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Covid-19 pandemic : Contractual and labour laws (part 3 of 3)

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This is the 3 part of a 3 article series on impact of Covid-19 pandemic: Contractual and labour laws

Compulsory and Unpaid Leave

During the subsistence of COVID-19 , it may be necessary for employers to require employees to take compulsory paid leave or even unpaid leave. Where it is completely impossible to have employees attend their workplaces or telecommute, employers may consider placing employees on compulsory leave for an indefinite period of time until the end of the Pandemic and resumption to normalcy. In such a case, employees are entitled to their full salaries during that period. On the other hand, an employer may require employees to take unpaid leave, nevertheless, such decisions can only be valid if consent is freely obtained from the employees this is generally addressed in Covid-19 pandemic: Contractual and labour laws. It is always crucial to advise employees the fact that if such consent is given, there is a high chance of job losses due to diminished revenues.

Redundancy

Ordinarily, employers should initially consider salary reductions, compulsory leave and unpaid leave as discussed above. Nevertheless, there could be dire situations forcing them to make difficult decisions and lay off employees. In the event of such cases, employers are obligated to fully comply with the redundancy provisions of the Employment Act 2007. Redundancy occurs when an employer reduces the workforce because certain positions are no longer required. Section 2 of the Employment Act 2007 defines redundancy as the loss of employment, occupation, job or career by involuntary means through no fault of the 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 covered in the legal implications of Covid-19 pandemic: Contractual and labour laws.

Based on the above, redundancy only becomes such when a particular position of employment disappears. Where an employee is declared redundant, terminated and his position is filled by another then such a situation amounts to unfair dismissal. Redundancy may arise under the following circumstances:

  • Where an organization closes down its operations but this not need be a permanent closure: it can include the closure of work branches. Under such circumstances, employees are entitled to pay unless their contract expressly or impliedly permits the employer to move them or transfer them elsewhere. If an employee declines to be transferred, the employer is at liberty to dismiss such employee.
  • Where the employer is downsizing: this is where the employer does not require the services of an employee entirely or a particular branch.
  • Where the employer is reorganizing the business to have fewer employees that is a total change in the job duties of an employee such that a new job is created and the old one disappears.

Employees who are dismissed on account of redundancy have a right to receive payment from their employers. Section 40 of the Employment Act, 2007 stipulates the procedure on redundancy. First, an employer is not allowed to terminate a contract of service of a unionized employee on account of redundancy unless the employer has notified the trade union to which the employee is a member. This notice is followed by another notice to the labour officer in charge of the area where the employee is based. The notices must state the reasons for and extent of the intended redundancy.

All the notices to be issued as discussed above, must be given not less than a month prior to the date of the intended termination on account of redundancy. In addition, where an employee is not a member of a trade union, the employer must notify the worker in writing and the labor office.

The employer is also obligated to consider seniority, skill, ability and reliability of each employee in redundancy decisions. Upon termination on account of redundancy, the employee affected is entitled to a payoff of pending leave in cash, one months’ salary in lieu of notice and severance pay corresponding with Covid-19 pandemic: Contractual and labour laws. Severance pay is calculated at the rate of not less than 15 days pay for each completed year of service with the same employer. The net effect is that severance pay is calculated by multiplying 15 days’ salary by the number of years that an employee has rendered services to an employer. Finally, for a termination on account of redundancy to be fair or lawful, the employer must not flout all procedural requirements under section 40 of the Employment Act, 2007 unless both parties have entered into an agreement to the contrary with terms greater than the minimum statutory requirements which may be enshrined in a contract of employment or set out in a Collective Bargaining Agreement for unionized employees.

The Economy

There is no doubt that the COVID-19 Pandemic has already significantly affected the economy. Based on reports by economic experts, the Kenyan economy may be subject to redundancies, profit warnings by companies, an increase in insolvency cases as well as auctions and a strain in the banking and finance sector.

Trade resulting from imports and exports trade will be affected. China, which is one of the largest manufactures closed down various industries. As a result, trade supplies which primarily originate from China have been dwindling. In the coming months, exports from China will be expensive due to the economics of demand and supply. Currently, imports from China to Kenya over the past two months have tremendously declined by approximately US$579 million.

Conclusion

In conclusion, we reckon that a proper analysis of risk mitigation strategies of the impact of COVID-19 on the contractual obligations of parties requires a case-by-case/contract-by-contract analysis and urge business entities to conduct a full review of their contracts to assess their risk exposure and instruct their legal teams to devise a mitigation strategy that would be implemented until the pandemic is contained. In the meantime, we also implore companies to comply with labor laws procedure in laying off any of their staff. Such action ought only to be taken if necessary and should not be discriminatory and deliberately targeted at a certain class of workers. We anticipate that there may be a myriad of employment claims once this crisis is over hence employers are urged not to take drastic actions without seeking legal counsel.

In case of any clarifications, please feel free to contact the undersigned for further clarifications. We remain committed to providing you with responsive and unparalleled legal solutions to tackle challenges affecting your business. Meanwhile, we remain optimistic that COVID-19 will finally be contained and eradicated to enable the resumption of normal operations.

Read part one and part two .

Jasper Lubeto
Partner, TLO Law Advocates Associates
Email: lubeto(at)tlolaw.co.ke

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