Introduction
In Nigeria, employment contracts play a vital role in establishing a clear understanding between employers and employees regarding the terms and conditions of their working relationship. These contracts ensure that all applicable labour laws and regulations are followed, resulting in a stable working environment for both parties.
The Labour Act of 2004 serves as the primary source of employment law in Nigeria. However, other relevant legislation and judicial decisions contribute to the legal framework.
This article predominantly examines the Labour Act of 2004 (the Act) and pertinent case law, offering insights into the legal framework for the execution and termination of employment contracts and best practices.
Essential Elements of the Employment Contract
The employment contract, like any other contract, must include certain elements in order to be legally valid and enforceable. These fundamental components ensure clarity, mutual understanding, and compliance with legal requirements.
- Offer and Acceptance
A valid employment contract requires a clear offer outlining key terms such as job description, compensation, and working hours. This offer should ideally be made in writing to ensure clarity. The employee's acceptance must be unambiguous and communicated to the employer; silence or inaction will not constitute acceptance unless the offer specifically states otherwise. When acceptance is communicated, a binding contract is formed, and both parties are legally required to fulfil their contractual obligations. - Consideration
For an employment contract to be valid, there must be consideration, denoting the employee's remuneration in exchange for their services. The Act requires that wages be paid in legal tender.1 Such remuneration packages should be unambiguous, indicating the method and frequency of payment, as well as any statutory deductions permitted by applicable laws. - Intention to create legal relations
The intention to create legal relations between the parties is essential, as it constitutes the bedrock of the enforceability of the employment contract. Both the employer and the employee must recognise that an employment agreement, whether formal or informal, is a binding and enforceable contract between the parties. - Capacity and Consent
Capacity and consent in employment contracts ensure that the parties are legally competent and enter the contract voluntarily, free of coercion, undue influence, or fraud. The absence of consent, particularly on the part of the employee, could result in forced labour, which is prohibited by the Act.2 - Legality
The purpose of the employment arrangement, for which the employer seeks to engage the employee, must be lawful, as must the employer's business nature. Any provision of services for illegal activities under an employment contract is prohibited.
Certainty of Terms
A clearly defined employment contract protects both employers and employees. Some of these essential terms are:
- Leave Periods: Employment contracts must clearly define leave periods,3 such as sick leave4 and maternity leave5. While the Act sets the minimum number of leave days6, employers have the flexibility to extend leave periods, but the contract must be clear.
- Hours and place of work: the Act offers leeway concerning both work hours and location, provided that the workplace aligns with the employer's business nature and is lawful. It mandates compensation for overtime, or shortened work hours if the employee isn't granted the stipulated rest intervals.7
- Statutory deductions: Employers must make statutory deductions from employee salaries, including pension contributions,8 and PAYE taxes. Any non-compliance results in liability, as seen in Rectars (Ile-Ife) v. Osun State Board of Internal Revenue.9 These deductions must be unambiguous in employment contracts to ensure legal compliance.
- Restrictive covenants protect an employer's proprietary interests by including non-disclosure and non-compete clauses that bind employees even after they leave. Their absence in a contract releases such employees from confidentiality obligations or circumvention.
- Probationary Period: Probationary periods are an important phase for employers to evaluate an employee's suitability before confirmation, reducing the risks associated with hiring. Although these periods typically last three to six months, an unreasonable extension without confirmation may be interpreted as an unfair labour practice, and the employee will be assumed to have been confirmed even if no formal letter of confirmation is provided, as decided in Reliance Telecommunications Limited v. Adegboyega.10
Execution of Employment Contract
An employment contract must be executed directly by both the employer and the employee, with each demonstrating a legal intent to be bound by the agreement. However, exceptions occur when one party grants a power of attorney for a 3rd party to act on its behalf, as is common with recruiting agencies authorised to act on behalf of the employer.
Termination of Employment
Terminating an employee in Nigeria can be a complex process fraught with legal considerations for both employers and employees. Employment termination indicates the end of a contractual relationship between an employer and an employee.
There are two main categories of termination which are voluntary termination and involuntary termination.
Involuntary Termination
Involuntary termination, initiated by the employer, can occur with or without cause.
- Termination with cause is justified by serious employee misconduct, a breach of the employment contract, or other significant reasons. In such cases, employers must follow established procedures, such as conducting thorough investigations, providing fair hearings to employees, and keeping detailed records.11 Any failure to comply with these requirements renders the termination invalid, as affirmed in the case of Olaniyan v. University Of Lagos.12
- Termination without cause, also known as "at-will" employment, has been a contentious issue in Nigerian labour law. Historically, employers had broad discretion under common law to terminate employment at will, without providing a reason. However, with the Constitution of the Federal Republic of Nigeria (Third Alteration) Act, 2010 Section 254C, the National Industrial Court of Nigeria (NICN) asserted its authority to consider "unfair labour practices" and "international best practices" in termination cases, requiring a valid reason related to the employee's performance or the employer's operational needs.13 This position has since been reversed in Oak Pensions Limited v. Mr. Michael Oladipo Olayinka.14 In this case, the Court of Appeal emphasised the sanctity of contracts and reasoned that if the parties agree on termination terms, the employer is not required to provide a reason for termination, effectively reversing the NICN's position on international best practices. The NICN has since aligned with the Court of Appeal's established principles.
- Redundancy is the involuntary and permanent termination of employment due to an excess of available manpower within an organisation.15 The Act requires employers to prioritise employees with longer service periods during redundancy exercises and to keep unions or employee representatives informed. While not required, redundancy payments are encouraged to cushion the blow for affected employees who are not otherwise protected by law
Voluntary Termination
- Voluntary termination, also known as resignation, is an employee's voluntary decision to end their contractual relationship with their employer. This can also manifest as job abandonment, in which an employee is absent from work for several days without communication. Employers must exercise caution when interpreting such absences, taking into account unforeseen circumstances such as medical emergencies, which may influence an employee's absence.
- Fixed-term contracts have a set duration and terminate on the specified date.
- The death of an employee terminates the employment relationship, but it does not extinguish any potential legal claims that dependents may have.16
Legal Considerations for Termination Process
To ensure compliance, employers must conduct a thorough review of employment contracts, company policies, and applicable legal statutes before initiating a termination.
Once the decision to terminate has been made, the employer is expected to send the employee a termination letter. The Act establishes guidelines for employee termination notice periods,17 and recognises the flexibility of parties in determining their notice period, including payment in lieu of notice.
While written notice is still the recommended course of action, Nigerian courts have recognised the validity of oral notice in certain circumstances, as elucidated by Justice Mohammed in Ifeta v. S.P.D.C (Nig.) Ltd18, emphasising that notice is notice regardless of whether it is written or oral as long as both parties are not misled as to what is meant.
It is important to note that improper notice does not render an employee's resignation invalid. This position was stated in Imongan Patience Isevbeta v. NIMC.19 In such cases, the employee's failure to comply with the contractual notice provision results in the employer's claim for damages for breach of contract rather than the right to retain the employee.
Following termination, the focus shifts to restrictive covenants, which protect the employer's legitimate interests. Restrictive covenants in Nigeria are scrutinised by courts to ensure that they are reasonable in scope and duration, as well as aligned with public policy interests.
Wrongful Termination and Remedies
The Nigerian legal landscape surrounding employee termination can present risks to employers, if proper procedures are not followed. While employers have the right to terminate employment, such termination must follow legal requirements to avoid wrongful termination.
While employee abandonment remains a valid reason for termination, improper termination methods, such as revoking work access without due process, are unacceptable substitutes. Section 17(1) of the Act mandates employers to provide daily work opportunities, underscoring the need for proper termination procedures.
When health concerns necessitate termination, the Act requires the employer to follow due process before implementing the termination to avoid wrongful termination. This includes conducting medical assessments and determining the likelihood of the employee's return. The responsibility of the employer to the employee extends to medical injuries suffered by the employee while commuting to the place of employment.20
Even with a compliant termination process, the employer is required to pay out all accrued benefits upon termination, as established in Ulegede & Anor v. Military Administrator.21
`Where an employee is wrongfully terminated mid-month, the employer is legally required to pay the full monthly salary, regardless of the number of days worked.
In general, Nigerian courts have awarded damages rather than reinstatement as the primary remedy for wrongful terminations.22 The employee bears the burden of proof for establishing their employment status, contract terms, and the employer's improper termination procedures.23 Wrongful termination claims cannot be pursued under the Fundamental Rights (Enforcement Procedure) Rules due to their distinct legal nature, as demonstrated in Egbuonu v. Bornu Radio Television Corporation.24 Such cases must be addressed as breach of contract claims.
In conclusion, employment contracts in Nigeria are subject to a robust legal framework that mandates compliance and adherence to legal principles. By understanding the intricacies of execution, termination, and related legal considerations, both employers and employees can navigate the employment landscape with confidence and clarity, fostering mutually beneficial working relationships.
Footnotes
1. Section 1 of the Labour Act 2004
2. Section 73 of the Labour Act 2004
3. Section 5 of the Labour Act. 2004
4. Section 16 of the Labour Act 2004
5. Section 54 of the Labour Act 2004
6. the minimum leave entitlements are six working days of annual leave after twelve months of continuous service, twelve working days of sick leave in a calendar year with full pay, and twelve weeks of maternity leave, with at least six weeks before and after delivery at fifty percent of wages.
7. Section 13 of the Labour Act 2004
8. Section 1 of the Pension Reform Act 2004
9. (2021) LPELR-55942(CA)
10. (2017) LPELR-48360(CA)
11. University of Calabar v. Essien (1996) 10 NWLR
12. NO 2 1985 2 NWLR Pt 9 pg 599
13. Templars, Is Termination of Employment without Reason Still Valid in Nigeria?, June 20, 2023
14. (2017) LPELR-43207(CA)
15. Section 20(3) of the Labour Act 2004
16. Section 10(7)(b) and 8 of the Labour Act 2004
17. Section 11 of the Labour Act 2004
18. (2006) 8 NWLR (Pt. 983) 585
19. NICN ABJ/91/2022
20. Section 31 of the Labour Act 2004
21. (2000) LPELR-5987(CA)
22. Ologunde v. CarnaudMetal Box Toyo Glass (Nig) Plc, (2002) LPELR-12216(CA)
23. Nigerian Gas Co Ltd v. Dudusola, (2005) LPELR-5958(CA)
24. (1997) LCN/2703(SC)
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.
