Following the global spread of the COVID-19 Pandemic, nations of the world are taking reactive and proactive measures to curtail the spread of the disease in their countries. In Nigeria, the governments response aimed at curtailing the spread of the disease has led to the significant restrictions in the movement of persons and goods, especially in the places (namely Lagos state, Ogun state, and the Federal Capital Territory) which Nigeria’s president has placed a partial lockdown. Employers previously exempt from the shutdown directives include the following:
a) Businesses providing health related and essential services including hospitals and related medical establishments.
b) Organisations in healthcare related manufacturing and distribution.
c) Food processing, distribution and retail companies.
d) Petroleum distribution and retail entities.
e) Power generation, transmission and distribution companies.
f) Private Security Companies.
For businesses, especially those who have been forced to shut down, it would be economically unsustainable to continue incurring excess cost at this point in time where the global economy is facing a crisis. Although some businesses have remained virtually open, as their employees continue to work from home, the volume of business conducted remotely has continued to decline. Even in cases in which employees are available to work from home, some employers are no longer in a position to provide enough work to keep the employees fully engaged. It is also true that it is not every type of work that may be performed effectively virtually. The corresponding adverse pressure on business revenues will mean that businesses may not be able to sustain current payroll costs. This would in turn result in employers taking cost-cutting measures which would affect employees adversely.
The options open to an employer would depend on a number of factors, which include:
• the presence of force majeure clauses in the relevant contracts of employment which is highly unlikely as most employment contracts do not contain this provision;
• the nature of the employer’s industry and the effect of the covid-19 containment measures on it;
• the nature of each individual employee’s job specifications;
• the effect of the containment measures on the employer’s ability to provide work to employees; and
• the employees’ ability to continue to attend and perform work.
The applicable option will also depend on whether the relevant employees are “workers” within the meaning of the Labour Act. The Labour Act governs the employment of ‘lower cadre’ workers. Lower cadre workers as defined in Section 91 of the Labour Act means:
“Any person who has entered into or works under a contract with an employer, whether the contract is for manual labour or clerical work or is expressed or implied or oral or written, and whether it is a contract of service or a contract personally to execute any work or labour, but does not include-
a) any person employed otherwise than for the purposes of the employer’s business, or
b) persons exercising administrative, executive, technical or professional functions as public officers or otherwise, or
c) members of the employer’s family, or
d) representatives, agents and commercial travellers in so far as their work is carried on outside the permanent workplace of the employer’s establishment; or
e) any person to whom articles or materials are given out to be made up, cleaned, washed, altered, ornamented, finished, repaired or adapted for sale in his own home or on other premises not under the control or management of the person who gave out the articles or the material; or
f) any person employed in a vessel or aircraft to which the laws regulating merchant shipping or civil aviation apply.
Employees not covered by the Labour Act are governed by their relevant contracts of employment, HR policies, collective agreements or other agreements with relevant unions.
STRATEGIES AVAILABLE TO EMPLOYERS IN THE FACE OF COVID-19
COMPELLING EMPLOYEES TO TAKE ANNUAL LEAVE AT FULL PAY
Section 18 of the Labour Act mandates employers to grant employees leave annually. Due to the COVID-19 pandemic, it is not unusual for businesses to seek to accelerate and compel its staff to undergo their annual leave, rather than have their leave deferred. This may also be applicable to employees not contemplated by the Labour Act per the terms of their contract of employment.
It is important to note that employees cannot be compelled to take their annual leave as it is an entitlement to which they alone have the discretion to exercise. Hence, unless a mutual agreement has been reached between employer and employees to take their annual leave with pay, compelling them to do so would amount to a breach of the employment contract. Employees who are required to regard the period as being part of their annual leave cannot, however, be required to work during the period in question.
COMPELLING EMPLOYEES TO TAKE COMPULSORY LEAVE WITHOUT PAY
Pursuant to Section 5 of the Labour Act, employers are prohibited from making any deduction or making any agreement or contract with an employee for any deduction from the wages to be paid by the employer to the employee. Also, as earlier stated, Section 18 of the Labour Act mandates employers to grant their employees fully paid leave. Employees are entitled to a certain number of leave days to be taken annually during which such employees would ordinarily be entitled to receiving their salaries. Hence, it could be justifiably argued that compelling an employee to go on a compulsory leave without pay would amount to making deductions from the salary of such employee. As such, any attempt by an employer to compel its employees to take unpaid leave, will amount to a breach of Sections 5 and 18 of the Labour Act.
The courts will therefore not enforce any contract that compels Employees to take unpaid leave not only because it is inconsistent with the provisions of the law but also because it is contrary to international best practices.
With regard to employees not contemplated by the Labour Act, an employer is required to obtain the consent of an employee before varying the terms of an employment contract. An employer that unilaterally varies an employment contract runs the risk that such variation/amendment could be successfully challenged, in court, by an aggrieved employee. To mitigate this risk, it is advisable for employers to negotiate and to agree the terms of any salary or other benefits adjustments with their employees. In the event, however, that an employee does not agree to the proposed salary adjustments then the employer may, depending on the circumstances of each case, elect to re-consider the continued employment of any such employee.
VARIATION OF CONTRACT OF EMPLOYMENT
An employer may exercise the option of proposing or negotiating with the relevant employee(s), directly or through their trade union a variation of the employment contract(s) to provide for reduced working hours, pay cuts, part-time work, voluntary leave without pay, temporary layoff, furloughs or other interim arrangements suitable to the employer to navigate the covid-19 crisis. The principle of variation of contract involves a definite alteration of contractual obligations by the mutual agreement of both parties.
Section 7(2) of the Labour Act provides for the possibility of effecting a change in the terms and conditions of employment during the subsistence of the contract of employment. The employees would however have the choice of either accepting the change, expressly or by conduct, i.e. by continuing in his employment under the new terms or rejecting the change by terminating the employment relationship under the relevant provisions of the contract of employment.
Employers can utilise both temporary layoffs and furloughs as an alternative to employee terminations or redundancies during this period. Notwithstanding their ‘temporary’ nature, however, temporary layoffs actually have the effect of terminating the contract of employment, and in absence of any agreement to the contrary between employer and employee, will trigger the application of any redundancy provisions in an employee’s contract of employment. Furloughs on the other hand are a suspension of employment – either pursuant to provisions in the employee’s contract, or by mutual agreement between employer and employee – and since the contract of employment continues to exist, redundancy provisions will not be triggered.
Depending on whether the affected employees are members of a trade union, employers that elect to use these strategies would be required to negotiate the terms of the furlough and temporary layoffs with the employee representative(s) of the affected employees and/or trade union officials. Reduced work hours are also an option for employers to consider. Given that reduced work hours will result in reduced salaries, however, the consent of each employee will be required in order for an employer to be able to utilise this option.
TERMINATION OF EMPLOYMENT ON GROUNDS OF REDUNDANCY
If a business disruption continues for a sustained period of time, such that an employer is no longer able to maintain its current workforce, an employer may declare a redundancy and render some of its employees redundant. In doing so, an employer must ensure that the employer complies with the provisions of:
• the contract of employment of the affected employees;
• applicable statutory requirements (like the Labour Act), and sector specific requirements such as those which apply in the financial and oil industries;
• applicable collective bargaining agreements with relevant trade unions.
In determining the employees to be made redundant, Section 20 of the Labour Act however prescribes for the adoption of the “Last-In-First-Out” (“LIFO”) principle. The principle requires that those whose employments were later in time should be disengaged first. But the LIFO principle is expressly made subject to all factors of relative merit including skill, ability and reliability as may be determined by the employer.
There is no mandatory laid down procedure under Nigerian law for effecting a redundancy; save that in applicable cases, the employer is required to inform the trade union or workers’ representative of the reasons for and the extent of the anticipated redundancy where the employees are unionized. Where the company’s employment contract/handbook contain specific provisions on redundancy, it is expected that it should be followed to the latter but the absence of this does not preclude the employer from declaring a position redundant which it can rightfully do as an employer at any time. The employer will be required to terminate the employment contracts of affected employees in accordance with their respective terms (i.e. with regard to the giving or notice or payment in lieu of notice as applicable).
Under Nigerian Law, employers are only obliged to make compulsory redundancy payments to redundant employees where this is provided for in the contract of employment or other applicable company policies. Where these do not exist, the employer has the discretion to offer such severance payments to affected employees and inform them of its offer of payments during the redundancy. An employee whose employment is terminated and to whom redundancy payments have been made, cannot be required to pay back any sums paid by the employer to such employee. This is because the redundancy payments would have been made pursuant to a contract of employment that was terminated as a result of the temporary layoff. ‘Recall’ contracts of employment entered into following temporary layoffs would be new contracts and in the absence of specific provisions to the contrary, such contracts would not affect the rights and obligations of the parties under the former contracts that have been terminated.
Where the employees in question do not fall under the category of employees envisaged by the Labour Act, the applicable notice period would be the notice period for termination as stated in the contracts of employment of the relevant employees and as such, any notice or termination that fails to comply with the provisions of the contract of employment will be deemed invalid and the employee will be liable to compensation. It is also worthy of note that the obligations and rights of an employee still subsist during the pendency of the notice.
Where a contract of employment does not provide for a notice or where the redundancy involves the category of employees envisaged by the Labour Act, the applicable notice period to be given has been provided by Section 11(2) of the Labour Act below as follows:
S/N DURATION OF EMPLOYMENT PRESCRIBED NOTICE PERIOD
1. Up to Three (3) months One (1) day
2. Up to Two (2) years One (1) week
3. Up to Five (5) years Two (2) Weeks
4. Five (5) years or more One month
The provisions of Section 11(3) and (4) of the Labour Act mandate that notices for (2) – (4) above shall be in writing, and the dates of the periods of the statutory notices shall exclude the day the notice is given.
EFFECT OF THE FOREGOING STRATEGIES ON EMPLOYERS’ STATUTORY OBLIGATIONS AND DEFINED BENEFIT SCHEMES
Most of the statutory and other contributions that must be made by employers in relation to their respective employees are determined on the basis of the employees’ remuneration – which means that the adoption of temporary layoffs, furloughs or reduced work hours will inevitably affect the quantum of such employer contributions. Reduced work hours that result in the payment of lower salaries will also result in a reduction in the personal income tax that is withheld from employees’ salaries and remitted to the relevant tax authorities. Temporary layoffs and furloughs would also result in lower remittances to Pension Fund Administrators and other statutory agencies such as the National Housing Fund, the Employees’ Compensation Fund and the Industrial Training Fund. Employers would, therefore, be required to notify the relevant tax authorities, statutory agencies and pension fund administrators of the changes to the remuneration packages of the affected employees.
With regard to defined benefit schemes such gratuity payments, this will depend on the terms of the affected employees’ contracts of employment and on how long the employees in question have been employed. As far as duration of employment goes, in a recent decision of the National Industrial Court, the court applied what it termed the “principle of arithmetical approximation” to the case of an employee whose employment fell a few months short of the qualifying criteria, and rounded up the length of the employee’s contract to the nearest year – with the effect that the employee was entitled to the benefit in question.
Due to the unprecedented predicament created by the COVID-19 Pandemic, it is advised that employers should engage with its staff members to discuss the impacts of COVID-19 on its business operations and their terms of employment; together with the likely impact of the pandemic on the revenue of the company.
Employers should continue to evaluate the impact of COVID-19 on their businesses and take all lawful measures necessary to protect their businesses and employees and the importance of seeking legal advice where in doubt can never be over-emphasized.
The above information is for educational purposes only and does not constitute professional advice by Blackwood & Stone LP. Readers are advised to consult a professional for advice on their obligations arising out of employment contracts and arrangements.
For more information please contact:
Blackwood & Stone LP
+234 903 3501 613