On 20 January 2023, the Employment and Labour Relations Court (ELRC) in Eldoret delivered its judgment in a long-running employment dispute in Lebo and 331 Others v Kenya Power & Lighting Co Ltd (Cause 17 of 2019) . In his opening words, Hon. Justice Aboudha stated, “This matter has a long and chequered history having been filed for the first time as HCCC No. 74 of 2003 long before the present court came into existence.”
After 20 years, the ELRC found in favour of the Kenya Power & Lighting Company Ltd (KPLC), the employer and respondent in the suit. The court dismissed the claimants’ suit stating that it was entirely without merit. The court held that the respondent’s reasons for declaring the claimants redundant were valid and justified. It further found that the respondent had adhered to the law applicable at the time concerning the redundancy process. This judgment adds to the growing jurisprudence that confirms that the courts are unlikely to interfere with a redundancy exercise where it is demonstrated that the reasons for it are valid and justifiable and that the procedure as set out in the law has been followed.
This alert will identify the fundamental elements of redundancy highlighted in the case and what an employer must keep in mind when carrying out a redundancy exercise.
Overview of the case
Between 1998 and 2003, KPLC faced several challenges. Most notable was a prolonged drought that had devastated the country and significantly affected KPLC’s power generation capabilities. This ultimately adversely affected its business operations. To sustain its operations, the respondent required restructuring and implementation of cost-cutting measures to reduce its running costs.
Redundancy was one of the recommendations made to the respondent to help it rescue its operations. Consequently, the claimants’ employment contracts were terminated between 30 June 2001 and 19 March 2002 under the respondent’s staff reduction programme. The claimants thereafter filed their suit against the respondent in 2003.
The court identified two main issues that required determination: whether the respondent had justifiable reasons for the redundancy and whether it had followed the applicable law at the time.
Fundamental elements of redundancy
For a redundancy exercise to be considered lawful, an employer must demonstrate that there are valid and justifiable reasons for the redundancy and that the procedure provided in the Employment Act of 2007 (Employment Act) has been followed.
Valid and justifiable reason
In this particular case, the respondent’s reason for declaring a redundancy was that its business had been adversely affected by a prolonged drought which had significantly affected its power generation capabilities and necessitated the cutting of costs. In confirming that this was a valid and justifiable reason for the redundancy, the court held that:
“Declaration of redundancy is a managerial prerogative driven by business operations and market dynamics. This being a strategic business decision, the court is reluctant to interfere unless it is sufficiently demonstrated that there was no valid and or justifiable reason for the redundancy, which is not the case here.” (Emphasis ours)
Consequently, the court was persuaded that the effects of the prolonged drought constituted valid reasons for the respondent’s declaration of redundancy.
In addition to economic hardships, other valid and justifiable reasons for redundancy may include, but are not limited to: organisational restructuring which could be the result of a merger or acquisition, and which may result in the abolition of some positions in the new business structure; automation and incorporation of technology which may make some functions traditionally performed by people obsolete; ceasing of operations and company closure; and a company’s inability to sustain its wages and salaries.
As this particular case was filed in 2003, the ELRC held that the law applicable at the time the dispute arose was the now repealed Trade Disputes Act (Repealed Act) and the 1999/2000 collective bargaining agreement (1999/2000 CBA). Upon reviewing the requirements under the Repealed Act and 1999/2000 CBA the court held that the employer had complied with the requirements as it had informed the relevant trade union of the intended redundancies. Further, although not a requirement under the Repealed Act, the employer had also informed the Minister of Labour.
Redundancy procedure under the Employment Act
Today, section 40 of the Employment Act provides for and governs the termination of employment on account of redundancy. Section 40(1) sets out the requirements that must be fulfilled for a redundancy process to be valid under the law. These requirements are:
- Issuance of notice of the intended redundancy to the employee/trade union. An employer is required to issue a notice of intended redundancy to the employee personally in writing. If the employee is a member of a trade union, the employer should issue the notice to the trade union. This notice should be issued not less than one month prior to the intended date of termination on account of redundancy.
- The notice of intended redundancy must also be issued to the labour officer.
- Selection of the employees to be affected. An employer must give due regard to seniority in time and to the skill, ability and reliability of each employee to be affected by the redundancy.
- Issuance of notice of redundancy – this notice must be issued at least 30 days from the first notice (the notice of intended redundancy).
- Payment of terminal entitlements. An employee is entitled to their salary up to the date of termination, one month’s notice pay or one month’s wages in lieu of notice, any accrued but untaken leave days and severance pay at the rate of not less than 15 days’ pay for each completed year of service.
- An employer also has an obligation not to place any employee at any disadvantage for being or not being a member of the trade union where a collective bargaining agreement (CBA) exists.
Although not expressly set out in section 40(1) of the Employment Act, consultation is another key requirement that must occur before and during a redundancy process. The right to be heard is a key element of fair labour practices. The Kenyan courts have stressed the importance of this and placed an obligation on employers to engage in meaningful negotiations with any employee who will be affected by a redundancy and, where there is a CBA, the relevant trade union. The purpose of these consultations is to give the parties an opportunity to consider the redundancy proposal and negotiate alternatives to the intended redundancy. An employer must consider the responses received before making any final decision on the redundancy. Consequently, an employer intending to carry out a redundancy must follow the above process to ensure that the exercise is in compliance with the law.
Based on the outline above, for a redundancy to be considered to have been done in compliance with the law, the following elements must be present:
- valid reason(s) justifying the redundancy;
- notification of intended redundancy and meaningful consultation with all parties affected by and involved in the redundancy process;
- adherence to the legal procedure on redundancy – if a CBA is in place, the procedure on redundancy should be adhered to by the employer; and
- payment of all terminal entitlements.