Redundancy: Doing it the right way

• Nana Akwasi Awuah, Esq.

For many businesses, redundancy is one of the prime options considered when it comes to cutting costs and staying afloat in times of economic turmoil. However, if this is not done right, redundancy in itself may create bigger problems for businesses because of the possibility of costly and potentially time consuming litigation.

Redundancy Defined

In summary, redundancy occurs when an employer closes down its business (or intends to do so); or closes down a particular workplace (or intends to do so); or has a reduced requirement for employees to carry out the particular work for which they have been employed such that the employer has to lay off some workers. Although the Labour Act, 2003 (Act 651) does not explicitly define the term redundancy, it gives an indication to its precipitators which include, but are not limited to, where an employer contemplates the introduction of major changes in production, programme, organization, structure or technology of an undertaking that are likely to entail terminations of employment of workers.

This article takes a look at redundancy in Ghana and the proper way to effect same without breaching the Act nor incurring any unnecessary liability for unfair termination.

Under the Act, whenever an employer intends to embark on a major change which is likely to result in the termination of employment, the employer shall provide in writing to the Chief Labour Officer and the trade union concerned, and give the proper notice and the required information according to law. The employer is also required to provide a road map to justify the redundancy and measures to mitigate its effects. Although the Act makes reference to consultation with requisite trade unions, it is usually advisable for employers to consult with employees when the proposal to make redundancies is in its formative stage, that is, before any decisions have been made at management or board level in relation to such proposals.

Thus, it is advised that there is consultation before the employer takes the final decision to lay off any employees. Otherwise, this could result in the process being a sham and the dismissal deemed unfair.

Negotiation to Determine Redundancy Pay

The redundancy pay is purely a matter of negotiation between the employer and the employee. Parties may usually provide for the basis of the calculation of the redundancy pay in the contract of employment in the absence of which the parties may negotiate the sum payable. Industry practice also serves as a benchmark for negotiations, which is usually one month’s pay multiplied by the number of years of work.

Many a time, however, parties are unable to reach an amicable settlement on redundancy packages. The simple reason for this phenomenon is that, whereas the employee usually feels he or she is entitled to more, the employer’s aim is to minimize its exposure to the barest minimum. However, in case of any dispute in respect of the redundancy pay and the terms and conditions of payment, either party may refer it to the National Labour Commission for settlement, and the decision of the Commission shall, subject to any existing law, be final. Advisedly, it is always prudent to include in the employment contract a redundancy clause. It is equally pertinent that the redundancy clause be carefully drafted so as to avoid controversies.

Conclusion

It is important to note that all the aforementioned, do not apply to workers engaged under contracts of employment for a specified period of time or specified work; or a worker serving a period of probation; or workers engaged on a casual basis. In a nutshell, redundancy is a fair and legal means of cutting costs when companies encounter economic difficulties or intend to embark on major changes in their operations. However, steps must be taken to ensure that there is necessary consultation with relevant stakeholders subject to the provisions of the Labour Act, 2003 (Act 651).