Kenya Redundancy Law: Section 40 Compliance Guide for Small Businesses
Restructuring and Redundancy in Kenya: How to Comply with Section 40
When economic shifts, tech automation, or revenue drops threaten your business's survival, restructuring becomes necessary. In Kenya, reducing your workforce is legally classified as redundancy (or retrenchment).
Under Section 2 of the Employment Act, redundancy is defined as the loss of employment through no fault of the employee, where an employer's need for specific roles has ceased or diminished.
Because redundancy affects positions, not employee performance, the Employment and Labour Relations Court (ELRC) applies strict scrutiny to restructuring.
Failing to follow statutory steps can result in court awards of up to 12 months’ gross salary per employee for unfair termination.
The Two-Pillar Test: What Makes a Redundancy Legal?
The Kenyan Court of Appeal established in Kenya Airways v. Aviation & Allied Workers Union that a redundancy is lawful only when it satisfies two conditions:
Valid Redundancy = Substantive Justification + Procedural Fairness
- Substantive Justification: You must prove a legitimate operational, technological, or economic reason for eliminating the position. Redundancy cannot be used as a shortcut to dismiss a underperforming or difficult employee.
- Procedural Fairness: You must strictly follow the statutory notice, consultation, selection, and payment rules laid down in Section 40.
Step-by-Step Statutory Redundancy Procedure
1.Issue Written Notice to Employees & Area Labor Officer:
Statutory Notice 1 (Min 30 Days).Under Section 40(1)(a) & (b), issue a formal written Notice of Intended Redundancy at least 30 days prior to the proposed termination date:
- Non-Unionized Employees: Serve written notice to each affected employee directly, and send a copy to the local County Labor Officer.
- Unionized Employees: Serve written notice to the trade union and the County Labor Officer.
The notice must explain the business reasons for restructuring and the affected job roles.
2.Hold Genuine Consultations:
Mandatory Dialogue.
During the 30-day notice period, conduct consultation sessions with affected staff. Discussion topics must include:
- Alternatives to redundancy (e.g., job sharing, reduced working hours, salary cuts, redeployment).
- Measures to minimize impact.
- The selection criteria to be applied.
Keep signed attendance sheets and detailed minutes of all consultation meetings to present as evidence if challenged in court.
3.Apply Fair & Objective Selection Criteria:
Applying Section 40(1)(c).When choosing which individuals in a targeted job role to declare redundant, apply objective standards under Section 40(1)(c):
- Seniority in Time (LIFO - Last In, First Out): Employees hired most recently are generally selected first.
- Skill, Ability, and Reliability: You can retain a junior employee over a senior one if you have documented performance records proving the junior staff member possesses critical skills necessary for business survival.
4.Issue Redundancy Notices & Pay Terminal Dues:
Final Notice & Settlement.
After consultations conclude, issue individual Redundancy Notices confirming the final day of service and pay all statutory dues.
Statutory Redundancy Pay Breakdown
Section 40 outlines mandatory financial obligations for employees declared redundant:
| Pay Component | Statutory Requirement | Notes |
| Severance Pay | At least 15 days' basic pay for every completed year of service. | Calculated based on the most recent basic salary. Partial years are usually prorated. |
| Notice Pay | Minimum 1 month's written notice or 1 month's pay in lieu of notice. | Check individual contracts—if the contract requires 2 or 3 months' notice, the longer contractual period applies. |
| Accrued Annual Leave | Full cash payout for all earned, untaken annual leave days. | Under Section 40(1)(e), leave days cannot be forfeited during redundancy. |
| Outstanding Salary | Pay for all work completed up to the final exit date. | Includes any earned allowances or commissions up to the last working day. |
| Certificate of Service | Mandatory under Section 51 of the Employment Act. | Must be issued within 7 days of the final day of employment. |
4 Costly Mistakes Small Businesses Make (And How to Avoid Them)
- Skipping the County Labor Officer: Failing to serve notice to the local Labor Office invalidates the entire redundancy process, rendering terminations unlawful regardless of your business's financial distress.
- Treating Consultations as a Formality: Issuing termination letters immediately alongside the initial 30-day notice proves "pre-selection" and bad faith in court. Consultations must happen before final decisions are finalized.
- Disguising Performance Firing as Redundancy: Declaring an underperforming employee's role redundant and hiring a replacement shortly after is grounds for an ELRC lawsuit.
- Ignoring Collective Bargaining Agreements (CBAs): If your staff belongs to a trade union, CBA severance rates or notice periods take precedence over statutory minimums.