The Nigeria Employers' Consultative Association (NECA) has provided guidance to member organisations on how to deal with employment contracts and salary obligations to employees due to the impact of the Covid-19 pandemic.

The main objectives of the guidance are:

  • To provide guidance to employers on payment of salaries to employees during the lockdown period.
  • To remind employers that the duty to pay wages should be based on contractual arrangements.
  • To help employers make informed decisions where verbal agreements are reached with employees.

Employer salary obligation

NECA advises that an employer is obliged to pay the wages of its employees for the duration of employment set out in the contracts.

Where an employer has reached the decision that payment of salaries is no longer sustainable due to a slow down in business activities, it should be communicated promptly and formally with the affected employees separate from initial employment contract.

Employee unions should be consulted ahead or staff representatives where such exist in non –unionized organisations.

What measures can employers take when paying employees is not sustainable?

  • Leave: Where employees have unutilised leave from prior periods, the employer may inform them to utilise these during the lock down period;
  • Pay reduction: Employers may reduce staff salaries or suspend future expected increase in pay pending when business activities pick up;
  • Termination/Redundancy: Where an employer has reached a decision that none of the above options is sustainable and employees' contracts must be terminated, this must be done in line with the termination clause in the employment contract, staff policy or any collective agreement. All terminal benefits/pay must be settled as agreed between the parties involved either verbally or in a written contract.

However, where the company is unable to make full payment due to cash flow problems, the mode, timeline and duration for offsetting the outstanding payment should be well spelt out and documented in the termination agreement.

Coverage

NECA's letter is prescriptive for member organisations and may be persuasive to non members. In all cases, the labour law and employment contracts should guide employer decisions triggered by the pandemic. Any action taken should be formally communicated to avoid disputes or litigious claims.

Takeaway

COVID-19 and the attendant lockdown has impacted Nigeria and the globe in an unpreceded manner. The impact on the productivity of businesses affects the ability of businesses to retain employees so NECA's guidance is interesting to note. We believe most employers have considered that the health and safety of their employees matter most at this time above all else. However, the pandemic has accelerated disruptions in the business environment including changes in business models that may now practically mean a leaner workforce is required. Some options to address this may have been work suspensions, reduced work, unpaid leave or even lay-offs.

Each scenario will have different tax impacts which should be considered before execution. These may be on the terminal benefit, social security contributions before and after a suspension, benefits in kind, share options and impact on eligibility for employment retention reliefs.

Whatever decision is taken by the employer, it is important that they are guided by existing employment contracts, work policies or collective agreements, relevant legislations such as the Labour Act and tax laws to avoid unintended additional costs. Changes in employment contract terms such as suspensions should be clearly communicated and properly documented.

Originally published 4 May, 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.