FOLEGAL BLOG

Introduction

Not less than 36.96% of Nigerian businesses have been forced to lay off employees due to cash shortages and constraints resulting from the Central Bank of Nigeria’s (CBN) Naira Redesign policy of 2023, political instability and low revenue. This is according to a recent survey titled ‘Strapped: Impact of the Cash Scarcity on Individuals and Businesses’ by SBM Intelligence, an African-focused market intelligence and consulting firm. The current economic climate of the country has, in recent times, forced many businesses to close down or drastically reduce their workforce to meet their business objectives.

Understanding Redundancy

Redundancy is a mode of lawfully relieving an employee of his role. Redundancy is defined under Section 20(3) of the Nigeria’s Labour Act (“the Act”) as the ‘…involuntary and permanent loss of employment caused by excess manpower’. Curiously, the Act does not define the events or circumstances that could lead to termination of employment due to excess manpower. However, in Gerawa Oil Mills Ltd v. Babura [2018] LPELR-44720[CA], it was held that redundancy arises where the termination of employment is or part of a reduction in the workforce. Similarly, in Food, Beverage and Tobacco Senior Staff Association v. Premier Breweries Limited Onitsha, Digest of Judgments of National Industrial Court [1978-2006] page 267 at 268, the National Industrial Court held that where workers’ appointments are terminated because of dwindling fortunes of the company, which necessitated the scaling down of the production lines due to lack of essential raw materials, the Court will treat the termination as redundancy. Thus, redundancy could be due to a number of factors, including but not limited to business restructuring; closing of business; outsourcing or headcount reduction (where the work can be carried out by fewer employees, or even automated). 

It is now generally acceptable that redundancy is a distinct or special kind of employment termination. It is not a voluntary or forced retirement or resignation, neither is it a dismissal from work. Instead, as held by the Court in Peugeot Automobile Nigeria Limited v. Saliu Oje & 3 ors [1997] 11 NWLR (Pt. 530) 625 at 632, it is a procedure whereby an employee is quietly and lawfully relieved of his post.

Procedure for Redundancy under Nigerian Law

Section 20(1) of the Labour Act provides for the obligation of employers in the event of redundancy as follows:

1.        The employer shall inform the trade union or workers’ representative concerned of the reasons for and the extent of the anticipated redundancy;

2.       The principle of “last in, first out” shall be adopted in the discharge of the particular category of workers affected, subject to all factors of relative merit, including skill, ability and reliability

The obvious implication of the foregoing provision is that the employer is obligated to inform, in writing, the trade union or workers’ representative concerned in the anticipated redundancy. Similarly, in the process of retrenchment, the employer shall adopt the ‘last in, first out’ principle. This principle, however, is not meant to be applied rigidly as the Act empowers the employer to consider merit, skills, ability and reliability of the affected employees.

Payment of Redundancy Allowance

Employees whose employments are terminated as a result of redundancy are entitled to redundancy Benefits under the Act. Section 20(1)(c) of the Act provides that in the event of redundancy “the employer shall use his best endeavours to negotiate redundancy payments to any discharged workers who are not protected by regulations made under subsection (2) of this section.” Given that the Minister is yet to make any Regulation on payment of redundancy allowance, the employer is obligated use the “best endeavor” principle to negotiate and pay Redundancy Allowance. On the other hand, the Employer may also pay the redundancy allowance in line with its redundancy policy as contained in its Handbook.

Conclusion

When the option of redundancy is adopted by an employer, the employer is at the risk of industrial actions by the disengaged employees. It is, therefore, in the best interest of employers to follow the letters of the law and international best practices (where applicable) in the disengagement of their employees based on redundancy. See: Ovivie & Ors v Delta Steel Co. Ltd [2023] LPELR-60460(SC). The best bet is for employers to adhere strictly to the laid down procedures in the Act or adhere to the Redundancy Policy as contained in their Organizations’ Handbook.

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