What Kenyan Employers Must Know About Redundancy, Retrenchment, and Severance Pay

Redundancy is one of the most litigated employment matters in Kenya. Employers who cut costs by letting staff go without following the correct legal procedure routinely face large awards at the Employment & Labour Relations Court.

Here is exactly what the law requires.

The statutory redundancy procedure

Before declaring any employee redundant, an employer must: (a) give notice to the labour officer and the employee or their trade union not less than one month before the redundancy; (b) have due regard to seniority in time and skills, ability, and reliability of each employee in retaining employees; and (c) give the employee notice or payment in lieu in accordance with Section 40.

The notice to the labour officer: why this matters

The requirement to notify the Director of Employment (Labour Officer) is not a formality but rather it is a substantive obligation. Failure to notify the labour officer makes the redundancy automatically procedurally unfair, regardless of whether there was a genuine business reason. Many employers overlook this step and lose cases they should have won.

Selection criteria

Section 40(1)(c) requires the employer to have regard to seniority, skills, ability, and reliability when selecting who to make redundant. Employers cannot simply pick employees they dislike, or discriminate on grounds of union membership, gender, disability, or HIV status. A properly documented selection matrix should be maintained.

Severance pay: the formula

An employer shall pay a redundant employee severance pay at the rate of not less than fifteen days' pay for each completed year of service.

Note: "fifteen days' pay" is calculated on basic salary, not gross pay (i.e. excluding allowances). An employee with 10 completed years on a basic salary of KES 50,000/month would receive: (15/30) × 50,000 × 10 = KES 250,000 in severance. This is in addition to any notice pay owed under Section 35 and any accrued annual leave.

While seniority is a factor under Section 40(1)(c), it is not a hierarchy but it is one of four criteria (alongside skills, ability, and reliability) that must all be considered. Selecting solely on seniority without regard to skills may itself be challenged. This is particularly relevant in knowledge-economy businesses where skills are more valuable than tenure. Document your selection reasoning carefully.

What an employee can do if the procedure is not followed

Where the Section 40 procedure is not followed, the redundancy is an unfair termination and the employee may claim at the ELRC under Section 45. Remedies are the same as for unfair dismissal i.e. to 12 months' gross wages in addition to any unpaid terminal dues. Courts have awarded the maximum where employers showed no regard for the statutory procedure.

Practical checklist for employers

• Confirm genuine business reason (restructuring, closure of function, financial loss)
• Prepare selection criteria matrix before identifying individuals
• Issue notice to labour officer and employees/union — minimum one month before
• Consult with the affected employees or their representatives
• Issue notice of termination or payment in lieu
• Calculate and pay severance (15 days per completed year, basic salary)
• Pay outstanding leave, any other accrued benefits
• Issue certificate of service (Section 51)

Advising on a redundancy exercise?

We advise employers on legally compliant redundancy procedures and defend claims at the ELRC. We also advise employees on whether their redundancy was properly handled. Contact us today.

This article is general legal information, not legal advice, and does not create a lawyer–client relationship.