22 Nov Making Staff Redundant
Due to the present economic downturn in Nigeria, companies both in the private and public sector are resorting to cost-cutting measures to assist in the company’s sustainability. In addition, increases in global competition, technological advancement, shifts in consumer demands and greater efficiency are forcing organizations to cut out wasteful and unproductive activities and concentrate resources in their area of core competence so as to achieve a sustainable competitive advantage. As a result of these factors there has been an increase in redundancy in Nigeria.
Section 20 (3) of the Labour Act (“the Act”) defines redundancy as “an involuntary and permanent loss of employment caused by an excess of manpower.” Excess manpower can arise from downsizing, rightsizing, restructuring, acquisitions and mergers or the outright outsourcing of some jobs to an independent third party.
The Labour Act is silent on the process/procedure to be followed by non-unionised private companies seeking to make employees redundant. There is also no provision in the Act for redundancy payment for employees in a private company. Such provisions are expected to be governed by the employee’s contract of employment. It is therefore, important that companies seeking to make employees redundant have clear provisions for this in their contract of employment and/or in the company’s Employee Handbook/Human Resource Policy.
The cardinal rule is to ensure that the process/procedure is fair. In a fair redundancy process, the following needs to happen:
- There needs to be a redundancy situation
- Relevant employees who likely to be affected by the redundancy need to be identified
- The employer will need to identify which individuals in management will be selecting those who are potentially to be made redundant. The person/s should be familiar with the work, skills and qualifications of the employees who could be made redundant
- A selection criteria for who may be made redundant should be drawn up, together with a selection pool of affected employees carrying out similar work. The selection criteria needs to be transparent and objective.
- Once the employer has completed the selection criteria and identified the pool, it should invite each employee to an individual meeting to discuss whether or not they have been provisionally selected for redundancy.
- The employee should be allowed an appropriate time to reflect and remark on the selection.
- The employer should consider whether there is any suitable alternative role for the employee.
There is no statutory redundancy pay under the Labour Act in Nigeria. In the absence of any such provision, employers again must ensure fairness and reasonableness in determining the amount of payment.
In calculating redundancy payment employers may use a formula based on:
- How long the employee has worked for the company, capping it as appropriate
- The employee’s age; and
- Weekly/Monthly pay
Please note for organisations with unions the redundancy process/pay will be governed by the provisions of the collective bargaining agreement.
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