By S.Okalle Makanda
The novel coronavirus (Covid-19) has had a massive impact on businesses globally. The reality of the impact of the disease is that many businesses are unable to honour contracts. Employment contracts are a special category of contracts that do not necessarily conform to the general principles of commercial contracting.
This bulletin talks to options available to employers who would like to manage employment contracts where the employer is not able to honour the contracts due to a constrained business environment on the back of Covid-19.
Termination on account of Force Majeure
Force Majeure is an unpremeditated event that hinders, prevents, impairs or renders the performance of a contract impossible. Employment contracts in Kenya are statutory in nature and as such follow strict provisions set out in the Employment Act. Force majeure is not recognized in the Act as a ground for termination of employment contracts.
The foregoing notwithstanding, there is evidence of Kenyan courts recognizing Force Majeure as a ground for termination of an employment contract.
For an employer to rely on Force Majeure, the employment contract must contain the Force Majeure clause and the employer must show that:
- The force majeure event was the cause of the inability to continue to honour the contract;
- The non-performance was due to circumstances beyond their control; and
- There were no reasonable steps that the employer could have taken to avoid or mitigate the event or its consequences.
The clause applies in the same way to an employee who for instance is unable to move and cannot come to work due to quarantine or containment or lockdown. An employer cannot terminate such an employee’s contract without legal sanctions.
Termination on account of Redundancy
One of the effects of Covid-19 will be the rendering of many employees redundant. Redundancy is simply defined as laying off of employees when their jobs cease to exist.
Many jobs that involve contact with other persons may be lost due to advent of technology or government edict banning close contact businesses. An example is a restaurant that goes full delivery and take away instead of sit-in. Waiting positions will become redundant. Office messengers may also become redundant where businesses choose to entirely communicate digitally.
Contract renegotiation
Another opportunity available to employers is contract renegotiation. Dipping revenues will force businesses that do not want to lay off their employees to consider renegotiating the terms of employment. Some of the terms the businesses may consider include:
- Unpaid leaves
- Working on reduced pay
- Reduced number of working days
Employers should note that employees should sign on to the renegotiated contracts to signify their acceptance of the new terms. Otherwise unilateral action will be deemed to be a breach of contract.
Mutual Separation
During this season and especially where it is evident that there will be job losses, it is advisable that businesses mitigate their risks by engaging/offering mutual separation or voluntary early retirement schemes. Employees who opt to leave on these terms are later estopped from claiming unfair termination.
Employers should prepare separation contracts to be signed by both parties.
Conclusion
Employers and employees need to take note that the provisions of the law on termination of employment contracts still apply and have not been vacated. Where any party is pursuing any of the suggested options, they are still bound by the provisions of the Employment Act on process, engagement with Trade Unions where applicable and payment of terminal benefits.
At, MNO Advocates LLP, we pride ourselves in having a very clear understanding and expertise in employment law and practice. We have a robust team that can offer advice and support to interpret your contracts, maneuver the current legal hurdles and walk the journey as far as employment law and practice is concerned.