A new court ruling could make it significantly harder for companies in Kenya to lay off employees, raising the threshold for businesses, particularly startups, that have increasingly relied on redundancies to cut costs during the recent funding slowdown.
In a judgment delivered on June 25, the Employment and Labour Relations Court ruled that employers can no longer simply cite restructuring or reorganisation as justification for declaring employees redundant. Instead, they must provide clear evidence that genuine operational changes have made a position unnecessary.
The decision arose from a case involving Nokia Solutions and Networks Kenya, which was ordered to compensate former employee Byron Otega with Ksh.9.8 million (approximately US$76,000) after the court found that his redundancy was both unfair and unlawful.
Although the dispute centred on a multinational telecommunications company, employment lawyers say the judgment sets a precedent for all employers in Kenya from large corporations to venture-backed startups that have downsized over the past four years as investor funding became more difficult to secure.
The court made it clear that simply announcing a restructuring exercise is no longer enough.
“It is not enough to cite restructuring or reorganisation, the judge ruled. “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.”
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In practical terms, employers will now be expected to demonstrate that a redundancy resulted from a real business decision, such as eliminating a role, merging departments, introducing technology that replaces certain tasks, or closing part of the business altogether.
The ruling also raises the stakes for companies planning workforce reductions. Businesses will need to keep comprehensive records explaining why positions were eliminated, how employees were selected for redundancy, whether consultations took place, and what efforts were made to explore alternatives such as redeployment before dismissals were made.
For Kenya’s startup ecosystem, this could reshape how companies approach cost-cutting measures.
Since venture capital funding peaked in 2021 before slowing sharply, many African startups in sectors including fintech, e-commerce, logistics and software development have trimmed their workforce to preserve cash and extend their financial runway.
One recent example is digital lender Tala, which reduced staff as part of efforts to streamline its operations.
The court said consultation is not merely a procedural requirement but a meaningful process that must happen before redundancy decisions are finalised. Employers must show they genuinely considered options such as redeployment or alternative positions within the organisation.
During the case, Nokia argued that its 2023 reorganisation of teams serving Safaricom’s Kenya and Ethiopia operations was intended to improve efficiency and strengthen competitiveness. The company told the court it had informed the Labour Office, engaged affected employees and gave them priority when filling alternative vacancies.
However, the court found that Nokia failed to prove that Otega’s position had actually ceased to exist. Evidence presented during the proceedings showed that the company hired account managers for its Ethiopian operations shortly before declaring Otega’s role 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 ruled.
The judge further concluded that Nokia had not carried out meaningful consultations with the affected employee and had failed to demonstrate a transparent and fair process for selecting employees for redundancy among those performing similar duties.
The decision is expected to influence how employers across Kenya manage future restructurings.
