Redundancy process: Getting it right

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Running a business is no easy task, running it profitably is even more difficult. Since the advent of liberalization in 2003, redundancy has become progressively more common in Kenya. Rapidly shifting markets driven mainly but not exclusively by technological innovation; uncertain economic times including cyclical downturns which in this age of globalization has world-wide effects, like the 2007-2008 economic melt-down; increased demand by shareholders for better  performance etc, make existing business models superfluous pretty quickly. An inevitable consequence of adjusting the business model every so often is a reduction on head-count as positions or on occasion departments that were once crucial require elimination. However, this must be done within the framework of existing laws.

Redundancy is defined under Section 2 of the Employment Act, 2007 as the loss of employment, occupation, job or career by involuntary means through no fault of an employee. It involves termination of employment at the initiative of the employer, where the services of an employee are superfluous. Redundancy may arise under various circumstances including but not limited to the practices commonly known as abolition of office, job or occupation and loss of employment. Examples of these circumstances are:

  1. the employer has ceased, or intends to cease continuing business;
  2. the requirement for employees to perform work of a specific type or to conduct it at the location in which they are employed has ceased or diminished; or
  3. re-organization of the workforce resulting in is less work and changes in conditions that result in the new job being quite different from the old

If the intended action of termination of employment arises from the above definition or examples of circumstances leading thereto, Section 40(1) of the Employment Act provides for the substantive and procedural legal requirements to be met by the employer to effect a termination of employment 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:-

  1. 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;
  2. where an employee is not a member of a trade union, the employer notifies the employee personally in writing and the labour officer;
  3. 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;
  4. 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;
  5. the employer has where leave is due to an employee who is declared redundant, paid off the leave in cash;
  6. 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
  7. 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 summary Section 40 (1) of the Employment Act prohibits an employer from terminating the services of an employee on account of redundancy unless the employee’s union is notified or in the case where the employee is not a member of a union then the employee is notified personally in writing and the local labour officer is also informed in both cases. The employer is also expected to consider seniority, skill, ability and reliability of each employee; pay off pending leave in cash, pay one months’ wages in lieu of notice and severance pay. For a termination on account of redundancy to be fair and lawful, an  employer must  adhere to  the requirements set out in Section 40(1) of the Employment Act, 2007, unless the parties have entered into an agreement to the contrary with terms greater than the minimum statutory requirements which may be through a contract of employment or Collective Bargaining Agreement (CBA).

Over the past couple of years there has been an increase in claims filed in the Employment and Labour Relations Court against termination on account of redundancy. One of the most notable of these claims was Industrial Cause No. 1661 of 2013 Aviation Allied Workers Union Kenya & 3 others v Kenya Airways Limited, wherein over 400 employees of the airline were rendered redundant following a restructuring exercise. The Union filed a claim seeking a declaration of unfair termination on account of redundancy claiming proper procedure was not followed in accordance with Section 40 of the Employment Act,  an  order  for  reinstatement  of the affected employees and in the alternative payment for pecuniary loss and maximum compensation of twelve (12) months for loss of employment. The trial court found in favour of the Union on grounds that the Respondent did not have valid reasons for the terminations as all the airline was facing was a cyclical crisis which did not affect its bottom line. The trial Court also found that procedure employed by the airline was flawed as there was no meaningful consultation and the process for selection of the affected employees was flawed reeking of pre-selection and bad faith. It ordered immediate reinstatement of employees and payment of salaries for the period that the employees were out of employment.

The airline which was represented by the firm of Oraro & Company Advocates both before the  Employment  and Labour Relations Court and the Court of Appeal successfully appealed – Civil Appeal No. 46 of 2013 Kenya Airways v Aviation Allied Workers Union Kenya & 3 others. There were three  separate judgments  basically upholding  the position of Kenya Airways in all matters except one in which two judges found the process fell short, that being the selection criteria. Thus while the judgment in the Industrial court was in most reversed, by a majority of two to one, the employees were awarded damages for a limited period rather than reinstatement. From this decision for any termination of employment under redundancy to be lawful, it must be both substantially justified and procedurally fair:

  1. To establish substantive justification the appellate court looked at the definition of  redundancy  under  Section  2 of  the Employment  The  employer  must prove  that the loss of employment in redundancy cases has to be by involuntary means and at the initiative of the employer, brought about by operational  requirements  of  the employer e.g. reduction of head count so as to respond to adverse market condition or improve efficiency. While the  Court should be eternally vigilant to ensure that the reasons given are not pre-textual, it is not for the Court to substitute its judgment for that of the employer. The Court found that Industrial Court had overstepped its limited role of review when it essentially trashed the reasons given by Kenya Airways and held that the Company facing a cyclical downturn which could address by being run more efficiently rather than laying off its staff.
  2. Procedural fairness is comprised two aspects:
    1. Firstly, the employer must strictly comply with the provisions of Section 40 (1) of the Employment Act for termination on account of redundancy to be lawful, which consist of issuance of notices in the prescribed manner and statutory period as detailed above, (unless the CBA or contract of employment stipulates a longer period). The purpose of the provision requiring notice to be given is to elicit consultation between the Kenya is a state party to the International Labour Organization (ILO) and is bound by the ILO conventions. Article 13 of Recommendation No. 166 of the ILO Convention No.158- Termination of Employment Convention, 1982 which requires consultation between the employers on the one hand and the employees or their representatives on the other before termination of employment under redundancy. The requirement of consultation is implicit in the principle of fair play under Section 40 (1) of the Employment Act. The purpose of the notice under Section 40 (1) (a) and (b) of the Employment Act is to give 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”. Such consultations must be genuine rather than pre-textual- going through the motions merely to comply with the law
    2. Selection Criteria- The employer must develop and apply an objective process for identifying the employees who will be affected by the redundancy. This must, of necessity be related to the reasons of the redundancy. Selection must be not the basis of such invidious factors such as participation in protected union activities or race, gender etc

We are yet to see the effect of the decision of the Court of Appeal being adopted by the Employment and Labour Relations Court in similar matters. While this is based on casual empiricism, there seems to be some resistance to the lessons of the case. In the meantime, employers contemplating redundancy are well advised to ensure that every substantive and procedure ‘Ts’ and ‘Is’ are crossed and dotted.