Costly Severance Pay in Kenya

According to Africapay, redundancy means loss of employment, occupation, job or career by involuntary means through no fault of an employee. It involves termination of employment at the initiative of the employer, where the services of an employee are superfluous and the practices commonly known as abolition of office, job, or occupation and loss of employment. Redundancy occurs under circumstances like; closure of a plant, factory, mine, or other workplace, a reduction in staffing requirements due to efficiency gains or falling demand for the company's products or services and downsizing in operations or restructuring of the workforce. Usually when a company does redundancy, it results in severance pay.

Employee who is affected by the redundancy is entitled to be paid by the employer prior to termination of their services. The paid amount ought to be the total of, but not limited to, the accrued leave days due to an employee who is declared redundant, paid off in cash, not less than one month’s notice or one month’s wages in lieu of notice and payment of severance pay at the rate of not less than fifteen days pay for each completed year of service. 

In as much as this pay depends on negotiation between the employer and employee, mostly it usually take into account the past services and accumulated benefits, if any, of the worker in respect of the employment. It’s advisable for the employer to consider the seniority and the skill, ability and reliability of each employee affected by the redundancy. 

In Kenya we have companies wrestling with high severance payments. Some of them have been forced to pay a lot in this regard. This is a valuable lesson many, especially growing companies, ought to have in mind because in future they might be the one on the receiving end.

Kenya Airways (KQ), which is the largest flight carrier in Kenya, has been in the middle of this. They decided to send 600 employees home as part of its revival strategy. This is expected to cost them Sh 2 billion for this specific task. Most of these employees who are to be laid are those who have become irreverent to the carrier operation. They were employed long ago and it’s expected they have high ranks and salaries. Using the compensation calculation method, the result is much money to settle this. When it went through court process, Judge Murgor, in his ruling directed that: all affected employees be paid damages equivalent to six months gross monthly salary for unfair termination of employment in addition to the three months’ salary in lieu of notice, 20 days severance pay for each completed year of service and any other outstanding dues, payable by the appellant net of all statutory deductions.

 National bank of Kenya, which is struggling financially, had implemented a redundancy package which cost more than Sh1bn. This was after it implemented a staff reduction strategy which saw 200 employees sent home. The package included direct costs such as the cash we gave the employees as well as loan rebates. Employees were paid on the basis of years worked for the lender. The then chair pointed out that, the employees included those who had worked there for quite a bit of time.

Telcom Kenya implemented its redundant package; it did cost them a lot of money. It struggled and it never recovered from many problems, that being one of them. It had political interference, which had influenced its decision making though. Most of these companies were affected when politics used to run the Kenyan economy. Through nepotism people were employed even when the companies did not need them. It was not a problem then, but it has brought about a lot of repercussions and suffocation of these companies.

These mistakes ought to make growing companies embrace short term employees and for others give them specific contract with an option of extension depending on performance. When possible it’s much better to have casual basis employees. The consequence of terminating employment especially long term employees is costly. This is because according to Kenya law Employment Act, section 40 (1) (g) specifies severance pay at the rate of not less than 15 days pay for each completed year of service with the same employer. If the workers belong to strong labour unions then it becomes absolutely difficult and expensive to lay them off, even if it’s for the benefit of the company.

@gathathaimwangi