Accept a smaller salary or go home, is this acceptable?

Accept a smaller salary or go home, is this acceptable?

The African Union estimates that nearly 20 million jobs, both in the formal and informal sectors, are threatened with destruction on the continent if the corona situation continues.[1] The destruction of value chains, the lockdown of the population and the closing of restaurants, bars, retailers, informal commerce among others would lead to a disruption in many informal activities. Results from the Uganda Business Climate Index conducted in April 2020 by the Economic Policy Research Centre estimate that 3.8 million workers will lose their jobs temporarily while 625, 957 risk losing their employment permanently if the threat of covid-19 and associated measures persists for another six months. It is thus believed that such layoffs would constitute a reduction of 42% in temporary employment and 7% in permanent employment. It is further projected that 75% of the employees in the service sector will lose their jobs permanently.

Given the risk presented by COVID-19 and subsequent containment measures that have and continue to diminish business activity to unprecedented proportions, it is easy to lose sight of the escalating unemployment coupled with blatant abuse of labour rights in the process. As soon Uganda declared its first phase of the lockdown on 20th March 2020, letters terminating employee services and varying the terms of employment in the tourism, hotel, entertainment and education among other sectors started floating on the different social media platforms. Whatever the mode adopted by the different companies, majority of the salaried employees are bearing the brunt of salary cuts hinged on claims of reduced business activity causing a reduction in business income/revenue. Other companies have relied on redundancy of workers resulting from the lock-down measures as a reason to justify modifications in the terms of employment and terminating workers in the different sectors.

Most recently, the entire staff of Sanyu FM had their contracts relinquished for allegedly contesting a 25% salary reduction in the wake of the Covid-19 pandemic. While the radio station management claims that the reduction was as a result of staff achieving only 50% of the revenue budget, their former staff through their social media platforms and media interviews expose procedural irregularities and complete disregard of workers’ rights in effecting these changes. In other words, it is not shown that management employed a human centered approach in communicating its business predicament that necessitated the salary cuts. While there is absolutely no doubt that the current situation in the country has placed many companies/businesses in a very difficult economic situation, companies are undermining their legal obligations as well as exploiting the situation when making changes to accommodate the current challenge.  

Platform for Labour Action a non-government national civil society organization that promotes and protects the rights of vulnerable and marginalized workers in Uganda is deeply concerned about the ongoing violations and answered some of the commonly asked questions from the different media platforms. Before we delve into the concrete questions, we want to explain the legal principles governing termination of employment contracts.

Termination under the law-legal considerations

Section 2 of the Employment Act 2006 defines termination of employment as “the discharge of an employee from employment at the initiative of the employer for justifiable reason other than misconduct, such as expiry of contract, attainment of retirement age, etc…”

According to section 65 (1) of the Employment Act, termination is deemed to take place, (a) where the contract of service is ended by the employer with notice, (b) where the contract of service, being a contract for a fixed term of task, end with the expiry of the specified term or the completion of the specified task and is not renewed within a period of one week from the date of the expiry on the same or term not less favourable to the employee, (c) where the contract of service is ended by the employee with or without notice, as a consequence of unreasonable conduct on the part or the employer towards the employee, and (d) where the contract of service is ended by the employee, in circumstances where the employee has received notice of termination of contract of service from the employer, before the expiry of the notice. It is further stipulated in section 58 (1) of the Employment Act that a contract of service shall not be terminated by an employer unless he or she gives notice to the employee.

The notice has to be in writing and in the form and language that the employee to whom it relates can reasonably be expected to understand. The prescribed notice period for an employee who has been employed for more than six months but less than a year should not be less than two weeks, one who has worked for more than a year but less than five years one month notice, more than five years but less than ten years two months notice and one who has worked for more than ten years is supposed to get three months notice. It is therefore important for the employer to take into consideration the period of service of the employee in question before serving such notice. If the employer is not ready to provide the employee termination notice, then he/she should pay the employee in lieu of notice. The payment has to be an equivalent of the notice period a particular employee is entitled to.

Secondly, when terminating an employee, it is important to give them justifiable reason for an employer’s decision to terminate. The Industrial Court of Uganda in Florence Mafumba v Uganda Development Bank- Labour Claim 138/2014 held that in terminating the employment of an employee, there must be circumstances that are justifiable but which have no bearing on the fault or misconduct of the employee. The reasoning behind this was that in employing the employee, the employer had reason to so employ him/her. In the same way, in terminating the employee, there ought to be a reason for the decision.

In all situations, the employer must, as a rule, refer to the employment contract because the agreement of the parties governs the employment relationship. The terms of the contract guide the employer on how he/she will deal with the employees. The underlying assumption here in that all employment contracts are/have to be aligned to the provisions of the Employment Act 2006 because terms in the contract less favourable than those provided for in the Employment Act 2006 are null and void. In the absence of a written contract, the Employment Act is instructive.

We now proceed to answer the most troubling questions concerning the ongoing termination of workers and salary cuts.

  1. Given the current (covid-19) situation, can an employment contract be validly terminated, if so what needs to be observed by the employer?

Generally, both parties to the employment contract are free to terminate their relationship, as long as they respect the notice period applicable to the respective employment relationship and provide a justifiable reason. Where the parties are unprepared to accommodate each other/give the required notice, they should be in position to pay in lieu. Therefore, while employers have the discretion to exercise various strategies to keep their businesses going amidst the covid-19 situation, they have do so in accordance to the laid down legal procedures.

It is imperative to take note of article 42 of the Constitution of Uganda which provides that “Any person appearing before any administrative official or body has a right to be treated justly and fairly and shall have a right to apply to a court of law in respect of any administrative decision against him or her.” According to section 73 (1) (b) of the Employment Act, a termination shall be unfair if it is found out that in all circumstances of the case, the employer did not act in accordance with justice and equity in terminating the employee from service.

One would then wonder whether the impact of the pandemic can stand as justifiable reason to terminate a worker. According to section 40 (2) of the Employment Act 2006, the employer’s duty to provide work shall not apply if (a) the contract is frustrated, (b) its performance is suspended, or (c) it is prevented by an act of God or civil strife. Similarly, it is stipulated under section 40 (3) that an employer is not to be liable to provide work where interruption to his or her business activities are caused by natural calamities beyond the employer’s control. While the provisions seem to insulate the employer from the obligation to provide work to the employee during the duration of the pandemic, the section is silent on whether the employer’s obligation to pay wages can be suspended. This means that the employer may rely on the current challenge as a reason to terminate workers. In other words, the burden rests on the employer to prove that the pandemic has affected the business and termination of workers was necessary as a recovery measure. It would amount to unjustified termination where employees are replaced as soon as they are terminated.

Where an employer wishes to terminate more than 10 people, he/she should comply with section 81 of the Act. The procedure for collective termination as laid out in section 81 (1) of the Act which provides that where an employer contemplates termination of not less than ten employees over a period of not more than three months for reasons of an economic, technological, structural or similar nature, he or she shall (a) notify representatives of the labour union with the relevant information (as prescribed) at least four work before the first terminations takes effect unless the employer is hindered from giving notice depending on the reason of that termination and (b) notify the Commissioner in writing of the reasons for the terminations, the number and categories of workers likely to be affected and the period over which the terminations are intended to be carried out. Similarly, the ILO Convention 158 which was ratified by Uganda on 18th July 1990 states that in the event of termination of employment, (a) the employer provides a good time for consultations between the employer and the union on the reason for terminations, number and categories of workers affected and period of termination in order to come up with better ways so as to minimize and mitigate the adverse affected of the termination, the employer notifies competent authorities in good time about the terminations for reasons of economic, technological, structural or similar nature in accordance with the national laws. Where there are non-unionized workers, the employer should consider the employment contracts and the human resource policies.

It is important to note that temporary termination does not affect continuity of service in accordance to section 84 of the Employment Act. An employer may therefore rely on a contractual provision enabling the suspension/frustration of the performance of a contract to temporarily suspend the contract of employment pending the return to normalcy of the consequence of the covid-19 crisis.

Collective termination/ restructuring should be considered as a last resort because of the modalities involved in the selection of the persons to terminate, notification requirements, obligation to pay accrued salary arrears, payment in lieu of notice depending on the time the employee has been in the employer’s service and any other contractual employee benefits to which they would be entitled to. We relate with minister of Labour, Gender and Social Development’s communication dated 20th March 2020 and advise employers to proceed with caution and ensure that terminations are in compliance with the Law and are not perceived to be based on any prohibited ground of discrimination or related to an employee’s request to take a sick leave.

  1. Can employers renegotiate terms of employment/reduce salaries? If so what needs to be done before changes can be affected?

Yes, an employer may renegotiate with the employee to reduce salaries and other terms in their employment agreement. The creation and termination of employment contracts is also subject to the general principles of contract law that allow modification and changes. Section 27 (2) of the Employment Act 2006 provides that “nothing in this section shall prevent the application by agreement between the parties, of terms and conditions, which are more favorable to the employee than those contained in this Act.” In addition, section 59 (4) provides that “where there has been an agreed change affecting any of the matters referred to in subsection (1), the employer shall issue a written notice to the employee of the change.” Section 59 (1) talks about written particulars including wages an employee is entitled to and the mode of calculation of the same, normal working hours and conditions relating to incapacity for work among other particulars. The key words in the two provisions that allow changes/reduction in salaries and other terms of employment is agreement/consent. This means that any term of employment such as working hours, remuneration and leave days entitlement can be renegotiated during the duration of the pandemic and the associated precautionary measures provided the employer consults with the employees prior to making any amendments to their terms of employment, and the employee expressly agrees to the changes. This means that while is possible to change the salary structure, the employer can only legally do so after obtaining the employee’s written consent. It is therefore, illegal for an employer to reduce salaries before obtaining the consent of the employee.

  1. What options do workers who have not been terminated but have not been receiving wages have under the law?

A worker can apply to the labour officer for termination to recover his legal entitlements that come with termination. According to section 31 of the Employment Act 2006, where an employer is unable, or refuses to pay wages, a worker/employee may make an application to a labour officer to declare the contract terminated. This means that the employee would be entitled to all outstanding rights and benefits under the Employment Act as a result of the declared termination. Therefore, employees that have not received any communication from the employer about the inability to pay wages and are uncertain about the state of employment can proceed to apply for termination which generally entitles them to rights and benefits associated with termination.

  1. Can an employee be terminated due to redundancy? If so how should it be done?

While the Employment Act of Uganda does not define redundancy, it has and can be used as a reason to terminate a worker. However, the employer has to follow due procedure and consider substantive issues in making the decision to terminate due to redundancy. We will derive guidance from the Employment Act of Kenya (2012) which defines redundancy as “the loss of employment, occupation, job or career by involuntary means through no fault of an employee, involving 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. To carry out a lawful redundancy, under Kenyan law (section 40 of the Employment Act) the following steps must be followed (a) at least one month’s consultation with the affected employee (through their trade unions) before the due date of the redundancy, (b) at least one month notice of termination issued to the employees (through the trade union) informing them of the intended termination on the basis of redundancy, (c) while issuing the first notice, the labour officer of the area should as well be issued with one month notice before the intended redundancy is executed, (d) after the first notice, a second notice is issued and this is the actual letter of redundancy and finaly, upon the due conclusion of the redundancy process, the employee must be issued with a certificate of service. Where the employee is not a member of the union, the notification must be in writing to the employee and the labour officer-Thomas De La Rue (K) Limited v David Opondo Umutelema eKLR

The practice in Kenya dictates that the employer should select the employees to be declared redundant with due regard to seniority in time, skill, ability and reliability of each of the employee of the particular class of employees affected by the redundancy. Redundancy is a legitimate ground for terminating a contract of employment provided there is a valid and fair reason based on operational requirements of the employer and the termination is in accordance with fair a fair procedure Kenya Airways Limited v Aviation & Allied Workers Union Kenya & 3 others [2014] eKLR. In the case of Aviation and Allied Workers Union v Kenya Airways Limited & 3 others (2012) eKLR, the court held that consultations before and during the redundancy exercise must be observed. This is as well in line with the Employment Act 2006 and the ILO Convention 158 cited above.

Before making any worker redundant due to covid-19, the International Labour Organization appeals to employers to consider the following

  • Whether there are any options for redeployment within the business or associated entities
  • Applicable national laws, regulations and government policies, directive or advise in the context of the current situation
  • The consultation obligation under applicable laws and regulations, collective agreements or company policies, including engaging the union if applicable
  • The support scheme, stimulus or bailout package offered by the respective government to businesses to overcome this difficult situation.

Therefore employment contracts can/may be terminated on account of redundancy (due to economic reasons) provided that the employer believes that it is for a reasonable cause and is able to demonstrate that there is a valid justification for the proposed redundancy. Additionally, the employer has to comply with the required procedures in effecting the decision.

  1. Can an employer invoke force majeure clause to avoid or be excused from performing his contractual obligations?

An employer can invoke the Force Majeure clause. It is a term of a contract that excuses a party from performing its obligations in case of the occurrence of any event beyond the control of any party, including war, acts of God, government lockdown or plagues. The employer may invoke this clause if, as a result of COVID-19, he/she has failed to substantially fulfill his/her obligations under contract. The purpose of this clause should be to suspend the contract until when such interference can no longer stop the employer from fulfilling their contractual obligations unless otherwise agreed. Any employer seeking to rely on this clause will have the burden to prove that as a result of COVID-19, they are unable to fulfill contractual expectations and that COVID-19 actually fits into the definition of force majeure as provided for in the contract.

For force majeure to be relied on, it needs to be specifically included in the contract and properly defined to cover the relevant circumstances or events. The consequence of successfully establishing a claim under force majeure clause is not an automatic right to suspend performance of contractual obligations. A party should check the remedy available in the specific contract. Generally, the remedies would include extension of time to perform those obligations, suspension of contractual performance for the duration of the force majeure event, and suspension of contractual performance for the duration set out in the contract after which the parties can terminate the agreement.

The 2020 Ministry of Gender, Labour and Social Development guidelines on COVID-19 call for a humane face while dealing with the employees. Because of the conclusiveness of this clause in many contracts and it being indiscriminate towards the categories of employees, the employer should only consider this option if all efforts to sustain the business entity fail.

  1. Can an employer terminate an employee who has just completed his/ her probation, due to the pandemic?

Yes, According to Section 67 of the Employment Act, a contract for a probationary period maybe terminated by either party by giving not less than fourteen days’ notice of termination, or by payment, by the employer to the employee, of seven days’ wages in lieu of notice. The employer is obligated to observe and assess the employee’s suitability. It is better to extend probation where the process of appraisal for confirmation of termination is not possible.

Therefore, employers should exercise patience and mutual understanding as observed by the Minister of Gender, Labour and Social Development, Frank Tumwebaze because the covid-19 conundrum is temporary and has affected workers and employers. Given anticipated spike in covid-19 case, employers may suffer sharp declines in volume and revenue which may require more drastic measures or decisions. Should the worst come to the worst, reference may be drawn from the ILO employers’ guide on managing your workplace during COVID-19 which lists some of cost-saving measures that may be adopted by employers including the following;

  1. Placing a freeze on new hires
  2. Reduce any supplementary labour such as contractors
  3. Provide annual leave or long service leave in advance or at reduced pay
  4. Encourage workers to take leave without pay
  5. Defer non-critical work event and scale down critical work events. Events and activities that are not critical to business operations such as welfare activities should be postponed until the situation is stable.
  6. Implement or enhance shift arrangements

The above changes will largely depend upon the applicable legislation, collective agreements or contracts that apply to the workers in question. Termination of employees should be taken as the very last resort, after all the available softer options have been exhausted. If employers must reduce their workforce, The Employment Act 2006 and the regulations have guiding provisions on termination, variation of contracts and termination benefits for all or specific group of workers.

In conclusion therefore, before making a decision to cut salaries or terminate workers, employers should communicate clearly and transparently the impact of the covid-19 virus on their business operations, services and financial situations to help workers understand the inevitability of the decision. It crucial that such decisions are implemented with strict compliance with the laws governing employment and the workers in question. Where the law requires an employer to make consultations/notifications prior to making a given decision, the process should show that such requirements were met.

[1] African Union, Impact of the Coronavirus (Covid19) on the African Economy, https://www.tralac.org/documents/resources/covid-19/3218-impact-of-the-coronavirus-covid-19-on-the-african-economy-african-union-report-april-2020/file.html

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