THE IMPACT OF THE COVID-19 PANDEMIC ON EMPLOYMENT CONTRACTS.


Introduction

As the COVID-19 pandemic continues to devastate the global economy, employers in large and small businesses are faced with a dreadful conundrum on whether to let their staff go, cut their hours, or declare them redundant.

It is however highly unlikely that most employers, in drafting their contracts of employment, would have contemplated the current circumstances; particularly the level of interruption and disruption to work as we know it, which has been occasioned by the Government’s response to the COVID-19 pandemic. Indeed, employers and employees have had to be deal with this unprecedented situation by adopting new ways of meeting their obligations under their employment contracts.

The primary legislation on labour and employment matters in Nigeria is the Labour Act[1]. The other relevant legislations are the Trade Union Act[2], the Trade Disputes Act[3], National Industrial Court Act[4] and the National Industrial Court Rules, 2007[5]. Nonetheless, the relationship between employers and employees are typically regulated by the contracts of employment which sets out the terms of such employment. It is trite that parties to a contract are bound by its terms and cannot vary the terms and conditions of the contract except with each other’s consent[6]. This principle extends to employer – employee relationship and to the extent that a contract of employment is a contract, the general principles relating to general contracts will apply unless the law provides for a departure from such general principles. Hence, in NEPA v. Adesaaji[7], it was held by the Court that in an employer-employee relationship, the parties’ relationship is governed by terms and conditions of the contract between them. The foregoing therefore begs the critical question: What options are available to employers considering the impact the pandemic is having on their businesses? In thisarticle we will analyze the options available to employers for addressing their employment issues during this pandemic under the existing legal framework in Nigeria.

Working from Home: The New Normal

As expected, the first reaction by most organizations has been to direct their employees to work remotely, to protect their employees and clients from the spread of the pandemic. This directive may raise the question of whose responsibility it is to provide remote working tools to the employee? This question can be answered from the decision in the case of Gattuso v. Harte-Hanks Shoppers, Inc[8], where the California Supreme Court held that the intention of the provision of California Labor Code[9] which requires an employer to indemnify its employees for all necessary expenditures or losses incurred as a direct consequence of the discharge of his or her duties, is to “protect employees from suffering expenses in direct consequence of doing their jobs.” It is important to note that whilst the above case is from the jurisdiction of the State of California, in the United States of America, the dictum of the Court in Adetoun Oladeji (Nig.) Ltd. v. N.B. Plc[10] on the application of foreign judgments in Nigeria as a form of judicial precedent may be instructive in this regard. The court held that, “… decisions of English courts or any foreign court are not binding on Nigerian courts. They are merely of persuasive authority”.  In addition to this, by virtue of the Third Constitutional Alteration Act of 2010, the National Industrial Court was empowered to apply all labour-related international conventions, treaties and protocols ratified by Nigeria even where they have not been domesticated[11]. Indeed, section 7(6) of the National Industrial Court Act provides:

“The Court shall, in exercising its jurisdiction or any of the powers conferred upon it by this Act or any other enactment or law, have due regard to good or international best practice in labour or industrial relations and what amounts to good or international best practice in labour or industrial relations shall be a question of fact.”

So, if our courts are persuaded by foreign decisions on the issue of who bears the costs of expenses of working from home during the periods of lockdown, Nigerian employers may be required to reimburse employees who had to work from home during the COVID-19 pandemic for their reasonable and necessary home office expenses if they did not do that before now.

Deferment/Reduction of Salaries

Having regard to the current realities especially the inability to do business as we know it, one of the options available to employers may be to vary the terms of their employees’ contract such that there is a deferment or reduction of agreed salaries. This approach should be a win-win situation for both parties as on one hand, employees would be able to retain their employments during the pandemic and on the other hand, the employers are able to manage their resources until things return to normal. In the event that this option is considered, an employer is required to notify/engage its employees and obtain prior consent as to when and how the changes would take effect, before implementing same.[12] In Adebusola Adedayo Omole v. Mainstreet Bank Microfinance Bank Ltd,[13] the Court held that it is not acceptable for an employer to engage in unilateral reduction in the wages and salaries of workers as the reduction of the salary of the employee by the employer, without her consent, violated the spirit of section 5(1) of the Labour Act and the ILO Convention[14]. Furthermore, to avoid any adverse claims on the acceptance of the reduction or deferment, the employer should ensure that the employees communicate their acceptance of the changes in writing. In other words, in communicating the deferment or reduction, the employer should ensure that the notification is communicated in writing and request for a confirmation of acceptance in writing.

However, there may be instances where an employee refuses to give a written consent to such deferment or reduction in salary but continues to receive the reduced salary and does not complain. In that situation, the Court may infer an acquiescence on the part of the employee as in Oyeyemi v. Guardian Global Resources Nigeria Ltd[15] where the claimant claimed that the reduction in his salary was without his consent. In dismissing the prayers of the claimant, the court held that even though his consent was required, his silence and continued stay in the employment without any form of protest; whilst receiving the reduced salary for over a year, was an acquiescence to the variation and that his silence for a year was deemed as consent.

Deferment of bonuses and promotions

Another option available to employers is deferment of bonus or promotions. In most companies, bonus determination and application usually form part of the company’s policies which are typically incorporated by reference in employment contracts; thereby, becoming binding. In such circumstance, the provision for bonuses and promotions vests a right in an employee and may be recoverable against the employer due to the expectation interest they create for the employee.

The doctrine of legitimate expectation is that where an employer by his actions or inactions, creates a state of affairs that gives an employee an expectation interest which is legitimate and reasonable, then such employer is by law obligated to meet up with such expectation.

The leading and most frequently cited case supporting this approach in employment matters is the case of Toussaint v Blue Cross and Blue Shield[16], which came up in the State of Michigan. The issue before the Supreme Court was whether a voluntary promise, including a discharge-for-cause policy, made by the employer to his employee in a handbook constituted a binding obligation upon the employer. The Court held that such a policy could bind an employer if the ‘employer’s written policy statements set forth in the manual of personnel gave rise to legitimate expectations’. The court held that when a promise acquires legitimate expectation, the employer’s unlawful breach or departure constitutes a breach of contract.

Essentially, for legitimate expectation to give rise to protection, all that has to be proven is that the employer has chosen ‘to create an environment in which the employee believes that, whatever the personnel policies and practices, they are established and official at any given time, purport to be fair, and are applied consistently and uniformly to each employee’. Consequently, an employer that makes a voluntary promise in a formal statement that is reasonably capable of creating a legitimate expectation to the employee ‘may not treat its promise as illusory’.[17]

Whilst this is a developing area in Nigerian jurisprudence, the National Industrial Court (NIC) recently applied the principle in the case of Medical and Health Workers Union of Nigeria & Ors v. Federal Ministry of Health[18]. The Court acknowledged that the practice of skipping salary grade levels by Government can create an expectation interest, which in turn was capable of creating an entitlement or vested right in favour of the complainants who had all the while been beneficiaries of the practice.[19]

Having said that, it does appear that there is a tendency for the courts to respect the employer’s decision where there is genuine reason for the employer to resile such as when the future of the business and its survival is at stake.[20] The test must therefore be applied on the fact of each case, the context and impact of the promise made by the employer and the degree of business efficiency or need, when considering an employer’s decision to revoke its promise.[21]

Promotions, on the other hand, are not contractual rights, as they are usually conditional upon the employee meeting certain organizational performance-based indexes. Thus, in the case of Sylvester C. Nwoye V. Federal Airports Authority of Nigeria[22], it was held that promotion from one level or position in an organization to another is not a right but a privilege, which is earned. Hence, an employer cannot be compelled to promote its employee no matter the good opinion the employee might have of himself.

Paid and Unpaid Leave

Whilst section 18 of the Labour Act[23]  provides for at least six (6) days of paid annual leave for every 12 months of employment, most employment contracts typically provide for more number of days which can be taken as annual leave by the employee in an organization. Due to the compulsory stay at home directed by Government to curb the spread of the pandemic, many organizations may consider bringing forward the scheduled leave days/period of employees such that the leave days become part of the period now being compulsorily spent at home. This may however not apply to businesses whose employees have been working remotely during the lockdown, as this is likely to be considered an unfair labour practice by the Courts.

Thus, in In Akinfemiwa Akinyinka v. More Time CO2 Gas Plant Ltd[24] the National Industrial Court held that denial of annual leave to an employee is an unfair labour practice. The Court, in upholding the case of the Claimant held; “We find that the denial of annual leave entitlement to the claimants all through their years of service to the 1st defendant coupled with the 1st  defendant’s work days is inhuman and so a deprivation of the right to annual leave under section 18 of the Labour Act. This is, therefore, an unfair labour practice which this court cannot close its eyes to. There has been a violation of a legal right which entitles the claimants to an award of general damages and its quantum need not be pleaded or proved”.

Declaration of redundancy

In Nigeria, redundancies are governed by the Labour Act, the decisions of the National Industrial Court of Nigeria (NICN), the contracts of the affected employees, organizational policies or employees’ handbook, and the provisions of any collective bargaining agreement between an employer and the representatives of a trade union.

The Nigerian labour law acknowledges that an employer reserves the right to pay off any employee whether based on redundancy, idleness etc. or at the end of a project where the employee is engaged. The Labour Act defines redundancy as an “involuntary and permanent loss of employment caused by an excess of manpower”.[25] No specific rules apply to mass layoff or collective redundancy. Section 20 (1) of the Labour Act provides that in the event of redundancy, employers shall apply the procedure as follows:

  1. informing the trade union or representatives of the employees of the reason for and extent of the anticipated redundancy
  2. applying the principle of ‘last in, first out’ in determining the employees to be affected by the process, subject to all factors of relative merit, including skill, ability, and reliability; and
  3. negotiating redundancy payments of the affected employees.

Though the definition of excess manpower is not provided in the Labour Act, the courts have considered the acquisition of a company, restructuring, reduction of production line, shortage of raw materials, economic and technological reasons as valid grounds for declaring redundancy.

In Alexander O. Ejah & Ors v Niger Mills Co. Ltd[26], the Court reasoned that from the evidence shown, 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 was thus within the contemplation of the Act as a ground for redundancy. Also, in Peugeot Automobile Nigeria Ltd v Oje[27] the Court described redundancy in the following words: “it is a mode of removing of an employee from service when his post is declared ‘redundant’ by his employee (sic). 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….”.

Another insightful decision of the Court in this regard is the case of Okwara Agwu & Ors v. Julius Berger Nigeria Plc[28]. where the Supreme Court, in dismissing the appeal held that a Court will not compel an unwilling employer to retain employees it does not need, and that the only thing a Court can do is to order for payment of all entitlement of the employees, based on the provisions of the contract of employment. In view of the foregoing, it is recommended that employers be transparent about the redundancy process and inform employees of the intention to declare a redundancy as well as negotiate a disengagement package where necessary.

Termination

In light of current realities and considering the effect of the pandemic on business activities, employers may also, as a last resort, rely on the principle of frustration or contractual force majeure to terminate employments.

Generally, frustration is upheld as a basis for termination where it is established to the satisfaction of the court that due to a subsequent change in circumstances, the contract has become impossible to perform[29]. Such change in circumstance may include subsequent legal changes, outbreak of war, cancellation by an unexpected event. The consequence of the occurrence of a frustrating event which makes parties unable to perform their contract such as lockdown directives by governments to flatten the curve of the COVID-19 pandemic is that the contract is terminated immediately and the parties discharged.[30]

Force majeure provisions, on the other hand, are provisions contained in the employment contract which allows the parties to determine in their contract, such occurrences which may be termed as being beyond their control and described as force majeure events. This is distinct from the principle of frustration in that for force majeure provisions to hold, such events must have been agreed by the parties and their occurrence must be such that they affect the performance of parties’ respective obligations under the contract. These events typically include wars, floods, or pandemics such as COVID-19. However, for an employer to rely on a force majeure clause, such clause must specifically mention pandemics, or acts of government which are beyond the reasonable control of the parties.

The above notwithstanding, it is not enough to have merely described the events which may be regarded as a force majeure event in the contract, an employer who seeks to rely on it, has the duty to prove that the pandemic and the resultant government lockdown has prevented it from being able to physically or legally fulfil its contractual obligations to the employee. However, an employer will not be heard to say that such occurrence has merely created a difficulty to perform, higher cost of performance, or less profits to the business. The employer must be able to prove that:[31]

  1. such occurrence was reasonably foreseeable at the time of entering the contract
  2. such occurrence is beyond the control of the employer/employee and cannot not be reasonably avoided; and
  3. due to the occurrence of such event, the employer/employee is incapable of performing obligations under the employment contract.

Finally, such termination must however comply with the terms of employment contract with respect to termination such as notice, or payment in lieu of notice.  

Conclusion

Whether or not the parties are still able to continue performing their contractual obligations in the face of the current pandemic will depend on pertinent considerations such as:

  1. the nature of the job and ability of the employee and availability of tools for the employee to work remotely
  2. the nature, length, and effect of the force majeure/frustrating event such as the COVID-19 pandemic
  3. whether in the circumstance a reasonable employer could have been expected to wait any longer before taking a decision, and
  4. reasonable adjustments made by the parties to ensure the continued performance of the contract[32].

It would be practical for employers to engage their employees before arriving at a decision as this would afford the employer the opportunity to communicate its present predicament to its employees. It is also advisable for the employer to compile with the provisions of the contract of employment for the execution of whatever decision they elect. This may include notice/pay requirement, severance packages, terminal benefits, or consultation with union representatives and compliance with international best practices. It is important to note however that for employers in the oil and gas sector, an approval from the Department of Petroleum Resources (‘the DPR’)  must first be obtained before releasing any Nigerian staff[33]. The Guidelines defines “release” to include but not limited to, the removal of a worker in a manner that permanently separates the worker from the employer in ways such as by dismissal; retirement; termination; redundancy; release on medical grounds; resignation; death or abandonment of duty post”.[34]  Thus, any employer who wishes to release a worker shall apply in writing to the Director for the Minister’s approval stating the manner of staff release, the reasons for the proposed release, the compensation due to the Worker, and any proposed replacement for the Worker.[35]

On a final note, if disputes arise between employer and employee, it is recommended that such disputes are settled through Alternative Dispute Resolution mechanisms such as mediation, negotiation or arbitration. However, where either party is dissatisfied with the outcome, they may resort to the National Industrial Court of Nigeria (NICN) for adjudication.[36]

Written by Olubukola Seun-oguntuga and Joshua Olorunmaiye

The information and opinions in this publication are provided for general information only. They are not intended to constitute legal or other professional advice. If you would like additional information, please contact the author at [email protected]

© All Rights Reserved. Sefton Fross is a leading full-service law firm in Nigeria internationally recognised for its expertise in corporate, commercial and mergers and acquisitions.


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