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What are the typical terms for a Severance Agreement?
Severance Agreements in Kenya: A Comprehensive Guide
A severance agreement is a legally binding contract between an employer and an employee that outlines the terms of the employee's termination of employment. It typically includes details about compensation, benefits, and other terms related to the separation.
Table of Contents
Introduction
Key Terms in a Severance Agreement 2.1 Severance Pay 2.2 Benefits Continuation 2.3 Non-Disclosure Agreements 2.4 Non-Competition Clauses 2.5 Release of Claims
Legal Framework for Severance Agreements in Kenya
Case Laws on Severance Agreements
Sample Severance Agreement
Conclusion
TLDR
Introduction
Severance agreements are becoming increasingly common in Kenya, particularly in cases of redundancy, restructuring, or termination of employment. These agreements are designed to provide a smooth transition for both the employer and the employee during the separation process.
2. Key Terms in a Severance Agreement
2.1 Severance Pay
Severance pay is a lump-sum payment made to an employee upon termination of their employment. In Kenya, the Employment Act, 2007, mandates that employers provide severance pay to employees who are terminated due to redundancy. The amount of severance pay is calculated based on the employee's length of service and their basic salary.
Calculation: The severance pay is calculated at a rate of not less than 15 days' pay for each completed year of service with the same employer.
Example: An employee who has worked for 5 years and earns a monthly salary of Ksh. 50,000 would be entitled to severance pay of Ksh. 56,250 (15 days x 5 years x Ksh. 1,666.67 per day).
2.2 Benefits Continuation
Severance agreements often include provisions for the continuation of certain benefits, such as health insurance, life insurance, or retirement plan contributions, for a specified period after termination. The duration of benefit continuation varies depending on the agreement and the employer's policies.
2.3 Non-Disclosure Agreements
Non-disclosure agreements (NDAs) are common in severance agreements, particularly in cases where the employee has access to confidential information. NDAs prevent the employee from disclosing sensitive information about the employer's business, trade secrets, or other confidential matters.
2.4 Non-Competition Clauses
Non-competition clauses restrict the employee from working for a competitor or starting a competing business for a certain period after termination. These clauses are generally enforceable in Kenya, but they must be reasonable in scope and duration.
2.5 Release of Claims
Severance agreements typically include a release of claims clause, which requires the employee to waive any legal claims they may have against the employer. This clause is designed to protect the employer from future lawsuits related to the termination.
3. Legal Framework for Severance Agreements in Kenya
The legal framework for severance agreements in Kenya is primarily governed by the Employment Act, 2007. The Act outlines the requirements for severance pay in cases of redundancy and provides a general framework for termination of employment.
Section 40(1)(g) of the Employment Act, 2007: This section specifies the minimum severance pay that must be paid to an employee who is terminated due to redundancy.
Section 41 of the Employment Act, 2007: This section outlines the general requirements for termination of employment, including the need for notice periods and the right to a fair hearing.
4. Case Laws on Severance Agreements
Case: Mwaniki v AM Trailer Manufacturer Kenya Limited (Employment and Labour Relations Cause 3 of 2020)
Facts: The employee was terminated due to redundancy and claimed that the severance pay offered was inadequate.
Outcome: The court ruled that the employer had to pay the employee severance pay in accordance with the Employment Act, 2007.
Relevance: This case highlights the importance of complying with the legal requirements for severance pay in Kenya.
Case: Employment and Labour Relations Petition E002 of 2023
Facts: The employee was notified that his office had been abolished and was offered a fresh appointment as a Court Assistant. He claimed that this was a violation of his fundamental freedoms and rights.
Outcome: The court is yet to rule on the case.
Relevance: This case demonstrates the potential for disputes to arise regarding the termination of employment and the adequacy of severance packages.
5. Sample Severance Agreement
Severance Agreement
This Severance Agreement ("Agreement") is made and entered into as of [Date], by and between [Company Name], a [State] corporation ("Company"), and [Employee Name], residing at [Employee Address] ("Employee").
WHEREAS, Employee is currently employed by Company as a [Job Title]; and
WHEREAS, Company desires to terminate Employee's employment with Company, and Employee desires to accept such termination;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows:
1. Termination of Employment
Company agrees to terminate Employee's employment, effective [Date].
2. Severance Pay
Company agrees to pay Employee severance pay in the amount of [Amount] ("Severance Pay"). Severance Pay will be paid in a lump sum payment on [Date].
3. Benefits Continuation
Company agrees to continue Employee's health insurance coverage for a period of [Number] months following the Termination Date.
4. Non-Disclosure Agreement
Employee agrees to keep confidential all information relating to Company's business, trade secrets, and other confidential matters. Employee agrees not to disclose such information to any third party without Company's prior written consent.
5. Non-Competition Clause
Employee agrees not to compete with Company for a period of [Number] months following the Termination Date within a radius of [Number] miles from Company's principal place of business.
6. Release of Claims
Employee hereby releases and forever discharges Company from any and all claims, demands, and causes of action of any kind or nature whatsoever, known or unknown, arising out of or relating to Employee's employment with Company, including but not limited to claims for wrongful termination, discrimination, harassment, or breach of contract.
7. Entire Agreement
This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior or contemporaneous communications, representations, or agreements, whether oral or written.
8. Governing Law
This Agreement shall be governed by and construed in accordance with the laws of the Republic of Kenya.
9. Severability
If any provision of this Agreement is held to be invalid or unenforceable, such provision shall be struck and the remaining provisions shall remain in full force and effect.
10. Notices
All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered personally, sent by certified mail, return receipt requested, or sent by overnight courier service, addressed as follows:
If to Company: [Company Name] [Company Address]
If to Employee: [Employee Name] [Employee Address]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
[Company Name]
By: [Signature]
Name: [Printed Name]
Title: [Title]
[Employee Name]
By: [Signature]
Name: [Printed Name]
6. Conclusion
Severance agreements are an important aspect of employment law in Kenya. They provide a framework for the termination of employment and ensure that both the employer and the employee are treated fairly. It is essential for both parties to understand the legal requirements and the key terms of these agreements to ensure a smooth and compliant separation process.
7. TLDR
Severance agreements in Kenya are legally binding contracts that outline the terms of an employee's termination. They typically include provisions for severance pay, benefits continuation, non-disclosure agreements, non-competition clauses, and release of claims. The Employment Act, 2007, provides the legal framework for severance agreements, particularly in cases of redundancy.
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Answered by mwakili.com