The emergence of the COVID-19 pandemic has created unprecedented instability in the employment sector with employers currently faced with the difficult balancing act of ensuring business continuity and sustainability while at the same time ensuring the safety and well-being of employees.
Many businesses are undergoing massive financial challenges during this period and are being forced to take drastic measures such as termination of employment by declaring redundancies, in a bid to remain afloat. Declaring redundancy is a drastic and last-line measure, and an employer should consider other measures which might serve to keep the business in operation and keep the staff component intact, before resorting to declaring redundancies. Whichever measure one takes, employers are encouraged to abide by the present legal frameworks governing the employment regime in Kenya which are heavily weighted towards the protection of fair labour practices in accordance with Article 41 of the Constitution.
Below is a discussion on the measures an employer can put in place to mitigate the effects of the COVID-19 pandemic:
a) Annual leave
Section 28 of the Employment Act, 2007 (the Act) provides for paid annual leave for not less than twenty-one (21) working days for every twelve (12) consecutive months of service.
The question that arises is whether an employer can compel an employee to go on annual leave during this period especially for employees who cannot work remotely. This can be effected with the consent of the employee.
b) Unpaid leave
An employment relationship is governed by the general principles of contract law as much as it is regulated by the Constitution and statute. There are no statutory or constitutional provisions on unpaid leave. It is, however, possible to have such provisions included in contracts of employment and/or an employer’s internal policies.
Section 10(5) of the Act requires consultation with the employee before any change or amendment of the terms of employment. These changes must thereafter be captured in writing and the employee notified of the same. Where the contract of employment and/or employer’s internal policies do not provide for unpaid leave, an employer may send an employee on unpaid leave upon consultation with the employee and the employee consenting to the same. This must be made expressly in writing.
c) Sick leave
Section 30 of the Act provides for sick leave of not less than seven (7) days with full pay and thereafter seven (7) days with half pay. The Regulation of Wages (General) Order provides that an employee is entitled to a maximum of thirty (30) days sick leave with full pay and thereafter to a maximum of fifteen (15) days sick leave with half pay in each period on twelve (12) months consecutive service.
The courts have held that employers should apply the provisions in the Order since they are more advantageous to employees than those in the Act.
If employees fall sick during this period, they are entitled to sick leave in line with the foregoing provisions or any internal policies the employer might have and that may have more advantageous terms on sick leave.
d) Reduction in working hours
As a mechanism to deal with lower demand in production during this period, an employer may consider a reduction in working hours for employees. This will require employees to only work for specified shorter periods with duties spread out across the workforce as a sustainability measure. Like any other alteration to the employment contract, the same should be done in consultation with and written consent by the employee.
Furthermore, on 25th March 2020, the President through a presidential address on state interventions to cushion Kenyans against economic effects of COVID-19 issued a directive on the coming into force of a daily curfew from 7 p.m. to 5 a.m. from 27th March 2020. The directive exempted those offering specified essential services, and the same was formally gazetted through Legal Notice No. 36 issued under the Public Order Act (Cap 56).
Following skirmishes which broke out between law enforcement officers and members of the public on the first few days of the curfew, it was further directed that employers should release their employees from work earlier than usual, so that those who use public transport are able to beat rush-hour traffic and get home in good time.
Therefore, employers might be forced to adjust the working hours and have more flexible working arrangements for their employees who do not offer essential services to ensure that they are in a position to adhere to the curfew.
Any measures to facilitate the above must be in consultation with the employee.
e) Reduction in remuneration
Across both the public and private sector various organisations are using pay-cuts as an alternative to declaring redundancies. Some of the pay-cuts are voluntary and others have been proposals at various rates through certain levels or grades of employment. As with any other change in the terms of employment, a reduction in remuneration can only be done upon consultation with an employee and obtaining his or her consent on the same. Again, this must be done in writing.
If parties consult and agree to salary cuts or unpaid leave, the employee will not be able to recover such underpaid on unpaid salaries when normal business operations resume, unless it is a specific term in the agreement.
f) Working from home
Employers can have their employees working from home or working remotely if it is possible, except where those employees are working in critical and essential services. Employees who cannot work remotely can take annual leave during this period. However, the consent of the employees should be sought.
g) Working in shifts
Employers can employ a shift system to reduce the number of employees who are in the workplace at any given time. With a reduced number of staff present in the office during any given shift, this will also go towards ensuring compliance with the directives on social distancing in the workplace.
Some employers may be forced to declare some employees redundant if circumstances become unsustainably dire. In such eventuality, employers will be required to strictly adhere to the provisions of redundancy under the Act, which include issuing a mandatory notice of intention to terminate employment on account of redundancy and consultation with the employees before ultimately terminating employment. Both these mandatory processes take no less than one (1) month and in certain cases may take up to three (3) months based on terms of employment and Collective Bargaining Agreement (if any). More importantly, under the Act, it is clear that employees have to be paid all dues owing to them before the redundancy can be deemed to have taken effect, thus serious financial consideration must be taken before taking this route. This might prove difficult to employers due to the prevailing financial times.
The COVID-19 pandemic has significantly affected business operations across the world resulting in cases where an employer is unable to meet its financial obligations to its employees and therefore gets into an insolvency situation. The options available in such circumstances are provided for in the Act and the Insolvency Act No. 18 of 2015 (the Insolvency Act).
The Act provides under sections 43 and 45 that for termination of an employment relationship to be fair and lawful the employer must prove that the reasons for the same are fair and valid. The current slumped business environment would constitute valid and fair reasons for termination of an employment relationship if the employer is able to show that it is unable to meet its financial obligations as a result of the COVID-19 pandemic.
Section 66 of the Act provides that where an employee or his representative makes an application to the Minister in writing and the Minister is satisfied among other reasons that the employer is insolvent, then the Minister shall, subject to the provisions of section 69 of the Act, pay the employee out of the National Social Security Fund the amount which in the opinion of the Minister the employee is entitled to in respect to the debt.
Section 68 of the Act then sets out the debts which apply when an employer is insolvent, and these include:
Section 69 of the Act to which section 66 is subject to limits the total amount payable to an employee in respect of any debt in case of insolvency to KES. 10,000 or one half of the monthly remuneration whichever is greater in respect of any one month payable.
The Insolvency Act caters to payment of wages by the employer in an insolvency situation. The Second Schedule of the Insolvency Act sets out the order of priority of debts where the secured creditors get first priority and dues payable to employees are second priority claims as set out at paragraph 2 thereof “all wages or salaries payable to employees in respect of services provided to the bankrupt or company during the four months before the commencement of the bankruptcy or liquidation” to the extent that they remain unpaid.
Paragraph 3 (2) of the Second Schedule to the Insolvency Act then limits the amount payable to any one employee to not more than KES 200,000 as at the commencement of the bankruptcy or liquidation, as the case may be.
Therefore, employees claiming unpaid benefits will be ranked as second priority claims if the claim is merited and accrues before or because of the commencement of the insolvency proceedings and any payments made to the employees by the employer are limited to four (4) months before the commencement of the insolvency proceedings and further limited to not more than KES 200,000 in relation to an amount payable to any one (1) employee.
j) Compliance with directives by Government
On 14th March 2020, the Ministry of Labour through the Directorate of Occupational Safety and Health Services issued an advisory following the COVID-19 outbreak. The directive states that employers should formulate policies on infection control plans that should guide the organization. The directive outlines that such a policy should include:
From the above, it is clear that more obligations are placed on employers in the health sector as they are expected to provide their employees with effective personal protective equipment, the maintenance of the protective gear and training of the employees. However, it is key that every employer takes the necessary step of coming up with a relevant policy as outlined above and they may consult the Directorate of Occupational, Safety and Health Services on the same.
The Ministry of Health has been at the forefront in issuing directives that apply to all citizens within the country. The directives are not specifically directed to employers or employees however they are complementary of the directives issued by the Ministry of Labour and Social Protection. Therefore, employers have an obligation to ensure that they are up to date with the directives and the same is implemented in the workplace.
Working together during the storm
Employers are encouraged to work towards remaining in operation during these uncertain times, to the extent possible. This may be achieved through co-operation with government guidelines aimed at reducing the spread of COVID-19 and in consultation and consent with employees on workable amendments to the terms and conditions of employment. Together, the storm can be weathered.
This alert is for informational purposes only and should not be taken as or construed to be legal advice. If you have any queries or need clarifications, please do not hesitate to contact Chacha Odera, Managing Partner, Georgina Ogalo-Omondi, Partner, Sandra Kavagi, Associate, Anne Kadima, Associate, Rosemary Sossion, Associate, or your usual contact at our firm for legal advice relating to the COVID-19 pandemic and how the same might affect you.
There has been a rise in mergers and acquisitions transactions (M&A Transactions) in Kenya even as business entities grapple with tough economic times and the ability to stay afl oat in the evolving business market. Th e recent acquisition of National Bank of Kenya Limited by KCB Bank PLC, the merger of NIC Group PLC and Commercial Bank of Africa Limited, the acquisition of Quick Mart and Tumaini Self Service Supermarkets by Sokoni Retail Kenya to form a single retail operation and the proposed acquisition of one hundred percent (100%) of the issued share capital of De La Rue Kenya Limited (a subsidiary of De La Rue PLC) by American firm HID Corporation Limited are some of the notable M&A Transactions that have taken place in Kenya in 2019. All these recent M&A Transactions have brought to the fore, among other issues, the fate of employees in the merging entities. In most instances, a high number of employees are declared redundant and thereaft er, have to wait for fresh advertisements of positions by the merged or acquiring entity and apply to be recruited.
Employment and labour law considerations feature highly during M&A Transactions. More often than not, such transactions lead to loss of employment due to the restructuring of the target company, or the change in character and identity of the transferring entity. Unlike other contracts involving assets and liabilities of the transferor, contracts of employment are currently not assignable to the acquiring entity under Kenyan law.
Other than setting out the basic conditions of employment and addressing the legal requirements for engagement and termination of employees, both the Employment Act, 2007 and the Labor Relations Act, 2007 are silent on the effect of M&A Transactions on employees. In practice, the contracts of employment are terminated on account of redundancy subject to compliance with the conditions as set out under section 40 of the Employment Act.
In some instances, the Competition Authority of Kenya (the Authority) established under the Competition Act, 2010 undertakes a public interest assessment to ascertain the extent to which the M&A Transaction will cause a substantial loss of employment and impose conditions to mitigate such as has been in case of the acquisition of National Bank of Kenya Limited by KCB Bank PLC where the Authority approved the merger on condition that KCB Bank PLC retains ninety percent (90%) of the employees from National Bank of Kenya Limited for a period of at least eighteen (18) months. This was also seen in the merger between NIC Group PLC and Commercial Bank of Africa Limited where the Authority approved the merger on condition that both entities retain all the employees for a period of at least one (1) year.
The Kenya Law Reform Commission, a statutory body established under the Kenya Law Reform Commission Act, 2013 with the mandate to review all the laws of Kenya to ensure that they are modernised, relevant and harmonised with the Constitution of Kenya, 2010, recently prepared a draft Employment (Amendment) Bill, 2019 (the Bill) which amongst other provisions, proposes to amend the principal Act (being the Employment Act, 2007) by introducing a new section 15A which provides for the transfer of employees during M&A Transactions.
The proposed section 15A provides that such transfer of employees shall not operate to terminate or alter the terms and conditions of service as stipulated in the original contracts of the employees. It also creates an obligation on the transferor to notify and consult with the affected employees or their representatives regarding the anticipated transfer, the implications of such transfer and the measures that the transferor envisages will be taken to mitigate such implications. Further, the Bill provides that any dismissal taking place prior or subsequent to the transfer shall amount to summary dismissal if such dismissal is premised on the transfer.
Essentially, the Bill seeks to eliminate the difficulties occasioned during M&A Transactions by ensuring that the employees are not left out in the cold when their employer is bought out. It also creates an obligation for the transferor to inform and consult with the employees who shall be affected in an M&A Transaction. This has been the practice in other jurisdictions such as the United Kingdom and even closer home, in neighbouring Uganda.
The Bill borrows heavily from the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE Regulations) as amended by the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 applicable in England and Wales. TUPE Regulations are aimed at protecting the rights of employees in M&A Transactions in England and Wales by imposing obligations on employers to inform and, in other cases, consult with representatives of affected employees. Failure to comply with these obligations attracts penalties and sanctions to the employer.
While the proposed law could be seen as a relief for employees who are mostly losers in M&A Transactions, it brings with it several challenges and may potentially make M&A Transactions even more complex and strenuous, particularly on the part of the transferee.
Firstly, all the transferor’s rights, powers, duties and liabilities in connection with any employment contract shall be transferred to the transferee. Further, the transferee shall be liable for all the employees’ dues dating back to the commencement of the employment contract. This also means that the transferee shall shoulder all the liabilities that arose from the transferor’s engagements with its employees, including but not limited to cases initiated by and against the transferor.
Secondly, the proposed amendment as currently drafted may subject the parties in M&A Transactions to unnecessary costs and restrictions. It may not be practical to place the transferee under an obligation to automatically retain all the employees of the transferor without any loss of benefits or contractual dues. Such a provision shall defeat the purpose of M&A Transactions, as most of them are geared towards restructuring the business for purposes of reducing operational costs.
With respect to the dismissal of employees immediately prior or subsequent to an M&A Transaction, the proposed amendment as currently framed might open a pandora’s box as it may operate as a blanket protection to all employees including those whose contracts may be terminated for valid reasons during the transition period. The proposed amendment as drafted protects employees against redundancy processes while creating a higher standard of proof against the transacting parties with regards to any termination disputes arising in the course of an M&A Transaction.
Further, the proposed amendment fails to appreciate the contractual rights and obligations of parties with respect to employment and M&A Transactions. There should be provision to allow the transferee to freely negotiate alternative arrangements and contractual obligations with the transferor’s employees and maybe set the standards that should guide this process. By doing so, the parties would have a better chance to make agreements that are favourable to all.
While the issue of how to deal with employees and employment contracts remains a challenge in M&A Transactions in Kenya, the proposed amendments to the Employment Act will no doubt come as a sigh of relief for many employees who have long viewed themselves as collateral damage in M&A Transactions. However, the proposed amendment is likely to increase the cost of undertaking M&A Transactions in Kenya which may well end up being counterproductive as regards the rationale for which the M&A Transaction was carried out in the first place.
Sandra has advised an academic institution in formulating Collective Bargaining Agreements. She also successfully defended a company in an employment claim filed by casuals who wanted to be accorded similar employment terms as permanent staff.
Sandra holds a Bachelor of Laws (LLB) from Moi University and a post-graduate diploma in Law from the Kenya School of Law
Anne was part of a team representing a leading commercial bank against three separate class action claims in the Employment and Labour Relations Court, for the recalculation of terminal benefits arising from voluntary early retirement taken by the claimants.
Anne is currently pursuing a Master of Laws (LLM) in International Trade and Investment Law from the University of Nairobi. She holds a Bachelor of Laws (LLB) from Moi University and a post-graduate diploma in Law from the Kenya School of Law.
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