Since the enactment of the 2007 labour laws, Kenya has had one of the most robust labour law regimes in the world. The Employment & Labour Relations Court which enjoys exclusive jurisdiction to determine all labour disputes in Kenya is famed world-wide for its pro-employee ideology. The court is known to bend double backwards to ensure that employees who call upon it do not go home empty-handed unless their case is completely hopeless.
It is therefore surprising to note that unlike many other countries across the world Kenya has not enacted any legislation to regulate the seamless transfer of employees from one company to another following the merger or acquisition of their employer by another entity.
In such cases, employees are normally left at the mercy of the acquirer who by law has no obligation to absorb or retain them. Not surprisingly, therefore, news of a potential merger/acquisition of a business invariably sends cold shivers down the spines of Kenyan employees. The whole process is characterized by unbearable uncertainty and panic among employees.
There is currently no law obligating the acquirer of a business to retain any of the existing employees or to honour any employment terms agreed between the acquired company and its employees. The fate of the employees is consequently determined by the contractual terms agreed between the two companies. Never mind that the employees are generally not privy to the negotiations concerning the transaction and their views are rarely sought.
Employees have to contend with one of two options when their employer is bought out: either agree to be employed afresh by the acquirer on such terms as it may determine or accept a redundancy package from their employer and join the league of the jobless fraternity. In the absence of a law regulating the matter and imposing obligations upon the transacting parties, the employee’s position is considerably vulnerable.
As a middle ground and to avoid a labour dispute, the two companies normally agree that the acquirer will select such of the existing staff as it wishes to retain and offer them new contracts of employment on terms that are substantially similar to those contained in their existing contracts. In addition, the acquirer undertakes to recognize the past years of service rendered by the employees to their former employer for purposes of computing redundancy dues in future. The rest of the employees who do not make the cut or decline the offer, are normally declared redundant and paid off by their employer.
In a country with a high employment rate like Kenya, employees should not have to lose employment due to the merger/acquisition of their employer by another entity. Countries such as the UK, Singapore, South Africa and even Uganda have enacted legislation to protect employees in this eventuality. The import of such laws is that the merger/acquisition has practically no impact on the employees. By law, the existing employment contracts are automatically transferred to the new employer which thereafter assumes all the obligations of the employer going forward. The acquirer therefore inherits all the rights and obligations of the previous employer, thereby ensuring that the employees are not adversely affected by the commercial transaction.
The laws also provide that before any merger/acquisition transaction is undertaken, statutory notification must be given to the regulator of the labour sector at least two months before the date of the intended merger/acquisition of the business. This gives the regulator visibility into the transaction to ensure that employee rights are safeguarded throughout.
The current legal position in Kenya is most unsatisfactory. The law does not impose any obligation on the transacting parties to consult with the employees or take any measures to protect their welfare. Once in a while the Competition Authority will, in the process of approving the merger/acquisition transaction, impose a condition that the acquirer shall absorb a certain percentage of employees. This is, however, a pyrrhic consolation in the sense that the condition does not usually set any minimum duration within which the acquirer should retain the stated proportion of employees after the transaction.
A law regulating the transfer of employees would also assist employers in fostering certainty during merger and acquisition negotiations. At present companies are forced to make huge provisions in their books for redundancy payments in case the employees decline the new contracts. Even where they accept new contracts but the acquirer is unwilling to book the redundancy liability in its books by recognizing the past years of service, the employees are entitled to a redundancy package before transiting to the new employer. A good law would provide that since in practical terms there is no loss of employment as such, any employee who declines to transit will not be entitled to a redundancy package.
This legal mechanism, if introduced, would significantly reduce the cost of merger and acquisition transactions and provide employees with the much needed certainty and peace of mind. It can only be a win-win situation.
The article was also published in the Business Daily on 14th March 2018 which can be accessed here.