In the past, mergers and acquisitions have often led to job cuts, primarily due to overlapping roles and efforts to improve efficiency. This can include letting go of the target company’s CEO and other senior executives, who may receive a severance package. The acquiring company’s management aims to reduce costs to fund the acquisition, which often means job cuts in duplicate departments. Labour and employment law considerations are significant in corporate mergers or acquisitions, raising numerous legal issues that concern both employees and management. Job losses in these situations often occur due to restructuring, role duplication, or a desire to reduce workforce size.
In corporate mergers or acquisitions, employment law considerations are crucial, especially regarding the impact on employees. While the Employment Act (No.11 of 2007) and Labour Relations Act (No. 14 of 2007) do not directly address transfer undertakings, they do outline basic employment conditions and termination procedures, including redundancy, which is common in such situations.
Contracts of employment are generally not transferable, except in cases where there is a change of shareholders but not of the employer’s identity. In such cases, the terms of employment remain the same, and the employment relationship continues.
However, in mergers where a new company emerges and the old company dissolves, employees’ contracts do not automatically transfer to the new entity. Instead, contracts are terminated due to redundancy, and employees must be compensated according to the Employment Act. If the acquiring company offers employment to transferred employees, the new terms must be at least as favorable as the previous ones. Employees who accept new terms waive their right to terminal benefits, but those who reject the offer must be terminated and compensated.
Before a transfer undertaking, it’s important to conduct due diligence, including reviewing the other company’s employment agreements and collective bargaining agreements. A buyer may be bound by these agreements if they step into the seller’s shoes. Reviewing company policies, pending employment claims, benefit plans, and other agreements is also crucial. Warranties and indemnities should be included in the agreements to protect both parties.
Recently, the Competition Authority of Kenya (CAK) revealed that its conditional approvals for the merger of four flower firms helped protect 14,000 jobs in the year up to June last year. This move provided relief to numerous households that rely on these agricultural businesses for their livelihoods.
The Competition Authority of Kenya stated that it considered public interest in its approval terms to safeguard jobs that were at risk of being lost amid an increase in merger transactions. Some of such transactions included;
KCB Group Acquisition of National Bank of Kenya (NBK) – 2019
Kenya Commercial Bank (KCB) Group’s acquisition of the National Bank of Kenya (NBK) in 2019 was one of the major mergers in the Kenyan banking sector. Concerns about job security were prominent during the merger process, especially considering NBK’s large workforce. The acquisition was subject to regulatory approval from the Competition Authority of Kenya (CAK), which imposed conditions aimed at protecting employees. One such condition was that KCB was required not to lay off any employees for a specific period post-merger, ensuring job security in the short term. KCB honored the commitment by retaining the majority of NBK’s employees and offering voluntary early retirement packages instead of forced layoffs, allowing a more humane transition for those affected.
Vodafone Group’s Transfer of its Indirect Stake in Safaricom to Vodacom – 2017
In 2017, Vodafone Group transferred its indirect stake in Safaricom, Kenya’s largest telecom operator, to its South African subsidiary Vodacom. This transaction raised concerns about the impact on Safaricom’s employees, given the potential changes in management and operations. Although this transaction was more of an internal restructuring within the Vodafone Group, the Kenyan government, which is a significant shareholder in Safaricom, was keen on ensuring that the move did not negatively impact the local workforce. The deal was structured in a way that Safaricom’s operations and workforce remained largely unaffected. Safaricom retained its Kenyan identity and operational autonomy, with no major layoffs resulting from the transaction, thereby protecting employees’ interests.
Acquisition of CBA by NIC Group – 2019
The merger between Commercial Bank of Africa (CBA) and NIC Group in 2019 created NCBA Group, one of Kenya’s largest banks. The merger involved two significant financial institutions with substantial staff numbers. The merger process included assurances that there would be no immediate layoffs, with efforts made to integrate the workforce of both banks. Employees were engaged through the process, and the merger was designed to minimize disruptions to their job. NCBA Group implemented a gradual approach to the integration of the workforce, offering retraining and redeployment opportunities where necessary, and avoided mass layoffs.
Regulatory Framework and Role of the Competition Authority of Kenya (CAK)
The Competition Authority of Kenya (CAK) plays a critical role in regulating mergers and acquisitions, particularly in ensuring that employees’ rights are protected. CAK often imposes conditions on mergers, such as prohibiting layoffs for a specified period, requiring the acquirer to offer retraining or redeployment programs, and mandating transparent communication with employees throughout the merger process.
These cases demonstrate that while M&A activity can lead to job uncertainty, there are mechanisms in place in Kenya to protect employees. The regulatory framework, coupled with the actions of companies involved in mergers, has, in several instances, helped to safeguard jobs and ensure a fair transition for employees.
The Competition Act mandates that the CAK considers not only the buyer’s potential dominance in the market but also the impact on employment when making merger decisions. This means that during the analysis of a merger or acquisition, the CAK evaluates the post-merger effects on competition in a sector and its impact on public interest, aiming to protect the economic welfare of Kenyans and the country as a whole.
For more on mergers and acquisitions, feel free to reach out to litigationlawyers@gvalawfirm.com or commercialpractice@gvalawfirm.com
