Kenya court says restructuring alone cannot justify layoffs, raising startup risks

A Kenyan court has raised the legal bar for employers seeking to lay off workers, a decision that could have far-reaching implications for startups, which have used redundancies to slow cash burn amid a funding slowdown.

The Employment and Labour Relations Court on June 25 ruled that companies cannot use restructuring or reorganisation to justify job cuts. They must prove that a genuine operational change has made a role unnecessary, meaning employers will face greater scrutiny if workers challenge layoffs in court.

The judgment came in a case involving Nokia Solutions and Networks Kenya, which was ordered to pay former employee Byron Otega KES 9.8 million ($76,000) after the court found his redundancy was unfair and unlawful.

While the dispute involved a multinational telecommunications company, the ruling applies to all employers in Kenya, including venture-backed startups that have shed jobs over the past four years as funding dropped and investors shifted focus to profitability.

“It is not enough to cite restructuring or reorganisation,” the court said. “The employer must show by evidence that he has genuinely undertaken business restructuring or adopted new technology or made some other genuine commercial decision that has rendered the services of his employee superfluous.”

The ruling establishes that employers must show that a redundancy resulted in the abolition or merger of roles, the adoption of new technology, the closure of a department, or another genuine commercial decision that eliminated the need for an employee’s work.

The judgment could increase the legal and financial risks for startups looking to cut headcount. Companies will need to maintain stronger documentation showing why positions were eliminated, how employees were selected, whether consultations were held, and what alternatives were considered before dismissals.

That could complicate a practice that has become widespread across Africa’s technology sector since VC investment retreated from its 2021 peak. The downturn has forced some fintech, e-commerce, logistics, and software startups to restructure to conserve cash.

For example, fintech lender Tala recently laid off staff as it seeks to streamline operations. 

The court also ruled that consultation means employers must engage affected employees before making redundancy decisions and demonstrate they considered redeployment or alternative roles.

In its defence, Nokia argued that its 2023 reorganisation of teams supporting Safaricom’s Kenya and Ethiopia operations was intended to improve efficiency and competitiveness. It said it had notified the labour officer, consulted affected employees, and prioritised them for alternative vacancies.

But the court found the company failed to prove that Otega’s role had actually disappeared. Evidence showed Nokia recruited Ethiopian account managers shortly before declaring the position redundant.

“The respondent has failed to prove that the reorganisation of its business led to abolition of the claimant’s role and rendered his services superfluous,” the court said.

The judge also found Nokia had not conducted meaningful consultations or demonstrated a fair selection process among employees performing similar work.

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