Going through the newspapers last week, I couldn’t help but notice the existing stand-off between the regulator, here being, the Competition Authority of Kenya (CAK) and the transacting parties, Airtel and Telkom.
Among the numerous issues and conditions raised by the CAK, that has halted the entire transaction pending compliance and clearance, is the issue requiring the merged entity, Airtel-Telkom, to retain its employees for two years as a condition precedent to grant of approval.
CAK proposes that the new entity post-merger should guarantee that employees will not be declared redundant or lose their jobs until the lapse of two years.
Well, as this may sound and look appealing from the regulator’s side since it has a fiduciary and mandatory public duty to ensure that employees are protected by considering the extent to which a proposed merger would impact employment opportunities during the transfer and post-merger, it clearly shows that there exists a real and serious lacuna in law, capable of frustrating future mergers and acquisitions, which unfortunately has not been cured or addressed in the Draft Employment Act (Amendment) Bill, 2019.
Though the proposed amendments in the Employment Act, especially in regards to the question of employees post and during a transfer of an undertaking are timely and spirited with good intentions, it might sound a little suboptimal, as much as it appears populist. Why am I saying this?
The amendments provide that any merger or transfer of business shall not operate to terminate any contract of employment prior to or subsequent to the transaction.
Juxtaposing this amendment with the CAK’s guidelines on the Substantive Assessment of Mergers, one will not help but notice that both legislations fail to state or specify the time period within which an employment contract should be protected during the transfer of an undertaking and post the transfer (post-merger).
The CAK’s consolidated merger guidelines require the Authority to assess public interest factors emanating from a proposed merger or transfer of an undertaking. One such key public interest factor is job losses and possible redundancies.
The Consolidated Guidelines indicate that economic efficiencies are an important pillar when reviewing a proposed merger, thus the reason why the Authority has been known to give conditional clearances to mitigate such risks.
During this process, the Authority is only required to establish whether a prima facie case exists for substantial job losses, and once this is established, the burden shifts to the merging entities to justify the possible job losses.
Accordingly, the law, specifically the Employment Act as well as the Competition Act, should provide or strike a legal balance between the statutory requirement of protecting employees and the time period required to protect such employees’ post-merger.
This is because, where there is no such balance then the Authority, is left to make such assessments based on its own discretion.
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