Social security policies of countries around the world are being tested as the world battles with the Covid-19 pandemic. The ability to protect citizens from the spread of the pandemic while trying to maintain economic growth is a major concern for all countries. Nigeria, as a developing country, is not exempt from these issues. One of the social security policies being tested during this period is employment protection. Employment protection means a set of measures put in place to control recruitment and dismissal of employees. According to the OECD, “employment protection refers both to regulations concerning hiring (e.g. rules favouring disadvantaged groups, conditions for using temporary or fixed-term contracts, training requirements) and firing (e.g. redundancy procedures, mandated prenotification periods and severance payments, special requirements for collective dismissals and short-time work schemes).”
The wealth of a nation can be measured by how many of its citizens are employed. It is, therefore, important for attention to be drawn to the recruitment and engagement of an employee. However, what happens during the dismissal of an employee is also important because where employee disengagement is not properly managed; it can lead to litigation issues. Organisations in private sectors mostly rely on the market forces of demand and supply to operate; therefore, any change in the market forces will impact the hiring or firing of employees. An organisation that is negatively impacted by the market forces will turn towards managing cost for sustainability in order to ensure that the business is a going concern. This is because the sustainability of business is extremely important for economic growth.
The Nigerian House of Representatives, in response to potential job loss that may be occasioned by COVID-19 proposed the enactment of the Emergency Economic Stimulus Bill, 2020. The bill seeks to provide employee protection while providing incentives to employers. The bill seeks to provide 50 percent of the total actual amount due or paid as Pay-As-You-Earn (PAYE) tax under the Personal Income Tax Act, 2004 (as amended), to employers registered under the Companies and Allied Matters Act, 2004 and who maintain the same employees without any redundancy from 1st of March 2020 to 31st of December 2020.
This bill is a welcome development in the face of our present realities. However, it also does not protect employees from unpaid leave, a salary freeze and salary reduction. There are also concerns as to whether the relief of 50 percent of payroll tax will be enough to make any real impact for employers. The suspension of other statutory contributions such as employer’s contributions to the Industrial Training Fund and Employees Compensation Scheme may also be considered as the fund freed up from this may be critical to the sustainability of some businesses.
Employees’ perspective
It is the general perspective of employees that they have to bear the brunt of the cost-cutting approach employed by businesses during a downtime. Approaches like recruitment freeze, salary freeze, salary reduction and, in extreme cases, redundancy are some of the methods usually employed by organisations to maintain cost. During this period, the business does not increase its staff strength thereby maintaining its current cost. Where this is not sufficient, most employers move to the next stage which is salary freeze. Salary freeze refers to maintaining the salary of all levels of employees over a period. The length of the period of time is dependent on the salary increase cycle of the organisation. Salary reduction may, thereafter, be considered, where the cost incurred by the business still exceeds sustainable levels, with redundancy as a final resort. These approaches, when adopted by organisations, could lead to the following issues:
1. Overburdening the current workforce which can result in a decline in productivity and an increase in error rates.
2. Demotivation of employees.
3. Loss of manpower with exceptional know-how.
4. Reputational issues for the organisation.
5. Litigation by aggrieved employees
Another approach that may be adopted by businesses during this period is leave without pay. Employees are asked to proceed on leave without pay to reduce recurrent business costs. The employees do not receive any remuneration from being employed during the period of leave without pay. A careful consideration of the above shows that employees may be unduly impacted during the period.
Nigeria and the rest of the world are in such a period now due to the COVID – 19 pandemic. It is, therefore, important that we consider what sort of protection is available to employees under labour laws in the country to enable them deal with the impact as highlighted above.
Existing legislation as it relates to employment protection
In Nigeria, there is no existing legislation covering employees and employers in the event of a global pandemic. The Labour Act, which is the primary legislation that governs the relationship between employers and employees, provides for wages protection, contracts of employment, terms and conditions of employment as well as recruitment in general. However, it has been argued that the Labour Act does not cover all categories of employees. This is because the Labour Act used the term ‘worker’ to refer to employees.
It also clarifies the definition of a worker as “…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,…”. This definition, however, excludes some categories of employees like persons exercising administrative, executive, technical or professional functions as public officers or otherwise and any person employed in a vessel or aircraft to which the laws regulating merchant shipping or civil aviation apply. The implication of this is that individuals not covered under the Labour Act may not be covered under the protections afforded under it. An amendment to the Labour Act is, therefore, required to ensure that all categories of employees in the private and public sectors of the economy are covered.
Noteworthy is that recruitment freeze, salary freeze, and salary reductions are not covered by the provisions of the Labour Act. Only redundancy is spelt out in the Labour Act. Section 20 (1c & 2) of the Labour Act, states 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 …by the Minister. The Minister may make regulations providing, generally or in particular cases, for the compulsory payment of redundancy allowances on the termination of a worker’s employment because of his redundancy. This implies that employees caught in the web of redundancy are entitled to compensation. The Labour Act further provides that in the event of a redundancy,
a) the employer shall inform the trade union or workers’ representative concerned of the reasons for and the extent of the anticipated redundancy;
b) 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…
Some organisations do not have an adequate merit rating system and a lot of employees are not covered under organised trade unions. This implies that, in the event of a redundancy, the decision to keep or fire is left at the whims and caprices of the superiors.
The oil and gas industry, being the pride of the economy, has some additional regulations for employee protection. The regulation 15A of the Petroleum (Drilling and Production) (Amendment) Regulations 1988 states that “the holder of an oil mining lease, licence or permit issued under the Petroleum Act 1969 or under regulations made thereunder or any person registered to provide any services in relation thereto, shall not remove any Worker from his employment except in accordance with guidelines that may be specified from time to time by the Minister. The Department for Petroleum Resources (DPR) has also issued a guideline for the release of staff in the oil and gas industry. Based on the guideline, staff release includes the following:
a) Dismissal
b) Retirement
c) Termination
d) Redundancy
e) Release on medical grounds
f) Resignation
g) Death
h) Abandonment of Duty Post.
An employer is required to notify the Minister through the DPR where the staff release occurs by way of voluntary retirement, resignation, death or abandonment of duty post. Where the staff release is by involuntary retirement, dismissal, termination, redundancy or on medical grounds, the DPR shall conduct an inquiry into the circumstances of the proposed staff release and make a decision on whether to convey the Minister’s approval or otherwise.
In addition to the provisions of the Labour Act and the DPR guideline, the Finance Act 2019, has now increased the non-taxable limit of compensation for loss of office from ₦10,000 in any year of assessment to ₦10,000,000 while deleting the phrase in any year of assessment.
Other jurisdictions
In developed countries like France for instance, there are only two valid grounds for dismissal of employees with permanent contracts: personal and economic grounds. An employee cannot be legally terminated based on any reason outside these two. Examples of personal reasons are incompetence and misconduct while economic reasons are situations that render the role redundant. For personal reasons, the employees can be replaced while for economic reasons, the employees cannot be replaced. The French legislation also provides the basis for calculating the minimum statutory compensation for employees in case of dismissals, except as a result of gross misconduct.
Taking another cue from a country with a high population like Brazil, employees can be dismissed based on justified reasons (com justa causa) and any other reasons (sem justa causa). Justified reasons for dismissal are a result of misconduct. Employers also have the right to dismiss employees for any other reason, except in cases of discrimination and of those categories of employees that enjoy job stability. In case of dismissal for any other reason, the Brazilian legislation requires employers to make deposits to the Fundo de Garantia por tempo de Servico which can be accessed by the dismissed employee (OECD employment guideline – Brazil regulations[4]).
It could be seen in both countries that legislation provides the basis for terminating an employment contract by an employer, with compensation payable where it is not as a result of misconduct. The Nigerian Labour Act also needs to specify the basis on which compensation be calculated in the event of a redundancy.
What companies should do if they plan to disengage employees
In a situation where an employer plans to disengage some of its employees as a result of the economic downturn, the employer should do the following, as stated in the Labour Act:
1. Inform the trade union (where applicable) or employees’ representative concerned of the reasons for and the extent of the anticipated redundancy
2. The principle of “last in, first out” should be adopted in the discharge of the particular category of employees affected, subject to all factors of relative merit, including skill, ability and reliability.
3. Negotiate redundancy payments to any discharged employees not covered under the regulation of the Federal Minister of Labour and Employment.
4. Give a notice period of
a) one day, where the contract has continued for three months or less;
b) one week, where the contract has continued for more than three months but less than two years;
c) two weeks, where the contract has continued for two years but less than five years; and
d) one month, where the contract has continued for five years or more.
5. Where notice period is waived, payment in lieu of notice should be paid.
Organisations should also consider the terms of the contracts of employment and the organisation’s staff handbook when embarking on such disengagement. This is to ensure that employees are duly compensated for the lay-off and also to prevent any undue litigation that may arise as a result of breach of contract.
In conclusion, with the impact of the COVID-19 pandemic on the world, organisations need to evaluate their cost-cutting approaches while taking into consideration its overall effect on the business as some may have only a short-term benefit with a long-term repercussion. The government also needs to amend the Labour Act to ensure that both employees and employers are adequately protected as the present realities have shown the current provisions are inadequate.
Adegoke is the Senior Adviser, Tax, Regulatory & People Services, KPMG Nigeria
