What does the law say?
Redundancy is defined in the Employment Act and the Labour Relations Act, 2007 as:
“… 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 the abolition of office, job or occupation and loss of employment”
Section 40(1) of the Employment Act provides for the procedure of termination on account of redundancy as follows;
- An employer shall not terminate a contract of service on account of redundancy unless the employer complies with the following conditions—
a) 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;
b) where an employee is not a member of a trade union, the employer notifies the employee personally in writing and the labour officer;
c) 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;
d) 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;
e) the employer has where leave is due to an employee who is declared redundant, paid off the leave in cash;
f) 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
g) 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.
In a recent decision in the case of THE GERMAN SCHOOL SOCIETY-VS- HELGA OHANY, NAIROBI CIVIL APPEAL NO. 325 OF 208, the Court of Appeal (CoA) redefined the scope and procedure of termination of employment through redundancy. The decision of the CoA now requires employers to carry out consultations prior to the declaration of redundancy despite the fact that consultations are not an express requirement under Section 40 of the Employment Act, 2007 which deals with termination on account of redundancy. In its decision, the CoA held that a notice of redundancy under Section 40 (1) (a) and/or (b) of the Employment Act, 2007 is not sufficient proof that consultations were done. According to the CoA, a notice to the employee/trade union or labour officer is simply meant to open up the door for a consultation process with the key stakeholders to ensure that substantive fairness is achieved.
The concept of consultations though not expressly provided as a requirement in termination of employment through redundancy, it is well recognized in the International Labour Organization (ILO) Convention No. 158 to which Kenya is a State party. By virtue of Article 2(6) of the Constitution, the ILO Convention forms part of the Laws of Kenya. Further, consultations are now constitutionally entrenched through Article 47 of the Constitution and Section 4(3) of the Fair Administrative Action Act where it is provided that when an administrative action is likely to adversely affect the rights or fundamental freedoms of any person, the administrator shall give notice to the person affected by the decision. Previously, in a different case of KENYA AIRWAYS LIMITED V AVIATION & ALLIED WORKERS UNION KENYA & 3 OTHERS (2014) eKLR, the CoA had held that consultation was implicit in the Employment Act under the principle of fair play but did not specify that it was a mandatory requirement in declaration of redundancy as done in THE GERMAN SCHOOL SOCIETY CASE (Supra).
What then is the Scope of Consultations in Redundancy?
In the KENYA AIRWAYS LIMITED CASE (Supra) the CoA stated that consultations were intended to provide the employer, employee, labor officer, and/ or trade union with an opportunity to put their needs together and consider other avenues to either avert or minimize the adverse effects of terminations. In the case of JANE IKHALACHI-VS- OXFORD UNIVERSITY PRES E.A. LTD, CAUSE NO. 924 OF 2010, the Court recognized the employer’s autonomy to determine the structures of their business and in doing so held as follows:
“employees have the prerogative to determine the structures of their businesses and therefore make positions redundant. Positions and not employees, become redundant. When the position becomes redundant, the employee can be re-deployed, which means the employee is given another job or the employee is retrenched, meaning the employee loses the job altogether…”
To that end, it is an employer’s prerogative to make its employees redundant if there is a justifiable business reason for doing so. Whereas the Employment Act, 2007 does not list specific instances of redundancy, the employer should however ensure that the reason is based on operational business requirements. There is therefore an implied obligation that consultations should not be cosmetic or purely intended to lay off employees. In fact, the CoA quoted with approval the decision in the case of AGNES ONGADI-V- KENYA ELECTRICITY TRANSMISSION COMPANY LIMITED [2016] eKLR where the Employment and Labour Relations Court held that;
“… A redundancy, a restructuring or reorganization commenced with the sole purpose of laying off specific employees is a sham. Such is not justified and cannot be sanctioned by the court,”
Going by the CoA decision in THE GERMAN SCHOOL SOCIETY CASE (Supra), employers have to pay more attention when carrying out termination of employment through redundancy. In a nutshell, termination of employment through redundancy, like any other termination, is subject to the substantive justification envisaged by Sections 43 and 45 of the Employment Act, 2007 which require proof of reason for termination and procedural fairness. In order for termination through redundancy to be fair, it has to be both substantively and procedurally fair. That is; the employer needs to (i) have valid business reasons for declaring redundancy, (ii) follow the procedure outlined under Section 40 of the Employment Act, 2007 and (iii) also consult with the employees and/ or their trade union. The consultations must be purposeful and aimed at finding alternative solutions to avoid redundancy and the employer should only proceed with termination if the employee cannot be redeployed or placed in a different role.
It will be interesting to see the approach and how courts will deal with the incidental disputes that may arise touching on the effectiveness of consultations, especially on whether or not the consultation also implies that an employee or trade union has to agree to such course or action that may be proposed by the employer.
This write-up is for informational purposes only and should not be construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Gregory Makambo, Partner, (gmakambo@makambolaw.com), Yvonne W. Kariuki (ykariuki@makambolaw.com) or your usual contact at our firm, for legal advice.