How to Conduct a Lawful Redundancy Process – Useful Tips

Employers Redundancy Obligations During the COVID-19 Pandemic: Managing the Process

The COVID-19 global pandemic has seen many businesses locally and globally being forced to make difficult decisions, especially in relation to whether retain all, some or none of the employees. Due to closures of businesses up and down the supply chain, the domino effect has resulted in many employers, both large and small, having to get creative to ensure they can survive and emerge from the pandemic.

Some options that employers have been implementing include:

1. exercising any contractual right to ‘lay-off’ staff on a temporary basis or reduce their hours;
2. where appropriate, terminating the contracts of agents and contractors first;
3. where there is no contractual right, asking employees to consent to reduce their hours and/or pay on a temporary basis, or considering ways to unilaterally make such changes;
4. providing employees with alternative duties; or
5. seeing whether any employees want to take unpaid leave or go on a sabbatical.

For employers who have been unable to initiate the above measures or for those who have, but it has not been helpful, the last resort has been to declare employees redundant.

This article provides a useful summary of the key considerations for employers who are contemplating a labour force reduction to manage costs amidst a contracting economy that’s been gutted by COVID-19.

From the onset, it is important to note that the methods and procedure of lawful termination of Employment are outlined in the Employment Act, No. 11 of 2007 (hereinafter referred to as “Employment Act”). This means that termination of employment is a statutory process. The methods and procedure of termination of employment prescribed by the Employment Act supersedes stipulations under any contract of employment except provided otherwise by the Employment Act. Further, it is important to note that at all material times, termination of employment can be initiated either by the employer or the employee.

Whilst there are several ways in which termination of employment can be effected, this article will focus only on termination by redundancy.

Redundancy Process in Kenya

It is lawful and allowed in Kenya for an employer to terminate an employee’s employment on account of redundancy.

Section 2 of the Employment Act provides a statutory definition of the term “redundancy” which means “the loss of employment, occupation, job or career by involuntary means through no fault of an employee, involving termination of employment at the initiative of the employer, where the services of an employee are superfluous and the practices commonly known as ‘abolition of office’, ‘job or occupation’ and ‘loss of employment’”.

Redundancy is provided for under Section 40 of the Employment Act. Where an employer seeks to declare employees redundant, he/she must adhere strictly to the conditions set out under Section 40(1) of the Employment Act. These are:

1. where the employee is a member of a trade union, the employer must notify:
   • the union; and
   • the labour officer in charge of the area where the employee is employed,
2. of the reasons for, and the extent of, the intended redundancy 30 days before the date of the intended date of termination on account of redundancy;
3. where an employee is not a member of a trade union, the employer notifies:
   • the employee personally in writing; and
   • the labour officer;
4. the employer has, in the selection of employees to be declared redundant had due regard to seniority in time (‘Last In, First Out’ – LIFO principle) and to the skill, ability and reliability of each employee of the particular class of employees affected by the redundancy;
5. where there is in existence a collective agreement between an employer and a trade union setting out terminal benefits payable upon redundancy, the employer has not placed the employee at a disadvantage for being or not being a member of the trade union;
6. the employer has where leave is due to an employee who is declared redundant, paid off the accrued leave in cash;
7. the employer has paid an employee declared redundant not less than one month’s notice or one month’s wages in lieu of notice; and
8. the employer has paid to an employee declared redundant severance pay at the rate of not less than fifteen (15) days’ pay for each completed year of service.

In the case of Hesbon Ngaruiya Waigi – v – Equitorial Commercial Bank Limited (2013) eKLR the court referring to conditions outlined under Section 40 held:

“These conditions outlined in the law are mandatory and not left to the choice of the employer. Redundancies affect workers livelihoods and where this must be done by an employer must put into consideration the provisions of the law.”

Where an employer fails, neglects, and/or ignores to strictly follow and/or adhere to the conditions laid down in Section 40 in declaring an employee redundant then such termination of employment will be considered to be unfair termination within the meaning of Section 45 of the Employment Act.

This is buttressed by the case of Francis Maina Kamau – v – Lee Construction (2014) eKLR where the court held that:

“Where an employer declares a redundancy the conditions set out in Section 40 of the Employment Act must be observed and where the employer fails to do so, the termination becomes unfair termination within the meaning of Section 45 of the Employment Act.”

Indeed, in the case of Kenya Airways Limited – v – Aviation & Allied Workers Union Kenya & 3 others [2014] eKLR, the Court of Appeal held that:

“…where there is a redundancy the employer must ensure two fundamental requires of substantive justification for the same and procedural fairness. Section 40(1) of the Act gives the requirements and conditions precedent to a redundancy. The employer must justify the redundancy. Notice of the intended redundancy should be issued to the employees likely to be affected and another notice issued to the labour officer. The notices under section 40(1) of the Act are mandatory. Both the notices themselves and their duration of 30 days under this provision are mandatory. Section 40(1) of our Employment Act does not expressly state the purpose of the notice. Although it also does not expressly provide for consultation between the employer and the employees or their trade unions before the final decision on redundancy is made, on my part I find the requirement of consultation provided for in our law and implicit in the Employment Act itself.”

Consultations should be undertaken and are meant to allow the employer and the employees to discuss and negotiate a way out of the intended redundancy, if possible, or the best way of implementing it if it is unavoidable as stated by the Court of Appeal in the case of Barclays Bank of Kenya Ltd & Another vs GM & 20 others, (Civil Appeal No. 296 of 2016). The consultations must be real and meaningful and not a charade.

In the unfortunate event that there is no solution in sight, meaning that redundancy is inevitable, measures should be taken to ensure that as little hardship as possible is caused to the affected employees. 

Conclusion

Most employers are facing major challenges in balancing the high operating costs, caused by escalating employee cost, among other overheads, which have risen disproportionately when compared to declining revenues.

Despite these unprecedented times, the courts are unlikely to take the view that the COVID-19 pandemic is an excuse to forgo the legal processes when making employees redundant. Employers must strictly comply with the substantive provisions as outlined in the Employment Act before deciding a role will be made redundant.

Update

When an employee is declared redundant, he/she is entitled to the following:

• All leave days not taken should be paid for in lieu of the same;
• One (1) month’s notice or one (1) month’s salary in lieu of notice;
• Severance pay at the rate of not less than 15 days pay for each completed year of service (for instance if you have worked for that employer for 5 years before being declared redundant, you are entitled to 15 days x 5 years =75 days pay);
• where the employee is not a member of a trade union, they should be notified simultaneously with the Labour Officer of the area;
• where the employee is a member of a trade union, the employer should notify the union simultaneously with the Labour Officer noting in the information the reasons for the redundancy; and
• where the union had signed a collective bargaining agreement with the employer, all benefits provided under the agreement should be provided.

If the employer had not been remitting the employee’s pension deductions to the relevant pension fund or NSSF and/or not remitting NHIF contributions, the employee can insist on his/her pension deductions being remitted to the relevant pension fund or NSSF and/or NHIF for the material period. If the employer refuses to do this, the employee is at liberty to sue the employer at the employment and labour relations court for settlement of pension deductions and/or NHIF contributions, plus interest.

It is important that redundancy exercises are properly documented and carried out correctly to avoid lengthy and potentially expensive employment claims down the line. We often advise clients on these processes and can assist with drafting scripts for use at consultation meetings, letters to employees and associated termination documents.

Should you have any questions regarding the redundancy process or any other employment matters, contact Victor of the OT Advocates at vonyango@otadvocates.co.ke