Commercial Bank of Ethiopia - v.- Alemayehu Woldie et al- transfer of undertaking Cassation File No. 33314 V.6

 Commercial Bank of Ethiopia - v.- Alemayehu Woldie et al

Federal Supreme Court

Cassation File No. 33314 (05 June 2008)

Holding of the Court

Where a factory is taken over by a bank due to default in the payment of loan, the law does not entail obligation on the bank to retain the contract with the employees where the bank does not intend or desire to resume production, but opts to sell it out with a view to recovering the debt.

Property Mortgaged or Pledged with Banks Proclamation No. 97/1998; Labour Proclamation No. 377/2003, Article 16.

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Cassation File No. 33314

Ginbot 28, 2000 E.C. (June 5, 2008)

Federal Supreme Court Cassation Division

Justices: Abdulkadir Mohammed, Tegene Getaneh, Teffesse Yirga,

Medhin Kiros, Sultan Abatemam

Petitioner: Commercial Bank of Ethiopia

Respondent: Alemayehu Woldie et al

The court has examined the case and rendered the following judgment.

Judgement

The litigation commenced with an action instituted by respondents against the petitioner and the former owner of Birale Edible Oil Factory before the Federal First Instance Court alleging that the latter unlawfully terminated their contract of employment and they requested for compensation and other entitlements associated with unlawful termination.

The former owner replied that since the factory was mortgaged property taken over by the Bank because of default in loan payment, there was no legal reason to make him liable as he is no longer the owner of the factory.

The Bank also contended that the reason why it took over ownership of the factory was not in order to produce and sell edible oil, but to sell it with a view to recovering the debt. Therefore, it argued that it should not be required to retain the contract with the employees.

The Federal First Instance Court dropped the suit against the former owner of the factory. The Court, however, held the Bank responsible by citing Article 16 of Proclamation No.377/2003 which provides that “change of ownership of the enterprise does not have the effect of modifying a contract of employment”.

Although the Bank lodged an appeal to the Federal High Court against the decision of the lower court, the appellate court affirmed the lower court’s decision as per Article 337 of the Civil Procedure Code.

On the basis of the existing procedural rules, the Bank brought the case to the attention of the Federal Supreme Court Cassation Bench with a view to rectifying an alleged fundamental error of law committed by the lower courts. The Cassation Bench framed an issue as to whether the Bank which took-over the Factory in order to recover its loans can be compelled to inherit the claims of the employees.

According to Article 16 of the Labour Proclamation No. 377/2003, change of transfer of ownership shall not have the effect of modifying the contract of employment, and the Cassation Bench found that this requirement applies when the new owner sustains the operation of the enterprise. However, in the case at hand, the Bank has no intention and desire to resume the production of edible oil and the sale of the same. Hence, Article 16 of the Labour Proclamation is not relevant to the present case. Consequently, the decisions of the lower courts are not tenable.

Decree

1.The decisions of the Federal First Instance Court and the Federal High Court are reversed pursuant to Article 348(1) of the Civil Procedure Code.

2.The obligation envisaged under Article 16 of Proclamation No. 377/2003 cannot be imposed on the Bank and the claims of the employees cannot be accepted because the Bank took possession of the factory to sell it in order to recover unpaid loan and not to resume the factory’s operation.

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Signature of five justices

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Source: Federal Supreme Court Cassation Division Decisions Volume 6, pp. 355-360

Abridged translation: Mehari Redae