Best Practice in Redundancy Situations

1.0     When do redundancy situations arise?

Redundancy situations arise where an employer’s need for functions performed by employees either cease or diminish or are expected to cease or diminish. Such situations may arise when a business:

  1. mechanises or introduces new technology that makes the employee’s job obsolete;
  2. slows down due to reduced demand;  
  3. closes down for whatever reason, say for instance due to insolvency or bankruptcy;
  4. relocates its operations to a different location, say overseas; or
  5. restructures or reorganises because of a merger or an acquisition.

When such scenarios arise, an employer has two options: to re-deploy the employee(s) to other positions within the organisation; or, where re-deployment is not possible, to retrench the employee(s).     

Redeployment means giving the employee(s) another job within the business or with an associated entity. Retrenchment means terminating the employee’s contract of employment.

2.0     What is a fair / valid redundancy?

For termination on account of redundancy to be considered legally valid it must be substantively as well as procedurally fair.

Substantive fairness refers to the reason for termination. The termination would be substantively fair if the employer is able to show that the functions performed by the employee were genuinely no longer required by the employer.

Procedural fairness refers to the process leading to the termination. A termination on account of redundancy would be considered procedurally fair if the processes set out in Section 40 of the Employment Act are followed before the termination.

These processes were extensively discussed by the Court of Appeal in Kenya Airways Limited v Aviation & Allied Workers Union Kenya & 3 others [2014] eKLR and are the following:

  1. Notification of a Probable Redundancy

Employers should first issue the employees whose contracts are likely to be affected at least one month’s written notification of probable redundancy, with a copy to the County Labour Office.

This notification is not the same thing as a notice of termination as it is intended to serve different purposes, including:

  1. to inform the employees and the Labour Office of the possible redundancy, the factors causing it, and the time period after which a declaration of redundancy could be made; 
  2. to initiate consultations between the employer, the employees and the Labour Office regarding the possible redundancy;
  3. to enable employees to inform themselves of the situation and to consider their options.

    1. Discussions / Consultations

    The discussions ushered in by the notification are meant to enable the employer, the employee and the Labour Office to consider whether retrenchment could be avoided or to discuss measures which could be taken to mitigate the adverse effects of a retrenchment.

    During the discussions the employer should provide the employee and the Labour Office with sufficient information on the reason(s) why redundancies are imminent. Consultations should then be held on whether retrenchments can be avoided, or its effects mitigated. The employer should consider the employees’ and the Labour Office’s views before deciding to declare the positions redundant and retrenching employees.

    These discussions should be held within the one-month notification period. Minutes of the discussions should be taken and signed by the participants.

    1. Declaration of Redundancy and Termination of Employment

    If after the one-month consultation period the employer considers retrenchment of the employee(s) as unavoidable, the employer should issue the employees with a written declaration of redundancy and notices of termination of employment on account of redundancy.

    The written communication should specify whether the employee would be allowed to serve the notice period set out in their contract of employment or whether their employment would terminate forthwith. This Notice should be issued after the one-month consultation period lapses.

    1. Payment of Terminal Benefits

    On the last day of the employees’ employment the employer should pay the employee all terminal benefits due to the employee. These may include the following where applicable:

    1. leave pay for leave days earned but not taken;
    2. any salaries / overtime pay for the period worked;
    3. any allowances due;
    4. severance pay;
    5. reimbursements due to the employee for expenses incurred by the employee in the course of employment; and
    6. payment in lieu of notice if the employment is terminated without notice.

    The employer should also issue the employee a Certificate of Service.

    Please note that there may be scenarios in which certain employees are not eligible for severance pay or some of the benefits listed above. A redundancy that does not follow the law is deemed to be an unlawful termination. It is therefore important that legal advice is sought to guide on the redundancy process.

    Disclaimer: The information contained in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. While the information is accurate as at date hereof, there can be no guarantee that the information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.