Right way to lay off staff

A lot of corporate restructuring currently taking place in Kenya may lead to massive staff lay offs. It is usually the case during a merger where for strategic reasons, two or more businesses combine to form a new entity.

At times massive layoffs are to enhance cost cutting measures. This is especially so for entities that are overstaffed. Such organisations incur unnecessarily high wage bills that include salaries, commissions, bonuses, statutory deductions such as National Hospital Insurance Fund (NHIF), National Social Security Fund (NSSF), and pay-as-your-earn (PAYE) and pension contributions.

An unnecessarily high wage bill affects the profitability and eventual survival of the company. It may be more prudent to lay off unnecessary staff to grow the business. The global direction is in favour of the ‘lean office’, where the ratio of support staff to core staff is becoming lower. Increased use of technology may also result in the lean office.

Lay offs also happen when the organisation can no longer afford to keep staff, for example when it is winding up or closing down. Such a business may decide to lay off noncore staff and keep its employee portfolio at the very basic minimum to perform core duties related to the winding up.

Whether the reason for laying off is due to corporate restructuring, increasing profitability or as a survival instinct, what is clear is that an improperly done laying off shall expose the company to legal risks arising from court action by employees.

Locally, employees have in the past successfully stopped a merger through the courts because their pension rights were not addressed before termination of their services. A badly handled staff lay off will give the entity a bad image. It is therefore important to comply with the law while letting go staff go.

The general law in Kenya is that a redundancy ought to be compliant with the Employment Act to avoid risks. The Act gives the procedure and the manner in which a redundancy should take place, for example the relevant regulators should be notified and targeted staff should be paid as provided for in the Act. The laying off should be non-discriminatory and equitably carried out.

While a laying off may be the best decision for an employer, the firm ought to be sensitive to the employee’s needs and ensure the least risk and impact on a staff. A lay off is very disruptive to an employee’s livelihood. Some simple measures an employer can take include giving the staff recommendations and where possible, try and assist the employee get a new job using the employer’s networks.

The employer can use internal structures to secure the employee’s livelihood. One way is to outsource functions such as catering, cleaning, messengerial, administrative and supplies to sacked staff. The laid off staff can form a company which is then contracted by the employer to provide these services. It is a win-win in that the employer reduces costs such as those spent on statutory deductions like PAYE while the sacked staff earn a living.

Some countries have transfer of undertakings (Tupe) regulations, which ensure that terms of employment are preserved despite a change of ownership such as during a merger or sale of business. In essence, the employees under the old ownership remain the same under the new ownership.

When an employee is laid off due to change of ownership, he can file a claim for unfair termination under the Tupe law. Kenya doesn’t yet have this law and it may be time to consider enacting this protective legislation.