Scope of Application of Labor Law
Defining “Employee” and “Employer”
Article 2(3) of Ethiopian Labor Proclamation No. 1156/2011 defines an employee as an individual who has an employment relationship with an employer based on employment, as specified in Article 4. Article 2(1) defines an employer as an individual or organization that employs one or more persons under the same Article. These definitions are crucial, as they determine the scope of labor law by distinguishing employees from non-employees—particularly from independent contractors and agents.
The question “Who is an employer?” becomes most significant when multiple entities are involved, requiring identification of the party that actually established the employment contract. Conversely, the question “Who is an employee?” lies at the very heart of the law’s applicability.
Who is an Employee?
At first glance, identifying an employee may appear straightforward—much like recognizing an honest person. Yet, the apparent simplicity conceals legal complexity: what seems like an employee in practice may not qualify as such in the eyes of the law.
Only individuals recognized as “employees” by law are entitled to the rights and protections of labor law. Hence, the definitional debate remains unresolved, reflecting the profound economic, social, and political implications of employee classification.
European labor law traditions have shaped three main approaches to this issue:
- Broad Definition Approach: Expanding the definition of “employee” to encompass workers across diverse categories.
- Intermediate Category Approach: Recognizing a third category of worker, situated between “employee” and “self-employed,” with tailored protections.
- Unified Approach: Classifying all workers under a single legal framework but distributing rights differently depending on their category.
Each approach seeks to extend labor law protection to vulnerable groups otherwise left outside traditional definitions.
Many jurisdictions ultimately rely on judicial interpretation. Courts adapt criteria in line with evolving organizational structures and employment practices. For example, in England the control test—linked to the doctrine of vicarious liability—dominated for decades. Later, the integration test and economic reality test emerged, reflecting modern workplace realities. Today, courts often employ a multiple test, weighing a variety of factors rather than relying on a single criterion.
Other systems rely more heavily on legislative presumptions. France, for instance, automatically classifies certain occupations (e.g., journalists, models, commercial representatives) as employees. Similarly, Ethiopian commercial law directly recognizes certain categories (e.g., commercial employees, agents, and representatives) as employees, while excluding independent contractors such as brokers and commission agents.
Some jurisdictions even delegate classification to third-party adjudicators. In Germany and Italy, employment status may first be referred to an administrative or quasi-judicial body, preventing disputes before they escalate to litigation.
Under Ethiopian law, Article 2(3) ties the definition of “employee” to the existence of an employment contract. Consequently, whether a person is an employee ultimately depends on whether an employment contract exists—an issue addressed in Chapter 3.5 of this book.
Who is an Employer?
Article 2(1) of the Proclamation defines an employer as either an individual or an organization. Importantly, the term “organization” under Article 2(2) does not depend on legal personality. It refers to any establishment under a single management, created for commercial, industrial, agricultural, construction, or other lawful purposes. A separately managed branch is also deemed an independent organization, even without separate legal personality.
Thus, an individual engaged in profit-making activity may or may not operate through an organization. If a single person owns a business but directly employs workers (e.g., a truck owner hiring a driver), they are classified as an individual employer.
Ethiopian law imposes no threshold: both an individual employing one worker and an organization employing thousands fall equally under the Proclamation. This contrasts with other systems. For example, U.S. federal law excludes small employers from certain statutes, such as the Family and Medical Leave Act, which applies only to employers with 50 or more employees.
Established for Profit—or Any Lawful Purpose?
The phrase “commercial, industrial, agricultural, construction…” in Article 2(2) might suggest that organizations must be profit-oriented. Yet, the addition of “or other lawful purpose” broadens the scope. If “profit” were required, employees of religious, charitable, or non-profit organizations would be excluded, rendering provisions like Article 3(3)(b)—which expressly allows their exclusion only by Council of Ministers’ regulation—meaningless.
Accordingly, Ethiopian labor law recognizes non-profit institutions (e.g., political parties, cooperatives, professional associations, federations, NGOs, and sports federations) as employers, provided they establish employment contracts. This ensures that their employees are covered under the Proclamation.
Lawful Purpose and United Management
While organizations must be established for a lawful purpose, Article 2(2) leaves unresolved the fate of employees working for organizations later found unlawful. For example, workers in a bank established to fund illegal activities may lose protection if the institution is not recognized as an “organization.” Such gaps highlight the need for tailored legislative solutions.
A further defining feature of an “organization” is united management. Branches with independent operational authority are treated as separate organizations—and thus separate employers—even without legal personality. This bifurcation creates challenges: employees may face reduced protection if liability is confined to a financially weak branch, leaving the main organization shielded.
Comparative systems, such as English law, recognize the concept of “associated employers,” imposing shared liability on related entities. Ethiopian law, by contrast, has yet to develop a similar framework, creating uncertainty in cases involving transfers between sister companies or branches.
Court practice reflects this gap. In D.H. Geda Blanket Factory PLC v. Kidist Getachew (S.C. File No. 83068), the Cassation Bench invalidated a forced transfer between sister companies, emphasizing consent. However, the ruling left unresolved how liability should be apportioned in lawful transfers across related organizations. Other cases (e.g., Mereid Tadesse Building Contractor v. Tesfamariam Derb, S.C. File No. 111094) further reveal inconsistencies when employees serve across multiple entities managed under one authority.