COVID-19: MANAGING THE EMPLOYER-EMPLOYEE CONTRACTUAL RELATIONSHIP IN THE FACE OF EMERGING ECONOMIC HARDSHIPS

Since the first reported case of Coronavirus in Kenya, the Government has been on the frontline in issuing control and preventive measures. These measures have greatly disrupted business activities and consequently led to loss of revenue for most employers. The employers have in turn been forced to evaluate various options, some more extreme than others, to manage the employer-employee contractual relationship due to the resulting Covid-19 pandemic economic hardships.

In this article, we discuss the legality and viability of options that may be considered by employers. Some of the options are statutorily based on existing employment laws while others are based on common law.

The options include:

Annual leave – The Employment Act (Cap 226 Laws of Kenya) provides that every employee has a right to a fully paid annual leave for twenty-one (21) days. While the “employers’ cash coffers” are still full this may be considered as a first response option, more so should there be a total lockdown. However, due to the mandatory payment aspect, an annual leave may not be the most effective option in addressing the financial constraints being faced by employers especially those whose business were hit hard by the Covid-19 pandemic such as the tourism and hospitality industries.

Unpaid leave – This is a widely used concept where an employer offers leave to an employee subject to non-payment of any dues during the period of the leave. Generally, this is type of leave and the circumstances in which it can be invoked are provided for in the employment contract. The outbreak of the Covid-19  pandemic qualifies to be one of those circumstances. It is likely that unpaid leave will be initiated by the employer mostly after an employee depletes their annual leave, however, it must be executed within certain legal limits. The employer’s intention must be lawful and the unpaid leave cannot be used as a way to terminate an employee. Noteworthy, where the employment contract does not have a clause on unpaid leave, it is prudent to reduce the terms of the leave into writing, duly notify the employee and procure his/her consent in order to create a legally binding effect.

Salary reduction – As businesses continue to take a hit, the Covid-19 pandemic reality is that for the sustenance of employment contracts, salaries may have to be lowered for most employees. This option has already been implemented by some businesses such as Kenya Airways as a necessary measure to ensure the business remains afloat.

However, for most employment contracts, a reduction of a salary package is not usually constituted as a term and wages are aggressively protected by law and cannot be unilaterally reduced by the employer without the employee’s consent in writing and due notice. Therefore, any salary reduction that does not follow due process can easily open legal liabilities against the employer for breach of contractual terms. Suffice to say, it is imperative for an employer to obtain the consent of the employee prior to executing any salary cuts. This measure may be implemented by way of an addendum to the existing employment contract, the addendum should capture the terms of the salary reduction and for how long it will remain effective and should be executed by both parties to give a legal effect. In implementing this option parties must act in good faith and agree on a mutually reasonable salary reduction with the possibility of the reduced pay being recompensed when the employer is in good standing financially.

Invoke force majeure clause – It is a common law doctrine that suspends the performance of contractual obligation provided there exists an event that is beyond the control of parties and that has made it impossible for the contracting parties to discharge their obligations. The clause must be expressly included in the contract. Employment Contracts that have the clause and with the wordings “pandemic” or “government measures” within the clause may cover the Covid-19 pandemic. The effect of invoking the clause is that it will discharge both the employer and employee from performance of their obligations. Meaning that the employer will be free from paying salary and the employee will be free from offering his/her services so long as the Covid-19 pandemic continues.

Apply frustration of a contract – It is a common law principle that leads to termination of a contract when there is a supervening event that is beyond the control of parties and that has rendered the performance of a contractual obligation to be physically or commercially impossible. Unlike force majeure clause, frustration need not be expressly included in a contract. In light of the above definition, an employer may initiate termination of an employment contract based on the argument that the Covid-19 pandemic is a supervening event that has rendered the performance of part of his/her obligation to be commercially impossible. However, due to the legal effect that the application of this principle has, that is termination of the contract, a higher burden of proof is placed on the employer to prove the aspect of commercial impossibility to discharge his/her obligation under the contract.

Noteworthy, there may be instances in which an employment contract can or will be terminated as a result of the Covid-19 pandemic but such a termination has to be within the confines of the law:

Lawful termination – The Employment Act allows for lawful termination of an employee based on lawful grounds and procedure. A lawful ground: relates to the employee’s conduct (including those acts amounting to gross misconduct), capacity or compatibility; or is based on the operational requirements of the employer. It includes summary dismissal, which occurs when an employer terminates an employee without notice or with less notice than that which the employee is entitled to under a statutory provision or a contractual term. Lawful termination though extreme, is a viable option for employers but the challenge will be on proving that there exist lawful grounds to justify the termination during the Covid-19 times. Additionally, summary dismissal solely based on the Covid-19 pandemic is unfair and will attract legal liabilities against the employer.

Redundancy – It is termination of an employment at the initiative of an employer where the services of an employee are superfluous due to abolition of an office, job or occupation. It is inevitable that among the aftermaths of the Covid-19 pandemic will be declaration of some offices as redundant. This will result to redundancy of some of the employees in various workplaces. However, the Employment Act provides for certain conditions that must be followed when terminating an employee through redundancy. Therefore, it is advisable for an employer to seek sufficient legal advice before terminating an employee by way of redundancy to avoid incurring legal liabilities.

In conclusion, the unchartered waters that is Covid-19 is not only a health crisis but also an economic and labour crisis that requires solidarity between employers and employees to constantly and judiciously evaluate their options to navigate the consequential economic challenges it presents to the employer-employee relationship.

This alert is for informational purposes only and should not be acted upon in any specific situation without appropriate legal advice, therefore, should not be taken to be or construed as a legal opinion. We do not accept responsibility or liability to users or any third parties in relation to use of this alert or its contents.  For further clarification, please do not hesitate to contact Jane Makena Kirimi (jkirimi@jmkadvocates.co.ke) or Jacklyne Kanu (jkanu@jmkadvocates.co.ke ).

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