THE FATE OF EMPLOYEES IN THE EXECUTION OF MERGERS AND ACQUISITIONS IN NIGERIA
Introduction
Corporate restructuring, particularly through mergers and acquisitions (M&A), has become a critical mechanism for sustaining businesses and driving economic growth in Nigeria. In a volatile economic environment, M&A transactions often serve as strategic tools to rescue failing enterprises, preserve asset value, and enhance operational efficiency. However, while these transactions may strengthen corporate entities, they often create uncertainty regarding the status and rights of employees whose roles may be affected by such restructuring.
In a simple term, mergers are the consolidation of assets and liabilities. Under the Nigerian law, one of the major legislations governing the operation of mergers is the Federal Competition and Consumer Protection Act (FCCPA) 2018, particularly as to the prevention of Monopoly in the market. According to Section 92(1) of the Federal Competition and Consumer Protection Act (FCCPA), a merger occurs where one or more undertakings directly or indirectly acquire or establish control over the whole or part of the business of another undertaking, whether through share acquisition, asset purchase, amalgamation, or joint venture arrangements.
Notably, the Nigerian law is silent as to the automatic transfer of employment contracts upon the occurrence of a merger or acquisition. Unlike jurisdictions with statutory “transfer of undertakings” protections, the fate of employees in Nigeria is largely predetermined by the terms of the employment contract, applicable collective bargaining agreements (if any) and the operational and commercial objectives of the merged entity.
In practice, upon the consolidation of workforces after a successful merger, employees may be retained, redeployed, or disengaged depending on how the new entity intends to optimise its workforce.
M&A transactions are not merely changes in ownership structure. They often trigger substantive internal reorganisation. Upon a merger, overlapping roles may emerge. Particularly where both entities previously maintained parallel departments such as finance, human resources, legal, or operations. In such circumstances, the merged company may no longer require the full complement of staff performing identical or similar functions. Thus, strategic realignment may lead to a consolidation of business units, automation or adoption of new technologies, relocation of operations, or elimination of non-core functions.
These developments can lead to situations where certain roles become over saturated, not due to employee fault, but due to structural changes within the organisation. It is at this intersection that restructuring may transitions into redundancy, thereby invoking statutory labour protections.
Redundancy as an incidence of Restructuring
A clear distinction must be drawn between restructuring and redundancy, as both are often misconstrued in M&A contexts.
While Restructuring refers to the reorganization of a company’s internal framework to improve efficiency or profitability. It usually involves redeployment or reassignment and does not necessarily terminate employment. On the other hand, Redundancy, as defined under Section 20(3) of the Labour Act, is the involuntary and permanent loss of employment caused by excess manpower. Redundancy is not attributable to misconduct of an employee but arises from operational exigencies.
The legal consequence of redundancy is the termination of employment, subject to compliance with statutory safeguards. Thus, redundancy represents the legal endpoint of certain restructuring decisions.
Section 20 of the Labour Act imposes obligations on employers where redundancy is contemplated. These include:
1. Informing trade unions or employee representatives of the reasons and extent of the redundancy;
2. Applying the principle of “last in, first out” (LIFO), subject to considerations of skill, ability, and reliability; and
3. Negotiating redundancy benefits.
The LIFO principle serves as a fairness mechanism, ensuring that junior employees are typically the first to be disengaged unless objective factors justify the need to deviate.
Judicial pronouncements have reinforced this statutory framework. In Aguoma v Guinness Nigeria Plc (1995) 2 NWLR (Pt. 380) 672, the National Industrial Court emphasized on the validity of a redundancy exercise and underscored the necessity of strict compliance with Section 20 of the Labour Act.
The Court affirmed amongst others that Redundancy must be based on genuine operational reasons such as reorganisation or surplus labour, Employers must adopt a fair and transparent selection process, and the LIFO principle must be applied unless there are justifiable grounds for departure.
Non-compliance may render the termination wrongful and expose the employer to legal liability.
Within the M&A framework, employees may face modified term, Redeployment within the new corporate structure, Renegotiation of employment conditions or Disengagement through redundancy.
Given the absence of an express and statutory transfer regime, employees remain dependent on contractual protections and statutory safeguards.
Conclusion
Mergers and acquisitions remain indispensable tools for corporate survival and economic advancement in Nigeria. However, they inherently disrupt workforce stability. While the legal regime, particularly under the FCCPA and the Labour Act, provides a measure of protection through redundancy regulation, employees remain exposed to the commercial realities of business arrangements.
The critical legal balance, therefore, lies in ensuring that while businesses retain the flexibility to restructure, established international labour, standards are adopted and enforced particularly as to the interest of employees under restructuring arrangements.
Ajibola Bello, Esq.
Deputy Managing Partner, And Head of Corporate Department,
Law Corridor.
Franklyn C. Chukwenenye, Esq.
Associate,
Technology, Media & Telecommunication (TMT)