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Nigeria

January 15, 2021

By Karen Fulton and Bulela Mungeka

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Nigeria

KEY DEVELOPMENTS FOR 2021


 

Transfer of retirement savings accounts

Changes were introduced to the pensions administration system in November 2020, which created some concern for Pension Fund Administrators (PFAs) but is seen as a welcome development by their customers. On 16 November 2020, the National Pension Commission ("PENCOM"), the industry regulator, issued a new regulation, pursuant to Section 13 of the Pension Reform Act, 2014 ("PRA"), which permits the transfer of Retirement Savings Accounts ("RSA") between PFAs ("The 2020 Regulation"). The PRA, which is the principal legislation for pension fund administration in Nigeria, requires an employer with three or more employees, to contribute the equivalent of 10% of each employee's monthly emoluments, while the employee is required to contribute 8%. The 18% contribution must be remitted every month to the employee's RSA that is managed by a PFA of the employee's choosing. Section 13 of the PRA provides that an RSA Holder may transfer his RSA from one PFA to another, not more than once a year, subject to the guidelines issued by PENCOM and the 2020 Regulation was issued by PENCOM to give effect to this provision of the PRA. Until the issuance of the 2020 Regulation, it was not possible for employees to change their PFA; this meant that everyone had to remain with the PFA they chose when the PRA was first enacted in 2004 or when they set up their RSA, even if the employee were to change his/her employment. The inability to change PFAs limited competition in the Nigerian pension administration industry.

We believe the 2020 Regulation will foster an increase in competition in the pension industry and will result in mergers and acquisitions in the pension industry, as there will likely be strategic collaborations between the players in the sector to enhance their marketability and attract existing and new RSA holders to transfer their accounts to them or open accounts with them, as the case may be. We believe this will strengthen the sector as the PFAs must now continually seek to improve the quality of their services to ensure that they increase, or at least maintain, their market share due to the mobility that the customers will now have.


 

Enforcement of covenants in restraint of trade

In the case of iROKOtv.com v. Michael Ugwu (unreported Suit No: NICN/LA/169/2015, judgment delivered on 12 November, 2020) the National Industrial Court ("NIC") refused to uphold a restraint of trade covenant, stating that there are conditions an employer must satisfy before the Court will enforce a covenant on restraint of trade in a contract of employment. In this case, the employer (the Claimant) employed the Defendant and the parties entered into a contract of employment. Two months into the Defendant's employment, the Claimant and the Defendant executed a Non‑Disclosure Agreement which provided that the Defendant would not work for any of the Claimant's clients, vendors, and partners without the written approval of the management of the Claimant, and that the Defendant would not work with the Claimant's clients or customers for a period of one year from the date of termination of his employment. The NIC relying on several decisions held that the Claimant's conduct in attempting to change the terms of the contract two months into the Defendant's employment, to the detriment of the Defendant, was an unfair labour practice because it found no basis for it in good conscience and it was against public policy. The NIC reiterated that in the context of the case, the Claimant was obliged to prove that it had an interest which was capable of being protected; that the restraint of the Defendant was reasonable and that it was not contrary to public policy or interest. The court held that the Claimant did not satisfy these requirements and it concluded that the restraint of trade covenant was invalid and unenforceable.

With thanks to Karen Fulton and Bulela Mungeka of Bowmans for their invaluable collaboration on this update.

 

KEY DEVELOPMENTS FOR 2020


 

Reinstatement of Employees

The National Industrial Court ("NIC") appears to have expanded the grounds on which it would reinstate an employee whose appointment was terminated. The current grounds on which the NIC has indicated that it would be willing to reinstate an employee are:

  • terminations arising from an employee's involvement in trade union activities; and
  • terminations where any approval (contractual or otherwise) required to give effect to a termination of an employee's appointment is not obtained.

A third ground relied on by the Court in the case of Bello Ibrahim v Eco Bank Plc relates to the failure to pay an employee's severance benefits contemporaneously with the termination of the employee's employment contract. In this case, the employer had terminated the employee's appointment but paid the severance benefits 8 days after the effective termination date set out in the termination notice. In upholding the employee's claim of wrongful termination and granting the reinstatement order, the NIC relying on the decision of the Nigerian Supreme Court and held that the termination of an employment contract without the corresponding contemporaneous payment of severance benefits rendered such termination invalid, and therefore, wrongful. Given that the termination was ineffectual by reason of its invalidity, the Court held that the employee's employment had not been validly terminated. The employee was therefore reinstated.

This case is important because it clarifies:

  • the requirements to effectively terminate an employee's employment contract; and
  • the potentially significant consequences of failing to pay severance benefits contemporaneously with the issuance of the termination notice.
With thanks to Karen Fulton, Nonkululeko Mkhwanazi and Bulela Mungeka of Bowmans for their invaluable collaboration on this update.

 

KEY DEVELOPMENTS FOR 2019


 

Removal of arbitration clauses from employment contracts

Based on the decisions of the National Industrial Court (“NIC”), employers should desist from including arbitration clauses based on the provisions of the Arbitration and Conciliation Act, chapter A18, Laws of the Federation of Nigeria 2004, in a contract of employment. The NIC held that the Arbitration and Conciliation Act is not meant to apply to labour and employment disputes. Employers should review all existing contracts between employees to ensure that they do not contain arbitration clauses that require the parties to submit to arbitration under the Arbitration and Conciliation Act, and should amend any contracts that contain such clauses.


 

Proposed amendments to the Labour Act

The Senate is currently considering Bills to amend the Labour Act. The Bills propose to increase the penalties paid by employers for breaching the provisions of the Labour Act and will remove the restriction that prevents women from carrying out underground work in mines.

It is not entirely clear if the Bills amending the Labour Act will be passed by the House of Representatives and the Senate and assented to by the President before the expiration of their respective terms of office on 29 May 2019.

With thanks to Mary Ekemezie and Jumoke Lambo of Udo Udoma & Belo-Osagie for their invaluable collaboration on this update.

Contributors

Image: Suzanne Horne
Suzanne Horne
Partner, Employment Law Department

Image: Kirsty Devine
Kirsty Devine
Associate, Employment Law Department

Image: Aashna Parekh
Aashna Parekh
Associate, Employment Law Department

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