The announced closure of Storm Mountain Diamonds (Pty) Ltd (“SMD”), operator of the Kao kimberlite mine in the Mokhotlong district, has placed the rights of more than 800 workers squarely in the spotlight. With operations reportedly set to cease on 30 June 2026, and with the Independent Democratic Union of Lesotho (IDUL) publicly alleging that the company failed to engage it before taking the decision, the situation raises questions that every employer, employee and trade union in Lesotho should understand.
This article sets out the legal framework that governs a closure of this kind. It is general commentary on the law and does not constitute legal advice on any particular matter.
A closure is still a dismissal in law
When a business shuts down and lets its workforce go, the law treats this as a dismissal, specifically, a dismissal based on the operational requirements of the employer. Under the Labour Act, 2024, which repealed and replaced the long-standing Labour Code Order 1992, a dismissal grounded in operational requirements such as redundancy, restructuring, economic hardship or a complete cessation of operations is recognised as a potentially fair reason for termination.
The critical word is potentially. The Act does not make such dismissals automatically lawful. A dismissal for operational reasons will only be fair where it is justified on two levels:
- Substantively — there must be a genuine, commercially defensible reason for the closure. Falling diamond prices, shrinking demand, competition from lab-grown stones and an inability to secure investment to extend the life of the mine are, on their face, the kind of economic grounds the law contemplates.
- Procedurally — the manner in which the employer reaches and implements the decision must be fair to the affected employees.
It is on the second leg, procedure, that disputes most often arise, and it is precisely the leg the union has raised in the SMD matter.
The duty to consult
One of the most important features of Lesotho’s retrenchment law is the obligation to consult before, not after, the decision is finalised. Although the Labour Act, 2024 does not spell out an exhaustive step-by-step retrenchment procedure, the Codes of Good Practice on Termination of Employment (2003) continue to guide what fair process looks like. By virtue of the transitional provisions of the Act, instruments made under the repealed Labour Code remain in force to the extent that they are not inconsistent with the new law, and the Codes remain the benchmark against which the Directorate of Dispute Prevention and Resolution (DDPR) and the Labour Court assess fairness.
Meaningful consultation is not a box-ticking exercise or a notification after the fact. As a “joint problem-solving exercise,” it requires the employer to engage the affected employees and any recognised trade union in good faith with a view to reaching consensus on, among other things:
- whether the dismissals can be avoided altogether;
- alternatives to retrenchment i.e transfers to other work, temporary lay-offs, early retirement, reduced hours or other measures;
- ways to minimise the number of workers affected and to soften the impact of those dismissals that cannot be avoided;
- the timing of the retrenchments; and
- the severance and assistance to be offered to departing employees.
Where employees are represented by a union, the duty to consult ordinarily extends to that union. The reported position of IDUL, that it learned of the closure from its own members rather than from the company, and that it has been told the matter lies “between SMD and the workers,” describes exactly the kind of conduct that, if established, may expose an employer to a finding of procedural unfairness. A genuine and timeous consultation process is the employer’s best protection against such a finding.
Selection criteria and why a full closure is different
In a partial retrenchment, where some employees are dismissed and others retained, the law requires the employer to apply fair and objective selection criteria, typically “last in, first out” (LIFO), tempered by considerations such as length of service, skills, qualifications, experience and operational needs. The leading authority of Mpota v Standard Lesotho Bank underscores that the parties must seek consensus on these criteria.
A complete closure, by contrast, removes the question of who is selected, because the entire workforce is affected. This does not relax the employer’s obligations; it shifts their focus. In a total shutdown, fairness is measured chiefly by the adequacy of consultation, the giving of proper notice, the payment of all terminal benefits, and the steps taken to assist workers as they leave. The provision of a counsellor, while welcome, does not discharge these legal duties.
What departing workers are entitled to
Reports that management has “not mentioned anything about retrenchment packages” understandably alarm workers. It is therefore important to be clear about what the law guarantees on termination. Employees facing dismissal for operational reasons are generally entitled to:
- Notice or pay in lieu of notice. The statutory minimum notice depends on length of service. Seven days for less than six months, fourteen days for between six months and a year, one month for more than a year, and three months for more than ten years of continuous service.
- Statutory severance pay. Under the Labour Act, 2024, an employee who has completed more than one year of continuous service is entitled to severance equivalent to two weeks’ wages for each completed year of service, calculated on the final wage. This is a statutory entitlement, not a discretionary “package,” and it is payable on a fair retrenchment. (It is forfeited only where an employee is fairly dismissed for misconduct — which is not the case in an operational closure.)
- Outstanding terminal pay. accrued but untaken leave, the final salary, and any other amounts owing under the contract.
- Any enhanced benefits promised by contract, collective agreement or company policy, where these exceed the statutory floor.
A worker who has spent “several years” at the mine therefore has a concrete, legally enforceable claim to severance and terminal benefits, whether or not management uses the word “package.”
Remedies where the process is unfair
Where an employer fails to consult properly, pay what is due, or otherwise conducts the retrenchment unfairly, affected employees and their union are not without recourse. Disputes may be referred to the Directorate of Dispute Prevention and Resolution (DDPR) for conciliation and, where unresolved, arbitration, with the Labour Court available in appropriate cases. Remedies for an unfair dismissal can include compensation, and in some circumstances reinstatement. A union that has been excluded from consultation may also pursue the employer for breaching its statutory and collective-bargaining obligations.
The investor’s side of the ledger
It would be incomplete to discuss this closure only through the lens of labour law. SMD has, in public statements, attributed its inability to attract life-extending investment to the conduct of the State, pointing to higher tax rates, restricted deductions and withheld VAT refunds, allegedly contrary to the fiscal terms agreed when the project was launched.
This raises a separate and important area of Lesotho mining and investment law: the enforceability of fiscal stabilisation and taxation terms in mining agreements. Where an investor and the State have agreed binding terms on taxation, royalties and debt-to-equity ratios, a unilateral departure from those terms can give rise to contractual and, potentially, investment-protection claims. For investors, regulatory stability is not a luxury. It is often the difference between continued operation and closure. The lesson cuts both ways: the State’s revenue (royalties, corporate tax, PAYE and VAT) depends on mines remaining viable, and viability depends on honouring the bargain that brought the investment in the first place.
Conclusion
The closure of Kao is, as commentators have noted, not merely a Mokhotlong problem, it is a national one. But for the workers it affects, the questions are immediate and personal: Will I be consulted? Will I be paid what I am owed? Where do I turn if I am not?
The law provides clear answers. A closure for genuine economic reasons can be lawful, but only if the employer consults meaningfully, gives proper notice, and pays full notice and severance entitlements. Employees and trade unions who believe these obligations have not been met have well-established avenues of redress through the DDPR and the Labour Court.
How we can help. Mayet & Associates advises employers, employees and trade unions across the full spectrum of retrenchment, mine-closure and labour-dispute matters, as well as on mining agreements and investor-State fiscal stability. If you are affected by the issues discussed in this article, contact us through www.zmayetlaw.co.ls for advice tailored to your circumstances.
Disclaimer: This article is provided for general information only and does not constitute legal advice. The facts surrounding the SMD/Kao matter are drawn from public reporting and remain subject to development. You should obtain specific legal advice before acting on any matter discussed above.