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Gratuity versus Pension – Is matter settled?

Gratuity versus Pension – Is matter settled?

Dear Editor,

FINALLY, the Constitutional Court (ConCourt), has settled the vexing confusion that hit the labour market following the amendment of the Constitution in 2016 regarding gratuity and pension. 

Article 189 (2) of the Constitution provides that an employee who has retired should be kept on the payroll until his benefits have been paid in full. But does that include workers on fixed-contracts who get gratuity at the end? Or was this law for the permanent and pensionable employees? Human resource practitioners had difficulties navigating these legal conundrums. 

Three former workers of Zambia Open University moved to the ConCourt on the grounds that their former employers had stopped paying them salaries before their full gratuity was be paid. 

They argued that they ought to have been on payroll as per constitutional requirements.

The three were on fixed three-year contracts with gratuity to be paid at the end of each contract. 

Article 189(2) reads:  “Where a pension benefit is not paid on a person’s last working day, that person shall stop work but the person’s name shall be retained on the payroll, until payment of the pension benefit based on the last salary received by that person while on the payroll.” 

The literally interpretation of this law would certainly create absurdity. Take for example a worker employed on a two-year contract and at the end of the term the company does not pay him his gratuity – due off course – to financial woes. Should he then be on salary for the next five years or so without working?

You see, the confusion was further created by Article 266 of the constitution, which defines “pension benefit” as inclusive of gratuity or similar allowances in respect of a pension’s service. The court had to deal with these issues in this recent case.

In a nutshell, the ConCourt adjudged that for gratuity to be captured under Article 189(2), it must be one that is covered under subsidiary legislation or law as a pension. 

It is not good enough to say your contract provided for gratuity and therefore you should remain on payroll. Go a little further by showing that your gratuity was in fact covered under a pension scheme with a specific law and not merely inserted in the contract.

“Whether a gratuity payable in a specific case is a pension can only be determined in the context of the relevant pension law or other law,” the judges said.

The court threw out the case against the lecturers and one accountant on the basis that they failed to show that the gratuity they were entitled to amounted to a pension and therefore should not be on the payroll.

In short, for gratuity to qualify as pension it must be covered under the law as a pension or scheme.

See case of Anderson Mwale and Others v Zambia Open University – 2021/CCZ/001 which was determined last week by the ConCourt.

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