requirement is non-existent or optional for private limited company or one member private limited company.

The position of secretary is under the general manager. Thus the secretary is accountable to the general manager. Consequently when hiring of secretary, the general manager will nominate the secretary and present his nomination for the approval of the board of directors. It is the board of directors who decide who will be the company secretary, and make the appointment. This has to be decided at a board meeting. Just as the directors can appoint the company secretary, the board can also remove the secretary by way of a board resolution after receiving the recommendations of the general manager. Company secretaries can be individuals or companies, as some organizations provide company secretarial services.   

 A company’s secretary has the general duty of organizing and keeping information and records of the company. The secretary shall provide reports and other necessary information promptly to the concerned body. Similarly the secretary is the one that provides information to shareholders and third parties. The most important role of the secretary is to organize meetings of shareholders and members of the board of directors. The secretary then shall prepare, organize and keep minutes. The secretary shall carry out other tasks assigned to him by the general manager and memorandum of association. 

Despite the name, the role is not clerical or secretarial. A company secretary needs to be someone with a good knowledge of share companies and their legal obligations. As the capital markets start, for a public company, whose shares of stock are traded on a securities exchange or over-the-counter markets, then this needs to be someone with appropriate qualifications such as a lawyer, a chartered company secretary, an accountant or someone with previous experience in the role. 

The secretary shall be liable to the company, shareholders or third parties for any breaches of his duties under the Commercial  Code or the memorandum of association, notwithstanding an agreement to the contrary.

To sum up, Ethiopia has introduced the appointment of company secretary as a mandatory requirement for share companies in its legislation of the new Commercial Code. The power and duties of the secretary have also been included in non-exhaustive ways. Though the secretary is reporting to the manager, when firing and hiring occurs, with the recommendation of the manager, the approval of the board of directors is sought.

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Division of a Business Organization 

By Mahlet Mesganaw, Partner at DMLF

Division is the operation whereby a business organization is wound up without liquidation by transferring all its assets and liabilities to more than one pre-existing organizations or organizations newly formed by it. The new Commercial Code of Ethiopia Proclamation No 1243/2021 on Article 566 provides what division of business organization is all about. The requirements to be met when division of business organizations occur are stated on Article 41 of Directive 935/2022 for Commercial Registration, Licensing and Post-licensing Inspection. We shall briefly look at what the two legislation incorporate in terms of division of business organization.

Division may take place into any type of business organization. The recognized business organizations on the commercial code include General Partnerships, Limited Partnership, Limited Liability Partnership, Joint Venture, Share Company, Private Limited Company, One Person Private Limited Company and Firms incorporated abroad having a form other than those recognized by the Commercial Code.

Division is the operation whereby a business organization is wound up without liquidation by transferring all its assets and liabilities to more than one pre-existing organizations or organizations newly formed by it. The shareholders or partners of the business organization that is divided are issued in exchange shares in the organizations to which the assets are divided. The shareholders may also be given, as the case may be, additional payment in cash. 

Another form of division i.e. a division by acquisition is the operation whereby a business organization is wound up without liquidation by transferring all its assets and liabilities to more than one other pre-existing organization. The shareholders or partners of the business organization that is divided are issued in exchange shares in the organizations to which the assets are divided. The shareholders may also be given, as the case may be, additional payment in cash. 

A division by the formation of new organization is the operation whereby a business organization is wound up without liquidation by transferring all its assets and liabilities to organizations formed by it. The shareholders or partners of the business organization that is divided are issued in exchange shares in the organizations to which the assets are divided. The shareholders may also be given, as the case may be, additional payment in cash. 

Division is also applied on dividing part of the asset or functioning business unit and contributing the asset or business unit to an organization. Dividing a certain portion of assets means separating a business unit that can subsist independently or part of assets of an organization and transferring the same to a business organization that is under formation or to an existing organization by way of contribution. 

The requirements to be fulfilled when division occurs is provided by the Directive. A business organization to be divided shall submit a tax clearance certificate and cause its books of account to be closed before the division is carried out. Where part of the business organization to be divided is to be taken over by another business organization, the divided business entity shall be incorporated under the trade name and business name of the latter business organization. 

Where each divided entity of the business organization is to be established as an autonomous organ, a minute authenticated by a body authorized by law which shows that the entity who is allowed to use the trade and business names of the organization is adopted by a vote of members representing two third (2/3) of the shares the business organization that existed before the division, shall be submitted. 

A copy of the newspaper or the link, if it is a digital newspaper, having nationwide circulation in which the division plan is notified to the public once in month shall be submitted as evidence within two months from the date the plan is adopted by the general meeting. 

The commercial code, commercial registration and licensing proclamation and Regulation concerning business organizations shall be applicable to members, capital, business name, trade name and any other similar matters of the divided entities. 

To summarize the Commercial Code and the Directive provide the principles in which business organizations undergo division and the requirements to be submitted to finalize the division.

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