MATTER NO. IRC 197 OF 2001
CORAM: Hon. R. Zibelu Banda (Ms) Deputy Chairperson
Charles Kabowa for Respondent
Ngalauka – Court Clerk
Terminal benefits-Severance allowance-Pension benefits-Section 35(1) Employment Act 2000-Effect of amendment to First Schedule.
The two applicants Robert Banda and Edwin Mkangala
brought this action against their former employer Blantyre Sports Club. The
The facts, which were not in dispute were that Robert Banda worked for the respondent from 1989 to May 2001 as electrician. At the time of termination he was receiving K6000.00 per month. He was on pension scheme to which he contributed a percentage of his salary and the respondent also made a contribution. He was surprised that at the time of his retirement he only received his pension contribution, which was K89,000.00. He did not receive his severance allowance. He enquired from the authorities about the anomaly but he was advised that that was all he was entitled to. He insisted that he was entitled to severance pay and eventually the respondent paid him K20,000.00. His claim now is for K51,374.12 being the balance on the severance pay of K71,374.12. The calculations were done at the respondent’s club and there was no dispute that this amount comprised severance pay for Banda. The second applicant, Mkangala also gave evidence, which was not contradicted.
He was employed by the respondent in 1968 and served
in various positions until his retirement on
The respondent in response stated that the applicants were not entitled to more money. They received all their benefits after retirement and that they have no claim for the amounts they are alleging. He informed court that Banda’s pension benefit was K108202.31, while Mkangala’s pension benefit was K56,636.63. In terms of severance allowance Banda’s calculations amounted to K71374.12 while Mkangala’s severance allowance was calculated at K111649.31. The respondent had two payments to be made payable to the applicants. However, the authorities decided to pay one of the two amounts as follows:
1. Banda was paid K108202.31 representing pension benefit, which exceeded severance allowance of K71374.12.
2. Mkangala received K111649.56 representing K56636.63, pension benefit plus difference between the pension and the severance allowance (K55012.93.)
Employment Act (First Schedule) (Amendment) Order, 2002.
The formula used by the respondent corresponds with the amended First Schedule to section 35(1) of the Employment Act 2000, cited as Employment Act (First Schedule) (Amendment) Order,2002, which 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. 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.
3. Whenever an employee earns a pension which is less than severance allowance that he would be entitled to under paragraph 1 of this Schedule, he shall be paid the pension plus the difference between the pension and the severance allowance that he would otherwise have been entitled to under paragraph 1 of this Schedule.
4. Whenever an employee earns a gratuity or any other terminal benefit which, is less than the severance allowance that he would otherwise be entitled to under paragraph 1 of this Schedule, he shall be paid the gratuity or terminal benefit, as the case may be, plus the difference between the gratuity or terminal benefit, as the case may be, and the severance allowance that he would otherwise have been entitled to under paragraph 1 of this Schedule”.
The respondent used the First Schedule as amended on
Pension scheme to which the applicants were parties was part of their employment contract. An agreement was entered into between that respondent and each of the applicants whereby the respondent would be deducting a percentage from the applicants’ monthly salary and remitting it to Old Mutual Malawi the pension scheme administrators. The respondent also agreed to contribute a sum of money towards the pension fund for each of the applicants. This agreement was entered into on trust that the applicants would receive all their pension benefits at a time like retirement. The understanding was not that only a portion would be payable, but that they would receive the full amount which comprised the applicants’ and respondent’s contributions added together.
The respondent did not bring to the attention of the court that pension scheme to which the applicants were parties had conditions that would prevent them from receiving it or part thereof due certain circumstances. In the absence of such or similar clause, the court finds that the applicants were entitled to full pension scheme as calculated by Old Mutual Malawi.
Severance allowance unlike pension is a benefit that is provided for by law under statute. The relevant law is provided in the Employment Act 2000 (the Act) in particular the First Schedule to section 35(1). This schedule as it was before the recent amendment of 2002 was to the effect that pension and severance allowance were both payable to a former employee. There is no discrimination on the basis of which of the two is higher than the other. All is payable that is due. This is deduced from the fact that the previous law did not distinguish between who should receive severance allowance and who should not. All employees who qualified under the act were eligible to receive including those who were on pension.
Calculations on severance allowance is based on the number of years that an employee continuously serves an employer. The effect of this is that the law demands that the employer recognizes services rendered by its employee. The recognition is in the form of a lump sum of money termed severance allowance. In layman’s language this amount is a “thank you” to the employee for good services rendered. This is why severance allowance is only payable to employees whose employment contracts are terminated for reasons not related to bad conduct. To avoid any doubt as to how much should be payable, the Act provides a formula and it must be complied with to the last letter. The respondent applied a wrong formula based on a law, which did not exist at the time.
The court finds therefore that the respondent applied a wrong procedure when calculating and determining the amount of benefits to pay the two applicants. The respondent had erred in law by not paying Banda his severance allowance as required by law. The respondent had also erred in law by not paying Mkangala his full severance allowance as required by law.
The court finds that applicants proved their case against the respondent. This application succeeds and the court makes the following orders:
i. Mr. Banda is entitled to K51,374.12 being the balance on his severance allowance.
ii. Mr. Mkangala is entitled to K56,636.63 being balance on his severance allowance.
iii. In accordance with section 53(1) of the Employment Act 2000, these amounts should have been payable within seven days after termination of employment. Therefore, the court orders that these amounts must be paid within seven days of this judgment.
Pronounced in Open Court this……day of………………2003 at LIMBE.
R. Zibelu Banda (Ms.)