Thousands of Kenyan employees and employers are facing a crisis following the recent Stop- Work Order (SWO) issued by USAID. Projects that have been running for years are suddenly on pause, leaving organizations and workers grappling with tough decisions:
- What happens to employees when funding stops?
- Should employers terminate contracts, suspend them, or declare redundancy?
- How can organizations handle this situation while staying legally compliant?
These are not easy questions, and getting it wrong can lead to serious financial, legal, and reputational consequences.
How Does Usaid Funding Halt Affect Employers and Employees?
For Employers:
The funding pause means no money is coming in, but employment contracts are still active.
Employers are forced to figure out:
- Should contracts be terminated or suspended?
- Are salaries still payable during the suspension period?
- How do we ensure compliance with Kenyan labor laws to avoid claims of unfair termination or redundancy?
For Employees:
If you’re an employee, you’re likely wondering:
- Will I still get paid?
- Is my termination fair?
- What are my rights if my job is declared redundant?
Termination or Redundancy: What Should Employers Do?
When funding stops, the decision to terminate contracts, declare redundancy, or suspend employment depends on several factors:
1. What Does the Contract Say?
Many donor-funded contracts have provisions that allow employers to suspend or
terminate employment if funding stops. If this is stated in your contract, employers have a legal basis to take action—but they must still follow Kenyan labor laws.
2. Redundancy vs. Termination
When roles become unsustainable due to funding withdrawal, redundancy may apply under Section 40 of the Employment Act.
Case Example
In Kenya Airways Limited v Aviation & Allied Workers Union Kenya & Others- Appeal E097 of 2023, Kenya Airways faced severe financial difficulties during the COVID-19 pandemic due to reduced operations and external economic factors. The company sought to terminate employees, citing financial constraints. However, the court ruled that termination was not the appropriate course of action in such circumstances. The court emphasized that even when external funding issues or financial challenges arise, employers must declare redundancy, not unilateral termination.
What Happens to Salaries?
If funding is paused, employers may not be able to pay salaries during the suspension period.
Courts in Kenya have ruled that where salaries are explicitly tied to donor funding, employers are not obligated to pay if the funds are unavailable. However, salaries earned up to the date of suspension must be paid.
In Petition E007 of 2023 – Grace Akinyi & Others v Kenya Medical Research Institute (KEMRI) employees were on contracts directly tied to donor funding. When funding was withdrawn, the employer stopped paying salaries and terminated the contracts. The court ruled that employers are not obligated to pay salaries if funding explicitly forms the basis of employment and is no longer available.
Need Help Managing This Process?
Handling employee termination, redundancy, or contract suspension in situations like this is not straightforward. It requires a clear understanding of employment contracts, labor laws, and donor agreements. Getting it wrong could expose your organization to legal claims or damage your reputation.
If you’re an employer trying to navigate these challenges or an employee seeking clarity on your rights, we can provide the employment-related guidance you need. From reviewing contracts to ensuring compliance with Kenyan labor laws, our team is here to help you through this process.
Don’t Face This Alone
The USAID funding suspension is a tough situation for everyone involved, but with the right support, you can handle it effectively and fairly. Whether you’re restructuring your workforce or addressing employee concerns, reach out to us on info@mmw.legal for guidance that ensures compliance and protects everyone’s interests.