PROPOSED LAW ON AUTOMATIC TRANSFER OF EMPLOYEES IN KENYA AND HOW IT WOULD FILL A MAJOR GAP
If the draft Employment (Amendment) Bill, 2019 is passed into law, Kenya will join other countries that have laws on automatic transfer of employees. This would fill the current legislative gap and provide certainty about the position of employees affected by mergers or acquisitions.
In any business acquisition, the buyer of a business is required to consider the fate of the employees of the seller of the business. The buyer may wish to retain the employees of the seller to enable it to continue to operate the business satisfactorily or deliver the required services. Sometimes, the buyer may prefer to receive none of the existing employees because either the work will be relocated or performed in a radically different way, or it is looking at significant cost savings. In other instances, the buyer may elect to take the middle ground, which is to retain some but not all of the employees of the seller.
Generally, if there are no local laws prescribing the procedure of transferring employees, there is uncertainty on the part of the employees as to whether or not they would be absorbed by the buyer. This has been the position in Kenya.
Gap in the law of transfer of employees
Kenya does not currently have a specific law governing the transfer of employees on transfer of a business. Normally, the buyer would have three options.
- The first option is for the seller to declare the employees redundant, irrespective of whether the buyer is offering alternative employment. The employment is terminated by the seller and new employment contracts with the buyer entered into simultaneously. Under this option, the seller would be required to comply with the provisions of the Employment Act on redundancy processes. This option is very common in the Kenyan market.
- The second option adopted by some buyers is entering into tripartite agreements between the buyer, the seller and the relevant employees. This method provides an efficient and seamless means of transferring employees as it will be entered into and signed by all parties, and will essentially encompass the entire transfer process in one document. The agreement would effectively provide that the employee in question resigns from employment with the seller and in consideration of the buyer offering fresh employment and recognising all accrued entitlements; the employee waives his rights to receive redundancy payments from the seller. The agreement would also expressly confirm that the employee agrees to the transfer of his/her employment. This would have to be on terms no less favourable than the previous employment.
- Under the third possible option, the seller would obtain the resignation of the employees and the buyer would then offer them fresh employment recognising accrued entitlements. The employees, in a letter addressed to the seller, would then waive rights to receive redundancy payments from the seller in consideration for his or her employment with the buyer recognising accrued entitlements.
Proposed amendments to the Employment Act, 2007
Under the proposed Employment (Amendment) Bill, 2019, if a seller transfers a business, the transfer shall not operate to terminate the employment relationships and any dismissal of the employee based on the transfer would be deemed unfair dismissal.
By virtue of the new law, on completion of the transfer of business, all the seller’s rights, powers, duties and liabilities in connection with the employment shall be automatically transferred. Further, any act or omission done before the transfer by the seller in respect of that contract of service shall be deemed the buyer’s act or omission. In the same way, any act or omission done before the transfer by an employee in relation to the seller shall be deemed to have been done in relation to the buyer.
Therefore, existing employment contracts would continue to have effect after the transfer as if such contract had originally been made between the employee and the buyer, with the same terms and conditions of service. The transfer shall not break the continuity of the period of employment.
Under the proposed law, the seller would be required to provide the affected employees with a statutory notification as soon as it is reasonable and before the transfer is completed. The notification should include details of:
(a) the fact that the transfer is to take place, the approximate date on which it is to take place and the reasons for the transfer;
(b) implications of the transfer and the measures that the seller envisages will be taken in relation to the employees, if any; and
(c) measures that the buyer envisages to take in relation to employees (if any). This is important to enable consultation between the seller, the buyer and the affected employees.
The proposed law also deals with any recognition or collective agreement entered into between the seller and the trade union of the affected employees that was in force immediately before the transfer. Such agreements shall continue in force between the buyer and the trade union of the affected employees for a period of 12 months after the date of the transfer or until the date of its expiry, whichever is the earlier.
A step in the right direction
The proposed introduction of automatic transfer of employees is a step in the right direction as it brings clarity in the M&A process in Kenya when dealing with transfers of business.
It is a big win for employees of Kenyan corporates because their employment status is set to be secure and they need not worry about whether they will be laid off when the business is transferred to another entity. The proposed introduction will also significantly reduce costs that were previously associated with transferring employees upon transfers of business in the M&A context, which is a win for business too.
 The draft Employment (Amendment) Bill, 2019 was published by the Kenya Law Reform Commission and the State Department for Labour for the purpose of public consultation. The draft Bill has not been tabled before Parliament. A copy of the draft is available on their website http://www.klrc.go.ke/index.php/bills/646-call-for-comments-employment-amendment-bill-2019.
 Jonathan Hearn ’Employee Transfers in Acquisitions and Outsourcing: Is It All About the ARD?’ (Autumn International HR Adviser).
 William Ikutha Maema ‘Why Kenya Needs Law on Transfer of Employees’ (13 March 2018, Business Daily).
 Provided that the seller is not subject to any Insolvency Proceedings.