REDUNDANCY
Redundancy occurs when an employee is terminated because his job/service is no longer required by the employer. In a redundancy, there is no fault on the part of either the employee or the employer. Redundancy may be caused by factors such as economic conditions, business efficiency or technological development.
Redundancy may occur under various circumstances including and not limited to:
- Closure of a plant, factory, or other workplace, with the total or near-total loss of jobs,
- Job losses arising from a reduction in staffing requirements due to efficiency gains or falling demand for the company’s products or services, and
- Job losses arising from a downsizing in operations or restructuring of the workforce following, for example, privatisation or merging causes.
Redundancy results in severance of the legal relationship of a worker and employer as it existed immediately before the circumstances that brought about the loss of job.
Below is the processes and procedure to the followed in terminating the employment contract because of redundancy.
Termination of Employees on account of Redundancy
For the termination of employment on account of redundancy to be valid and fair, the redundancy process must be carried out in accordance with the employment laws to avoid any claims for compensation from employees for unfair termination that may arise in future.
Legal Provisions on Redundancy
- The Constitution of Kenya, 2010
Article 41(1) of the Constitution of Kenya 2010, provides that every person has the right to fair labour practices. This right exists even at the point of termination of an employee by requiring that an employee is given the reasons for the termination and accorded a fair hearing before termination.
- The Employment Act 2007
The Employment Act, 2007 (the “Act”) is the primary legislation dealing with employment matters in Kenya. The Act declares and defines the fundamental rights of employees and provide basic conditions of employment of employees.
Section 2 of the Act defines Redundancy to mean “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 has also been referred to as “retrenchment”, “lay-off, “staff downsizing”, and “staff rationalization” among others. The terms are used interchangeably.
The procedure for termination of employment on account of redundancy is set out in section 40 of the Act. The section provides as follows;
An employer shall not terminate a contract of service on account of redundancy unless the employer complies with the following conditions: –
- where the employee is a member of a trade union, the employer notifies the union to which the employee is a member and the labour officer in charge of the area where the employee is employed of the reasons for, and the extent of, the intended redundancy not less than a month prior to the date of the intended date of termination on account of redundancy;
- where an employee is not a member of a trade union, the employer notifies the employee personally in writing and the labour officer;
- the employer has, in the selection of employees to be declared redundant had due regard to seniority in time and to the skill, ability and reliability of each employee of the particular class of employees affected by the redundancy;
- 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;
- the employer has where leave is due to an employee who is declared redundant, paid off the leave in cash;
- 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
- the employer has paid to an employee declared redundant severance pay at the rate of not less than fifteen days’ pay for each completed year of service.”
The procedure set out in section 40 of the Act are mandatory and must be strictly followed for the redundancy to be valid.
The court held in the case of Hesbon Ngaruiya Waigi Vs Equatorial Commercial Bank Limited (2013) eKLR that:
“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.”
In the case of Francis Maina Kamau Vs Lee Construction (2014) eKLR, the court emphasised the importance of observing the conditions on the Act in declaring an employee redundant. 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.”
A summary of the steps to be followed on termination of employee’s contract on account of redundancy under Section 40 of the Employment Act are set out below as follows:
Step 1: Notice of Intended Redundancy
The employer must give notice of the intended retrenchment programme. The notice should be for not less than 30 days prior to the date of the intended date of termination on account of redundancy. Where the employment contract or Collective Bargaining Agreement (CBA) provide for a longer period than 30 days, then the notice must comply with the longer period.
Where the employee is a member of a trade union, the notice should be given to the trade union to which the employee is a member and to the labour officer in charge of the area where the employee is employed.
Where the employee is not a member of a trade union, the notice should be given to the employee personally in writing and also to the labour officer;
The notice must state the reasons for, and the extent of, the intended redundancy.
The employer is required to have consultation with the employee or their trade union with an aim of finding a way out of the intended redundancy or the best way of implementing it, if it is inevitable. Such consultations must be genuine rather than merely going through the motions to comply with the law.
In the case of Kenya Airways Limited Vs Aviation Allied Workers Union Kenya & 3 Others [2014] eKLR (Civil Appeal No. 46 of 2013), the court stated that the purpose of the notice under section 40(1)(a) and (b) of the Employment Act is to elicit consultation the between the parties. Consultation gives the parties an opportunity to consider “measures to be taken to avert or to minimize the terminations and measures to mitigate the adverse effects of any terminations on the workers concerned such as finding alternative employment”.
This is in line with Article 13 of Recommendation No. 166 of the International Labour Organisation (ILO), Convention No. 158-Termination of Employment Convention, 1982 which requires consultation between the employers and the employees or their representatives before termination of employment under redundancy. Article 41(1) of the Kenyan Constitution also guarantees the employee’s right to fair labour relations including the right to be notified of the intended redundancy and the reasons thereof and an opportunity to consult on the redundancy.
Step 2: Criteria for Selection of Employee for Termination
In selection of the employees to be declared redundant, the employer must have due regard to the seniority in time, skill, ability and reliability of each employee in the group of employees affected by the retrenchment.
The selection criteria for identifying the employees to be retrenched must be objective and must not be based on discriminatory or subjective factors as such as membership to trade union, race, age, and gender among others. The selection criteria should be precise and documented and the employee scored on the basis of their seniority, skill, ability and reliability. The criteria listed in the Employment Act are not the only factors that an employer can consider. Any other objective criteria may be considered.
In the case of Kenya Plantation and Agricultural Workers’ Union Vs Harvest Limited [2014] eKLR, the court stated on the issue of the criteria for selection of employees to be declared redundant, that “the idea of last in first out satisfies the seniority criterion. As far as skill, ability and reliability are concerned, it is the opinion of the court that the employer must have, prior to the redundancy exercise, instituted objective qualifications for skill, ability and reliability attached to the office held by the workers against which the skills, ability and reliability possessed by the individual workers targeted in the redundancy will be scored or measured against. The employer, in the court’s opinion, must demonstrate the objective score sheet and the ranking of the targeted employees against that score sheet with respect to the selection factors set out in section 40(1) (c) of the Act failing which, it is difficult to establish compliance with the section. The court also holds that the selection parameters in section 40(1) (c) are not in alternative so that in a redundancy process, the employer must establish that all the parameters have been taken into account and in an objective manner. It is the opinion of the court that the employer enjoys the discretion to place given weights on each of the parameters but none can be applied in exclusion of the others.
The employer should not place the employee at a disadvantage for being or not being a member of the trade union. Where there is a CBA setting out the terminal benefits payable on redundancy, the benefits should apply equally to all employees.
Step 3: Payment of Dues
An employee who is declared redundant is entitled to payment as follows;
- Salary up to the date of termination on account of redundancy;
- Accrued leave days paid off in cash;
- One month’s notice or one month’s wages in lieu of notice; and
- Severance pay at the rate of not less than fifteen days’ pay for each completed year of service.
Where there exists a CBA between the employer and the trade union with better terms than those provided in the Act, the employee shall be entitled to be paid the higher rates in the CBA.
The employer must demonstrate that he has complied with the conditions of section 40 of the Act and the burden of proving that the procedure for declaring an employee redundant as set out in section 40 of the Act has been complied with is on the employer.