May 16, 2020

Impact of Covid-19 On Employment Relations in the Private Sector In Nigeria [1]



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It is no longer news that the Corona Virus (COVID-19) pandemic has greatly impacted the world’s economy.

Nigeria announced its first case of the COVID-19 on Friday the 28th of January, 2020. Following the rapid increase in the number of reported cases of the virus in Nigeria and globally, countries around the world, including Nigeria have put in place strict measures such as border closures, total and partial lockdown of businesses, restriction of movements of people, goods and services which are not essential amongst other measures to curtail further spread of the virus. However despite these measures the number of reported cases of persons infected with the virus continues to increase. As at the time of this writing the report from the World Health Organization shows that over 3 million people have been infected with the virus globally with over two hundred thousand deaths.

The pandemic has many economic and contractual implications. As a result of the measures put in place to curtail further spread of the virus cash reserves have dried up, there is no revenue and no government relief by way of cash is readily in sight for business owners consequently, business owners are thinking of ways to handle their obligation to pay wages and salary for the period of the lockdown and inactivity without running afoul of the law.

The case for Nigerian businesses

The outbreak of the global pandemic has put severe pressure on the Nigerian economy. Nigeria is a developing economy with heavy reliance on oil, which accounts for about 90 per cent of Nigeria’s export.  The recent crash in the global demand for oil and oil price stemming from the pandemic has adversely affected the volume and value of Nigeria’s net export. As result businesses in Nigeria especially those in the private sector and the medium and small scale enterprises have been adversely affected.

On 25 March, 2020 the Lagos State government introduced movement restrictions by ordering the closure of non-essential markets, businesses, stores, supermarkets, cinemas, entertainment centres and banning all public and religious gatherings in the State. On 29th March, 2020 the Federal government imposed further restrictions by announcing the implementation of measures aimed at curbing the spread of the pandemic in the states of Lagos, Ogun and the Federal Capital Territory (FCT) Abuja. These measures include a two-week restriction on movement commencing from 30th March, 2020. A further 2 weeks restriction was imposed by the Federal government in the above states and the FCT and an additional one week till the 4th of May, 2020 at which time partial ease of the lockdown will begin with further guidelines.

Other states not covered by the Federal Government lockdown also instituted partial or full state-wide lockdowns and curfews to reduce the spread of the virus in their respective states.

This paper will consider the impact of the COVID-19 on employment relations in the private sector in Nigeria especially with regard to the employer’s obligation to pay wages and salary to its employee. The paper will also make recommendations on how the issues of remuneration of employees can be resolved by the employers to avoid unending litigations.

Employer’s duty to pay remuneration

The relationship between an employer and employee is contractual and based on the contract of employment. Until a contract of employment is determined, the mutual obligations of parties continue and none of the parties can unilaterally amend the contract without consulting the other. In jeremiah v. Ziregbe & Anor (1996) 7 NWLR (Pt. 347) 356 the Court held that the employers duty to pay salary or wages to the employee is determined by the letter of employment. Thus it is usually said that an employer owes the employee duty to pay wages or salary in accordance with the terms of the contract express or implied.

 Where the contract of employment does not expressly provide for remuneration, amount payable will depend on the value of service rendered. Once the duty to pay wages or salary exists, the employer is at common law, to continue to pay such remuneration to a worker who is ready and willing to work whether or not work is provided by the employer.

Are there instances where an employer will be relieved of this duty to pay remuneration?

Under common law where the employers inability to provide work is as a result of a circumstance beyond his control then the employer will not be under a duty to pay. see Devonald v. Rosser & S one (1906) 2 K.B. 728. From the above exception an employer may argue that his inability to provide work was as a result of circumstances beyond his control in this case the compulsory lockdown imposed by the government and so he is not liable to pay remuneration for the periods of the lockdown.

Under Statute Section 17 of the Nigerian Labour Act provides for the employers duty to provide work and pay remuneration as follows:

Except where a collective agreement provides otherwise, every employer shall, unless a worker has broken his contract, provide work suitable to the worker's capacity on every day (except rest days and public holidays) on which the worker presents himself and is fit for work; and, if the employer fails to provide work as aforesaid, he shall pay to the worker in respect of each day on which he has so failed wages at the same rate as would be payable if the worker had performed a day's work: (underlined is mine for emphasis)

Provided that –

a.           where, owing to a temporary emergency or other circumstances beyond the employer's control (the period of which shall not exceed one week or such longer period as an authorized labour officer may allow in any particular case), the employer is unable to provide work, the worker shall be entitled to those wages only on the first day of the period in question; and

It is important to note that by the above provisions the period of emergency or circumstances beyond the employers control shall not exceed one week and so for the employer to rely on this provision for a period exceeding one week he must get the approval of an authorized labour officer and the employee is still entitled to wages on the first day of the period in question.

However, it is important to note that the provisions of the labour Act only applies to junior staffs referred to as “workers “. It does not apply to persons employed as administrative, executive, technical or professional staffs according to Section 91 of the Labour Act. Thus for employees not covered by the Labour Act their employment is governed by the contract of employment and employee’s handbook. Any variation in the salary of such employees must be based on the contract of employment and the employee handbook.

How then can employers mitigate the financial effect of COVID-19 on their businesses to ensure that they remain in business?

For businesses, especially those that have been forced to close to curtail the spread of the virus, it would be economically unsustainable to continue incurring excess costs at this time. Thus, businesses must take cost-cutting measures to ensure that they stay afloat, which will likely affect workers and employees.

There are a number of options open to employers in this case. However it is recommended that whatever measures taken by employers should have a human face and be weighed in terms of its economic, social and health impact on the employees. Also employees should be reasonable and ready to negotiate and make adjustments to mitigate the economic impact of the global pandemic on their employers business.

There is a need to create a culture of social dialogue and workplace cooperation at this time in order to prevent a downward spiral in employment and labour during and after the crisis caused by the pandemic.

Some measures that can be taken by employers with their legal implications include:

1.         Reduction of salary of employees:

Except for the purpose of making contributions to Provident or Pension schemes as agreed by the employee, an employer shall not unilaterally make deductions from the employee’s salary. Article 8 of the Protection of Wages Convention 1949 prohibits employers from making deductions out of an employee's salary except to the extent prescribed by national laws or regulations or fixed by a collective bargaining agreement or an arbitration award. Also section 5 of the Nigerian Labour Act provides that an employer shall not make any deduction or make any arrangement or contract with a worker for any deduction from the wages to be paid by the employer to the worker.

From the above any attempt to unilaterally deduct the salary of an employee will amount to a breach of contract and an employee can sue for damages.

Consequently, it is very important that an employer considering this option as a way of mitigating the impact of the pandemic must negotiate and get the consent of the employee in writing before any deduction of salary can be made.

It is important to state here that the National Industrial Court is the Court with jurisdiction to deal with all matters relating to labour and industrial relations in Nigeria. The Court is empowered by the combined reading of Sections 254C (1)(f) and (h) and (2) of the Constitution of the Federal Republic of Nigeria (1999) as amended to apply international best practices, treaties, conventions and protocols ratified by Nigeria. This includes the various ILO conventions and recommendations on labour and employment.

Consequently an employer who unilaterally deducts the employee’s salary risks having an action being brought against him at the National Industrial Court by an aggrieved worker or employee.

2.         Compelling employees to take the period of the lockdown as their annual leave without pay.

Every employee who has worked for a period of 12 months is entitled to an annual leave with pay (see Section 18 Labour Act; ILO Convention on Holiday with Pay, No. 132 of 1970 as revised). Thus it will amount to a breach of contract for an employer to unilaterally elect to treat the stay at home period as an annual leave period for which he is not obligated to pay.

However, an employer whose business could not continue during the period of the lockdown can negotiate with his employees to have their annual leave during the period of the lockdown rather than having it deferred, provided full salary is paid. Where such is the case, such employee is not required to perform any work or task during the period.

The courts will not enforce any contract that compels workers or employees to take unpaid leave. This is inconsistent with the law and also contrary to international best practices. 

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3.         Reducing the number of hours of work thereby reducing salary:

As part of the measures to reduce the spread of the corona virus government have adopted measures and guidelines for the partial ease of lockdown which include reduction in the number of hours of work for businesses. Businesses are mandated to only operate between the hours of 9am to 3pm. Some businesses have been able to continue operations remotely and employees are given task to complete while in the comfort of their homes. This notwithstanding there has been an unprecedented global decline in revenue which can be generated from such works as a result of the decline in economic activities. It is also possible that output may reduce with such arrangements as a result of various challenges of remote work especially in this part of the world such as slow or interrupted access to the internet, epileptic power supply and sometimes distractions from family members.

            An employer can decide to reduce the work hours of the employee and as a result negotiate reduced salary based on the hours of work. Section 17 of the Labour Act cited above supports this arrangement.

4.         Temporary layoff and furlough:

Temporary layoff is a period of temporary suspension or dismissal of an employee as a result of lack of work or because of cooperate reorganization with a right to recall by the employer under defined circumstance. Furlough on the other hand is a suspension of employment either pursuant to provisions in the employee’s contract of employment or by mutual agreement between employer and employee. Generally when there is temporary layoff and furlough an employer is not under obligation to pay salary but the employee is still entitled to other benefits of the employment since the contract of employment is not terminated. Most employers use temporary layoff and furlough as an alternative to termination and redundancy.

However it should be noted that in the absence of an agreement to the contrary in the contract of employment, layoffs actually have the effect of terminating the contract of employment and will trigger the application of any redundancy provision in the employee’s contract of employment. An employee who is put on temporary layoff without pay as a result of the pandemic cannot at the same time be expected to work. If an employer requires the employee to work, he should provide compensation for the work performed. Also an employee who is put on temporary layoff can personally choose to perform limited tasks while on layoff. If an employee who is not being paid refuses to work and the employer as a result terminates his employment, it would amount to wrongful dismissal, and the employee can sue to claim severance benefits.

It is recommended that an employer who intends to adopt any of the above measures communicate and negotiate the terms of the temporary layoff and furlough with the employee or employee’s representatives in order to avoid litigations.  

With regard to layoff of employees in the banking industry, on the 3rd of May, 2020 there was a press release from the Central Bank of Nigeria (CBN) and the Bankers’ Committee suspending layoffs in Banks emanating from the issue of corporate cost in view of the disruptions caused by the global economic difficulties occasioned by the COVID-19 pandemic. The CBN further directed that in order to help minimize and mitigate the negative impact of the COVID-19 pandemic on families and livelihood no bank shall retrench or layoff any staff of any cadre including full time and part-time staffs without the express approval of the CBN.

One may ask what the effect of this directive is and whether it is binding on the banks. Banks are privately owned corporate entities and not a creation of statute. The relationship between a bank and its employees are based on contract. There is no existing power granted to the Central Bank of Nigeria to suspend the powers of an employer derived under a contract which in reality forces an employer to continue to bear financial obligations to employees when the business cannot support such obligations. Thus such directive from the CBN is at best persuasive but it further emphasizes the need for social dialogue and workplace cooperation in mitigating the effect of the harsh economic condition caused by the COVID-19 pandemic especially in view of the fact that the directive was reached in consultation with Banker’s Committee.

5.         Initiating redundancy procedure:

Redundancy is a situation where an employee loses his job because the employer does not need him anymore. Redundancy disengagement is a form of termination of employment. Section 20(3) of the Nigerian Labour Act defines redundancy as an involuntary and permanent loss of employment caused by an excess of manpower. Although the Act did not define what can lead to excess of manpower but the circumstance caused by the impact of the corona virus such as loss of revenue and change in the nature of work from physical to remote work arrangements thus necessitating fewer staff can be considered as valid grounds for declaring redundancy. In Alexander O. Ejah & Ors v Niger Mills Co. Ltd NICN/CA/97/2013, 27-2-2015, the National Industrial Court reasoned that from the evidence which showed that the mass termination of employment of the Defendant’s employees arose from a change from a manual to an automated process requiring fewer staff, the disengagement was necessitated by economic and technological reasons, and being justified, was thus within the contemplation of the Act as a ground for redundancy. In Peugeot Automobile Nigeria Limited v. OJE (1997)11 NWLR (Part 530) the court defined 'redundancy' as:

a mode of removing of an employee from service when his post is declared "redundant" by his employer. It is not a voluntary or forced retirement. It is not a dismissal from service. It is not a voluntary or forced resignation. It is not a termination of appointment as is known in public service. It is a form unique only to its procedure where an employee is quietly and lawfully relieved of his post. Such type of removal from office does not, in my view, carry along with it any other benefit except those benefits enumerated by the terms of contract to be payable to an employee declared redundant.

Usually a provision for redundancy is contained in the contract of employment. Where such provisions are express the procedure as stipulated should be strictly followed. However, absence of a specific provision on redundancy does not preclude the employer from declaring a particular position redundant.

Where an employer declares an employee redundant he is entitled to terminate the contract of employment in accordance with the terms of the contract of employment as to length of notice or payment in lieu of notice as applicable.

It is important to note that Section 20 of the Labour Act provides that before an employer terminates a contract of employment based on redundancy, the employer shall for unionized workers first inform the trade union or workers’ representatives concerned of the reasons and the extent of the anticipated redundancy.

 

Conclusion

It is beyond doubt that the economic difficulty occasioned by the impact of the novel corona virus is unprecedented in the history of humanity. At a time like this, it is most important that both employers and employees at all level focus on measures that will ultimately mitigate the negative impact of the pandemic both on families, livelihoods and businesses. Governments all over the world including the Nigerian government at the Federal and state level are developing fiscal measures aimed at supporting businesses and households to survive the crisis. Government have made provisions to address the much needed access to finance to ensure that employers in the private sectors including small and medium scale enterprises are sustainable and reduce layoffs and retrenchment of employees as a result of the pandemic. One of such measure is the N50 Billion (Fifty Billion Naira) credit facility to be administered through the Nigerian Incentive-Based Risk Sharing System for Agricultural lending (NIRSAL Plc.) a Microfinance Bank for households, small and medium-sized enterprises that have been significantly impacted by the COVID-19, including but not limited to hoteliers, airline service providers, health care merchants etc. Also the Central Bank of Nigeria has directed Banks to consider temporary and time-limited restructuring of the tenor and other terms for loans granted to businesses and households most affected by the outbreak of the COVID-19.

Worthy of note also is the Emergency Economic Stimulus Bill 2020 which provides measures aimed at providing staff retention tax relief amongst others.

Therefore, it is recommended that employers take advantage of these fiscal measures as an alternative to sustain their businesses.

 

Roseline Nwankwo is an associate counsel in the Law Firm of Akinlawon & Ajomo LP, she has experience in general civil and commercial litigation, dispute resolution, corporate advisory and consultancy. 

NOTE: This article is for general knowledge. Contact the writer @ ncroseline089@gmail.com for legal advice specific to your business circumstance.


[1] Roseline Nwankwo, LL.B, B.L, LL.M (University of Lagos), She is an associate counsel in the Law Firm of Akinlawon & Ajomo LP, she has experience in general civil and commercial litigation, dispute resolution and corporate consultancy. You can contact her at ncroseline089@gmail.com, 08129903723

 


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