Introduction

As more and more people embrace Artificial Intelligence (AI) and LLM automation, redundancies will soon be a workplace reality. Compounded by economic downturns, mechanical automation, declining revenue, fierce competition, and stricter regulatory compliance requirements, employers are being left with no choice but to reduce their workforce.

Let’s explore the concept with the help of an example:

Nguvi I.O

Nguvi I.O is a mobile-app development company offering development as a service to its clients. They have 5 full-time developers. With the uptake of LLMs, they find that they can deliver services to clients with just 2 staff.

The company has also been struggling to meet payroll over the last year, and its directors have determined that since the employees know how bad things are, they will fully understand.

The directors approach Amoso, Wakio and Tabitha, and explain that the company has been facing financial challenges; as a result, their roles are being declared redundant. As a full and final settlement, the company would like to offer them 3 months’ worth of salary each if they sign a settlement agreement to leave their jobs effectively immediately.

It’s worth noting that Tabitha has regularly been missing work or leaving early lately. She has had a previous public confrontation with her supervisor, one of the directors, where she told him off and embarrassed him in front of all staff. She is, however, quite capable and delivers her work on time and often above the standard set by the client.

What Is Redundancy Under Kenyan Law?

Under the Employment Act 2007, redundancy refers to:

“The loss of employment, occupation, job or career by involuntary means through no fault of the employee…”

In Kenya, redundancy, one of the most litigated employment disputes before the Employment and Labour Relations Court, is a strictly regulated process requiring strict compliance with the procedure set out under the Employment Act. A business may genuinely need to declare a position in their company redundant, but lose a case due to a defective procedure.

A redundancy is caused by changes in the employer’s operational requirements, resulting in the elimination of a job or role. Any terminations made under redundancy must therefore not attempt to replace a disciplinary termination. This is because, later, when the business attempts to hire a different person for the same position or a position substantially similar to it, the termination may be declared unfair.

Common Situations That Lead to Redundancy

Employers in Kenya commonly initiate redundancies because of:

• Financial Difficulties: A company may need to reduce payroll costs due to falling revenue and cash flow problems caused by the permanent loss of demand for its products or services.
• Restructuring: Businesses often reorganise internally to improve efficiency by merging teams, centralising operations, eliminating duplicate roles, and creating lean management structures.
• Automation and Technology: Technology may reduce the need for manual labour or administrative roles.
• Outsourcing: An employer may partially or fully outsource a department or service, such as IT, Marketing, Security, Cleaning, Logistics, Customer support, etc.
• Closure of a Business Unit: A branch, division, or location may cease operations entirely.
• Mergers and Acquisitions: After a merger or acquisition, duplicated positions are frequently eliminated.

Is Redundancy the Same as Retrenchment?

In Kenya, the terms are often used interchangeably in practice. However, the Employment Act primarily uses the term “redundancy.”

The Legal Framework Governing Redundancy in Kenya

Redundancy is mainly governed by:

• The Employment Act
• The Constitution of Kenya
• Collective Bargaining Agreements (CBAs)
• Employment contracts
• Decisions of the Employment and Labour Relations Court

The most important statutory provision is Section 40 of the Employment Act, which sets out the mandatory procedural requirements.

Can an Employer Declare Redundancy for Any Reason?

Before declaring a job or role redundant, an employer must have:

1. Have a genuine operational reason
2. Use a fair selection process
3. Comply with statutory procedure

The courts may invalidate a redundancy and declare it unfair termination where:

• The reason is dishonest
• The process targets specific employees unfairly
• Consultation is absent
• Notices are defective
• The selection criteria are discriminatory

Further, a redundancy process cannot be used to:

• Punish whistleblowers
• Remove difficult employees
• Avoid disciplinary processes
• Eliminate union members
• Force resignations
• Replace employees cheaply

The Mandatory Redundancy Procedure in Kenya

Even where redundancy is commercially justified, failure to follow proper procedure can expose the business to litigation. Employers must therefore strictly comply with the following mandatory procedure:

Step 1: Identify a Genuine Redundancy Situation

The employer must first establish a genuine redundancy situation capable of answering:

• Why is the redundancy necessary
• Which roles are affected
• Whether alternatives exist
• The business rationale behind the restructuring

This should be properly documented internally, as this may be useful proof of the circumstances if any disputes arise. Useful records include:

• Board and AGM resolutions
• Financial and Audit Records
• Organisational charts
• Operational assessments

• Nguvi I.O has a genuine reason to declare redundancies

Step 2: Issue the Statutory Redundancy Notice

The law requires at least one month’s prior written notice to the employee, the local labour officer, and, if the employee is unionisable, the union, before the effective termination date.

The notice should explain the reasons, extent and proposed timeline of the intended redundancy.

• Nguvi I.O did not give any notice to the 3 employees of any consideration that their jobs were considered redundant.

Step 3: Conduct Meaningful Consultation

Kenyan courts increasingly emphasise consultation, i.e. employee participation in the process. Although Section 40 does not expressly provide a detailed consultation framework, courts treat consultation as part of fair labour practices under the Constitution. Meaningful consultation may involve:

• Explaining reasons for redundancy
• Discussing alternatives
• Considering redeployment
• Reviewing selection criteria
• Discussing timelines
• Exploring voluntary exits

The consultation process must be genuine, not merely a charade to rubber-stamp a decision already finalised, before the consultations.

• Nguvi I.O did not hold any consultations with the 3 employees who may have been willing to take pay cuts or volunteer to leave.

Step 4: Apply Fair Selection Criteria

Where only some employees are affected, employers must apply objective selection criteria.

The law specifically mentions paying attention to seniority in time, skill, ability, and reliability. Other lawful criteria may include: performance history, qualifications, and business needs.

Employers must specifically avoid discriminatory decisions based on personal bias, retaliation, race, ethnicity, gender, or union membership and decisions based on an employee’s pregnancy, illness, or disability.

Ensure to properly document the selection, as a poorly documented selection process may later create litigation exposure.

• The directors attempted to terminate Tabitha through a redundancy process rather than through proper disciplinary procedures for insubordination or repeated absence from work with no good reason.

Step 5: Calculate and Pay Terminal Dues

Employees declared redundant are entitled to payment of:

• Salary up to the last working day
• Accrued leave
• Notice pay where applicable
• Severance pay
• Any contractual benefits

Employers must ensure that the calculations are accurate and well-documented, including communication to the employee.

• Nguvi I.O did not pay any attention to the proper calculation of terminal dues, omitting leave and notice pay. They simply offered a 3-month severance package.

Severance Pay in Kenya

Severance pay is a form of compensation paid to an employee who is laid off or terminated from their job, as a result of redundancy. It is intended to help the employee transition to new employment.

The amount of severance pay can vary based on factors such as the length of employment, company policy, and the terms outlined in the employment contract or collective bargaining agreements.

The statutory minimum for severance pay under Kenya’s Employment Act is 15 days’ wages for each completed year of service.

• Formula: (Daily Rate of Pay × 15) × Number of Completed Years of Service.
• Completed Years: Only full years of service are counted; partial years are typically excluded from the severance calculation unless specified otherwise in a Collective Bargaining Agreement (CBA) or individual contract.

Severance pay is separate from leave pay, notice pay, salary arrears, and any bonuses or commissions owed under contract.

Example

An employee earning KES 120,000 per month who has worked for 5 completed years may receive:

• 15 days × 5 years
• Equivalent to approximately 2.5 months’ salary as severance

Does an Employer Have to Pay Notice Pay During Redundancy?

Usually, yes, unless the employee continues to work during the notice period. In reality, many employers follow the following procedure:

• Issue notice
• Require employees to stop working immediately
• Pay salary in lieu of notice

The statutory minimum notice period is set at one month. However, this may be longer, for example, for 2 or 3 months, as per the CBAs, and/or the employee’s contract of employment.

Must Employers Notify the Labour Officer?

This is a mandatory requirement under Section 40. An employer must notify the local labour officer responsible for the area where the employer is based or where the employee works if the employee has more than one branch.

Failure to notify the labour officer is one of the most common reasons redundancies are declared unlawful.

What Happens If the Redundancy Process Is Declared Unfair?

The consequences of failing to follow the set redundancy procedure can be quite severe to a business when an employee files a claim before the Employment and Labour Relations Court.

Consequences range from employee unrest, reputational damage, regulatory scrutiny and union disputes to court awards, which may include:

• Compensation awards of up to 12 months’ salary
• Payment of severance and accrued dues, such as notice pay, leave pay
• Reinstatement orders, though rare
• Injunctions delaying restructures

In some cases, the court may also find constitutional violations and make awards for damages.

Can Employees Challenge a Redundancy?

Employees commonly challenge redundancies on the following grounds:

• Lack of notice
• Sham restructuring
• Discriminatory selection
• Lack of consultation
• Underpayment
• Procedural defects

Redundancy and Unionised Employees

When employees are members of a union, or the employees are unionisable, collective bargaining agreements (CBAs) may impose additional obligations. Union may also require more severe consultation and negotiations.

Employers should proceed carefully where unions are involved.

Redundancy During Business Restructuring or Investment Transactions

Foreign investors and acquiring companies often underestimate Kenyan employment liabilities. Poorly managed redundancies can delay transactions, create contingent liabilities, trigger litigation post-acquisition and affect valuation.

Further, where a merger or acquisition requires approval from the Competition Authority, one of the conditions of approval may be a limitation on the right to declare redundancies, as has been seen in various approvals in recent years. Thorough employment due diligence is therefore critical during mergers and acquisitions.

While more flexible, special care should also be taken during management buyouts, Private equity transactions, and group restructures.

Conclusion

Redundancy is a legally sensitive employment process in Kenya.

Many businesses focus only on commercial urgency and overlook procedural compliance. Unfortunately, even a commercially justified restructuring can become extremely expensive if the legal process is mishandled.

Employers should approach redundancy strategically, with proper legal guidance, documentation, and risk management from the outset.

If your business is considering restructuring or workforce reduction, obtaining legal advice before issuing notices can significantly reduce litigation exposure and operational disruption.

How We Assist Employers With Redundancy Processes

At Wacu Mureithi & Co. Advocates, we advise businesses, investors, directors, and HR teams on lawful redundancy processes, workforce restructuring, and employment risk management in Kenya. We assist with:

• Redundancy compliance reviews
• Workforce restructuring strategy development
• Preparation of notices and documentation
• HR management and Risk management, advisory
• Separation negotiations
• ELRC litigation defence
• Employment due diligence during transactions

We work with employers to structure legally defensible redundancy processes while minimising operational disruption, risk and litigation exposure.