Layoffs, Pay Cuts, Redundancy: What Are Your Options?

by | Mar 30, 2020 | General | 11 comments

With the recent announcement of the 2 week lock down period beginning in some parts of Nigeria, there is much more uncertainty about the future of many businesses in the country.

Seeing all the examples of government schemes protecting businesses in other countries, the popular notion that you are your own government in Nigeria rings truer than ever.  

When cash flow takes a huge hit, I know first hand that decisions need to be made. Whether we remain in denial or face reality, we should carefully explore and distinguish between available options including the possibilities of layoffs, pay cuts and redundancies.

1. Lay-offs: Also known as Stand downs may be paid or unpaid. Many of the first companies to be hit by the Corona pandemic exercised stand-downs; airlines, sports and entertainment industries to mention a few.  An employer in most parts of the world can stand down its employees in the event that there is a stoppage of work for which the employer cannot be held responsible. The distinguishing factor here is, employees are not required to work during the stand down period and employment is preserved. The layoff may or may not come with benefits.  Part pay or a stipend may be considered, be as generous as you can afford to.

The Nigerian Labour Act states that it is the duty of the employer to provide work, it however recognises in Section 17(a), that there are temporary emergencies and circumstances beyond the employer’s control.

Layoffs are clearly a good option when the firm is unable to secure work for employees. It is quite understanding that an organisation may exhaust all current options to redirect staff efforts at this time. If your clients or customer’s do not require your services, there is very little you can do about it.

Prior to lay-offs, the first option should be to for employees to use up accrued annual leave days. This would mean all staff will be available at the latter time of the year when the business is set to resume operations. The only down side of this will be that the staff may not be able to use their leave when they choose to.

If you still need your staff to work full or part time then you cannot effectively exercise a layoff or stand down, a pay-cut may be a better option.

2. Pay-cuts: As the name implies, is asking employees to take a salary cut for a temporary period of time. This option should not be mandated as it is a request to change an existing contract of employment. A discussion will need to take place and staff will have to consider the request. It is important to be clear whether this is temporary and if pay will revert within a period of time, if so, state when.  A pay-cut could also mean reduced working days or hours, as that could very well be the basis of the pay cut, if this is the case, the reduction in working time should be agreed. If the working hours remain the same then consider a deferred payment option which means that the pay cut amount will be reimbursed at a later date. It will be easier to justify a pay-cut if working hours are reduced. Notwithstanding, the most important thing is getting to an agreement with affected employees. Consultation with staff will also give the opportunity to solicit suggestions and possible options from staff, do so.

Any agreement with new terms should be in writing to avoid litigation or any claim by the employee to not consenting. Pay-cuts are options that employees will concede to especially where there is a genuine understanding that the business cannot afford the payroll costs due to business down time. The important thing is that consultation is sought, and the new terms are agreed and not imposed.

The arguments for pay-cuts like lay-offs is that it prolongs job security. Since most firms will not be hiring at this time, thus the chances of employees finding a similar job will be harder.

The process of asking for pay-cuts should be handled with care and the objective is to get consent to avoid a breach of contract. Without the employee’s consent other options should be explored.

3. Redundancy: According to Nigerian labour law, redundancy refers to the permanent or involuntary loss of employment caused by an excess of manpower. Redundancy happens when an employer no longer requires the work done by anyone, not just the current employee. The role is said to no longer exist.

It is important that the firm’s redundancy procedures are followed as these will detail the criteria used to determine which employees will be made redundant and what compensation is due to them. If redundancy has been decided as the best option, employees may be encouraged to opt for voluntary redundancy in exchange for a compensation package before a more formal redundancy procedure is carried out.  The advantage of voluntary redundancy is that it saves having to use redundancy criteria to determine who is made redundant as people volunteer to be made redundant.

Where there are no redundancy procedures, it is likely that most firms will default to their termination clauses and terminate the contract of employment. Prior to considering termination, it is worth while discussing resignation with employees as another option as some would prefer to resign than be laid off especially where the termination comes with no benefits. With redundancy or termination, the employer is obligated to pay the employee based on the terms of their contract.

Whatever situation you find your business, the best choice is to envisage the plans you had for 2020 and try as much as possible to preserve employment, leaving redundancy as a last resort. I have no doubt that this is not an easy option as many businesses are grappling for a life line right now.

Remember that consultations with staff are the way to go as enforcement and directives without consent will be a breach of contract. You will find that many employees are insecure and anxious at this time, thus may be more open to negotiating new terms that give them more certainty.

The best we can do is preserve our humanity and remember that there is indeed dignity in labour and thus do our best to preserve it while keeping businesses alive.

All the best, as you navigate these times. Feel free to reach out to me if you need to bounce off ideas.

Adora Ikwuemesi speaks writes and advises on human resources management and enhancing career lives.

Check out Kendor Consulting’s HR BootCamp Entrepreneur Edition for those wanting to start HR Consulting businesses. The sessions are real time, online virtual classes, also available via replay on Zoom Click link below/

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11 Comments

  1. IDOKO OGALA

    Well articulated. Thanks for sharing.

    Reply
  2. Bakre Ibrahim Oluwasheyi

    Dear Ma,
    This is very fantastic, articulate and apt at this very time.
    Thank you for all that you do .
    I am a student of Cipm currently in my PE2 . learning from you day to day open my mind to a lot more of what is needed to transition into a practicing professional.
    Thank you once more as I look forward to reading your next post.
    God bless you as you continue to enhance our capacity building.

    Reply
    • Emmanuel UTEBOR

      Nice and great piece, addressed issues that will arise during the lockdown where business and revenue losses will be the order of the day. What if employers also cites force majore as a shield to escape liability to employee

      Reply
  3. Chidinma Ndubuisi

    Fantastic piece and straight to the point .

    Reply
  4. Segun Asamo

    Very brilliant submissions. Total engagement with employees or their representatives is key.

    Reply
  5. Ezinne Lucy

    Nice write up Ada ….Yes we can’t deny the fact that there will be winding down in most business but let’s take the twist a little this is the time organization should stand out for its employees and reward is depper loyalty…Be it as it may Pay cut for me is better than lay of as it will show these employees that the company still cares than putting them to the street to start afresh..On the other hand it’s a hard time for organization the more reason both organization and employees need to come together as one …..

    Reply
    • AMAKA ADEBOWALE

      Truly sheds light on available options for businesses in these uncharted waters.

      Thank you for this writeup

      Reply
  6. Simi

    Very insightful write-up. I a trying to joing your webinar scheduled for Tuesday but i am getting a messge that the typeform is no longer accepting requests. How else can I join the webinar?

    Reply
  7. Gisanrin

    This is apt and very timely too

    Reply
  8. Teingo

    Enlightening piece.

    Just to note that the Labour Act of Nigeria is limited in scope to lower cadre of employees and excludes administrative, executive and other professional employees. Thus, their employment must be governed by a contract. At best the law can serve as a guide. See the meaning of “worker” under the Nigerian Labour Act for details.

    Regards.

    Reply

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