Redundancy Law: A case for reform

A business grows or shrinks with changes in the economic landscape in which it operates. In difficult times, it may become necessary to undertake a redundancy exercise – the process of laying off staff whose positions are no longer needed.

Truth be told, the expression ‘redundancy’ fills both employers and employees with dread. This is never an easy process. Apart from the financial and emotional consequences for the employees who are directly affected, it is also inevitable that virtually all areas of business operation would be impacted by the disruption and reduced productivity that comes with undertaking a redundancy.

This already difficult process is ,therefore, not helped at all if the law that governs the process is itself uncertain. Regrettably, that is the case with the redundancy provisions under Ghana’s Labour Act the provisions on redundancy in Ghana’s Labour Act, 2003 (Act 651) (“Labour Act”) do no favours for either employers or employees and should themselves be revised.

Generally, larger companies tend to plan redundancies well in advance where substantial layoffs are envisaged, which then ensures minimal disruption to the business’s operations.

This would include detailed and extensive human resources strategies to address potential exits and associated financial planning. The putting into place and careful execution of such strategies work best if situated in a legal environment that properly anticipates such matters and provides for them in a business-like manner.

It ,therefore, comes as a major hindrance to many businesses that redundancy provisions of the Labour Act in Ghana are frankly not up to the job.

Challenges

Under Ghanaian law, a redundancy may arise where a business undergoes “major changes in production, programme, organisation, structure or technology,” that are likely to result in termination of employment.

Typically, these may occur when the business closes down, merges with another or carries out some other form of restructuring. Redundancies may also arise where the position occupied by an employee is no longer required or where the business no longer requires the same number of employees to carry out work of a particular kind. In any of these situations, the affected employees would be entitled to so-called “redundancy pay”.

The mechanism in the Labour Act for determining how much redundancy pay should be paid in any particular case is simply that the amount of redundancy pay and the terms and conditions of payment are “matters which are subject to negotiation between the employer or a representative of the employer on the one hand and the worker or the trade union concerned on the other.”

Where the parties are unable to agree, then the matter may be referred to the National Labour Commission or the courts for determination. According to the Labour Act, the decision of the Labour Commission on redundancy pay shall “be final.”

The problem with this provision is that it offers absolutely no guidance on how to determine amounts of redundancy pay in any particular case. Unlike the law in countries such as England or South Africa, our Labour Act does not provide any formula for calculating redundancy pay.

There are also no minimum or maximum thresholds. This leaves the issue open to wide interpretation by the National Labour Commission and the courts, meaning that employees will often resort to litigation to try and obtain a larger payout, and it is virtually impossible for businesses to budget effectively to deal with redundancy.

Over the years, various formulae have been adopted by employers and unions to calculate redundancy pay. Currently, the most widely practised strategy is to pay a certain amount (usually a number of months’ salary) for each year of service.

The ‘number of months paid per year’ varies, depending on the seniority or otherwise of the employee. However, with no clear guidance, these formulae carry no force of law and lead to widely differing approaches and interpretations. Case law on redundancy has not developed (and maybe cannot develop) any formulae for calculating redundancy pay.

Amendment

The Labour Act has been in force since 2003 and it is long overdue for several amendments. I think that an amendment to include a formula for the calculation of redundancy pay is absolutely critical.

I propose that the formula should be based on an employee’s age, length of service and monthly salary. Such a formula would not only ensure uniformity in the calculation of redundancy pay across the board, making the process smoother for all concerned but would greatly reduce the redundancy claims that are clogging up the courts.

As the economy grows and takes its place in the global economic climate, a legislative system that leaves many businesses uncertain on such an important aspect of their future planning can no longer hold sway. An amendment cannot come any sooner.

The writer is head of the specialist pensions, employment and immigration practice group at
Bentsi-Enchill Letsa and Ankomah. aagyasi@belonline.org