IN THE INDUSTRIAL RELATIONS COURT OF MALAWI PRINCIPAL REGISTRY MATTER NO. IRC 128/224 OF 2003 BETWEEN PHIRI AND ANOTHER. APPLICANTS.

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1 IN THE INDUSTRIAL RELATIONS COURT OF MALAWI PRINCIPAL REGISTRY MATTER NO. IRC 128/224 OF 2003 BETWEEN PHIRI AND ANOTHER. APPLICANTS -and- LEYLAND DAF (MW) LTD RESPONDENT CORAM: R. Zibelu Banda (Ms), Deputy Chairperson John Chirwa, of Counsel for Respondent Applicants, Present Ngalauka, Court Clerk RULING Statutory Interpretation-Employment Act-Section 35-Severance Allowance- Calculation of Severance Allowance-Wages for Each Completed Year of Continuous Service. FACTS The two applicants had their services terminated due to redundancy. The applicants were not challenging the dismissal but terminal benefits. they alleged that they were paid less money as terminal benefits than they were entitled to under section 35 of the Employment Act. The respondent through their Counsel maintained that the respondent paid the applicants full terminal benefits. ISSUE The issue for the Court to determine was how severance allowance in the First Schedule to section 35 of the Employment Act is calculated? The First Schedule provides as follows:- 1. Where an employee is not entitled to pension, gratuity or any other terminal benefits severance allowance payable to him shall be calculated as follows:

2 Not less than one year but not exceeding ten years. Two weeks wages for each completed year continuous service. Not less than ten years. Four weeks wages for each completed year of continuous service. 2. No severance allowance shall be payable where an employee is entitled to pension, gratuity or any other terminal benefits, which exceeds severance allowance payable under paragraph 1 of this Schedule. THE LAW In order to determine the issue the Court must ask itself what the natural and ordinary meaning of the phrase is? It was held in Pinner vs Everett [1969] 1 WLR 1266 at 1273 per Willis J, that: In determining the meaning of any word or phrase in a statute the first question to ask always is what is the natural or ordinary meaning of that word or phrase in its context in the statute? It is only when that meaning leads to some result, which cannot reasonably supposed to have been the intention of the legislature that it is proper to look for some other possible meaning of the word or phrase. We have been warned again and again that it is wrong dangerous to proceed by substituting some other words for the words of the statute. In the instant case the phrase under contention is [four weeks] wages for each completed year of continuous service. The applicants claim that wages in this phrase mean ascertained from their last salary at the date of termination and must be multiplied by the number of years worked. The respondent on the other hand averred that the meaning of the phrase: Is wages for each completed year to be ascertained in that year and the aggregate wages accumulated over the years to be added up to find severance allowance. Assessment The phrase can be broken into three parts namely: a) Each completed year should be understood to mean that the employee must have worked for at least a year. b) Continuous service in this phrase mean without break. The employee must have worked without break for a number years up to the date of termination of employment. c) Wages for each completed year must mean the wages for that completed year. The use of number of years [of continuous service] is only for purposes of ascertaining whether to award the employee two weeks or four weeks wages. In this Court s view the number of years is not meant to be used as a multiplier. The employee must receive the aggregate of cumulative wages, which he has accumulated over the years during his continuous service by adding up the wages to the point of termination. 2

3 Wages are revised periodically in most cases depending on economic performance of the undertaking and productivity of the employee. An employee contributes to the performance of the undertaking and this is reflected in his wages over the years that he serves the undertaking. Section 35 protects the employee, who has contributed to the undertaking but is not on pension. The First Schedule in paragraph 2 provides for a comparator in the form of pension. The trend in pension schemes is that an employee and employer contribute to a fund. Every month a percentage of the employee s salary is remitted into the fund. At termination of employment the employee gets the cumulative sum of money, which he has contributed over the years as his pension. In case of an employee who is on severance allowance, his contribution is the services that he renders in any given completed year. The intention of section 35 was to cater for employees at termination of their employment but not to give them a bonus to the disadvantage of the employer, after all bonus are matters of contract. The calculations contended by the applicants which are based on the last salary of the employee multiplied by the number of years of service would lead to absurd years and have their salaries revised over the years. As an illustration, according to the applicants in this case they were entitled to over K900, and K42, as severance allowance respectively. They used the last salary as a multiplicand. The first applicant was receiving K at time of termination, when he started work 27 years ago he was receiving K per month. The second applicant was receiving K at time of termination. When he started work 13 years ago he was receiving K per month. The respondent found that the applicants were entitled to K and K as terminal benefits respectively. This comprised pension contribution because it was higher than severance allowance. However from the calculations of the applicants their severance allowance was much higher than pension and much higher than the severance allowance calculated by the respondent. the difference was disproportionate and obviously did not reflect the intention of the statute. The section as it is now does not lead to such result. It provided for cumulative allowances earned over a period of continuous service. If the First Schedule to section 35 meant multiplying the salary at the time of termination with the number of years worked it would have said so clearly. For instance, the repealed Wages and Conditions of Employment (Severance Pay) Order, under (section 5 of the Regulation of Minimum Wages and Conditions of Employment) Act that provided for severance pay before section 35 was enacted provided that severance pay shall be calculated as follows: a) An employee who has served for a period of more than five years shall be entitled to 3% (three percent) of his basic annual wages, at the time of terminating his contract or employment, multiplied by five years; 3

4 b) An employee who has served for a period of more than five years but less than ten years, in addition to his entitlement under item (a), shall be entitled to 5% (five percent) of his basic annual wages at the time of terminating his contract or employment, multiplied by the number of years in excess of five; c) For an employee who has served for a period of ten years or more, in addition to his entitlement under items (a) and (b), shall be entitled to 6% (six percent) of his basic annual wages at the time of terminating his contract or employment, multiplied by the number of years served in excess of ten years. The drafting of the above Order made it clear that they wages to be used were last salary at the time of terminating contract or employment and that the sum was to be multiplied by the number of years worked. This confirms to this Court and agrees with Counsel for the Respondent that the First Schedule to section 35 of the Employment Act is to be read in its ordinary and natural meaning, which is certainly different from the Order quoted above. There are some employers who have paid their employees severance allowance but the calculation has been different from one undertaking to another. The Court takes judicial notice of decisions of this Court and the High Court where severance allowance has been calculated using the multiplier and multiplicand formula which is obviously not supported by law. However, this Court acknowledges that in those earlier cases the issue of calculation of severance allowance was either not raised as in L Alufandika vs Encor Products Limited (Civil Cause No of 2000 (unreported) or the provisions of the repealed Order were inadvertently imported into the calculation as in Joe Ndema vs Leyland Daf (MW) Ltd (Matter No. IRC 60 of 2003 (unreported)). This Court recognizes the problems that section 35 of the Employment Act has caused in the labour industry in Malawi right from its inception. Before the recent amendment to the First Schedule of section 35, many employers were at a dilemma as to whether severance allowance meant pension was no longer payable or both were payable to an employee at termination of employment. The result fell short of chaos, where Courts awarded both pension and severance allowance to some employees, see Banda and another vs Blantyre Sports Club (Matter No. IRC 197 of 2001 (unreported)). Due to the ambiguities above the Employment Act especially First Schedule to section 35 was amended to include paragraphs (1) to (4) on 31 st January It is noted for some time now that there might be need for another urgent amendment to make clear provision as was previously in the Order cited above on calculation of severance allowance that does not leave room for challenge in Court. Employers and employees should know with certainty what they would be required to pay or receive as terminal benefits without resorting to Courts. Court process is time consuming and frustrating, in matters of employment it is essential that employees should leave employment with all their benefits and satisfied. 4

5 The Court finds that the respondent absolved itself from responsibility by paying the applicants their pension benefits which were grater than severance allowance calculated by adding up four weeks wages for each completed year of continuous service and not by using a single multiplicand and multiplier formula. Made of Open Court this 5 th day of April 2004 at LIMBE. R. Zibelu Banda (Ms.) DEPUTY CHAIRPERSON. 5