In June 2026 the Employment and Labour Relations Court ordered Nokia Solutions and Networks Kenya to pay a former employee KES 9.8 million after finding his redundancy unlawful. The company had cited restructuring. As Business Daily reported the judgment, that was not enough: an employer must show by evidence that it genuinely restructured or adopted technology making the role superfluous. Nokia had recruited staff shortly before declaring the position redundant.
The signal is clear: a Kenyan employer can follow every step in section 40 of the Employment Act and still lose, if it cannot prove the job itself disappeared. This guide covers who you notify and when, how to select fairly, what you owe in severance, notice and leave pay, how KRA taxes it, and the mistake that turns a cost-cutting exercise into a twelve-month award.
Key takeaways
- Section 40 requires at least one month's written notice to the affected employee (or their union) and to the labour officer.
- Severance pay is a statutory minimum of fifteen days' pay for each completed year of service, separate from notice pay and accrued leave.
- Courts now expect evidence that the role genuinely vanished. Citing "restructuring" without proof is the fastest route to an unfair termination finding.
- Compensation for unfair termination is capped at twelve months' gross salary under section 49 — on top of the terminal dues you already owed.
What counts as redundancy in Kenya
Section 2 of the Employment Act 2007 defines redundancy as the loss of employment by involuntary means, through no fault of the employee, where the employee's services have become superfluous.
Two words do the work. Superfluous means the job is no longer needed, not that the person is no longer wanted. No fault of an employee means redundancy cannot remove a poor performer or someone you have fallen out with — misconduct and performance have their own procedures and hearings under sections 41 and 44. Dressing up a dismissal as a redundancy to skip a disciplinary hearing is one of the most common ways Kenyan employers lose, because the paper trail contradicts the story.
Redundancy notice in Kenya: who you must tell, and when
Section 40(1)(a) and (b) create two notification duties, and employers regularly do one and forget the other.
Where the employee belongs to a trade union, you must notify the union and the area labour officer in writing, not less than one month before the intended termination date. Where the employee is not a union member, you notify the employee personally in writing — and you still notify the labour officer. The notice must explain the reasons for the redundancy and how extensive it will be.
That notice to the labour officer is not the termination notice you owe the employee, and not a formality to file after the fact. In Karani v ISL Kenya Ltd (2025), failing to give it a month ahead, alongside non-payment of terminal dues, breached section 40.
Section 35 separately governs ordinary termination notice: twenty-eight days in writing for an employee paid monthly or at longer intervals, notice running to the end of the pay period for shorter intervals, and none for a daily-paid worker, whose contract ends at the close of the working day.
Redundancy selection criteria that survive a court challenge
Section 40(1)(c) requires due regard to seniority in time and to the skill, ability and reliability of each employee. In practice: a written matrix, applied to a defined pool, scored before anyone is told anything.
Pick the pool first: everyone doing the same work at the same level. Then score each person against criteria you can evidence — service length from the HR record, a documented skills list, the last two performance ratings, attendance or disciplinary history — and keep the sheets. In Kimathi v Ericsson Kenya Limited (2023), the Court of Appeal held that selection criteria must be fair, transparent and not discriminatory in appearance. What fails: "last in, first out" applied to a pool invented after the decision, criteria that happen to remove every employee over fifty or every union representative, or scores produced from memory.
Consultation before redundancy: real, not cosmetic
Section 40 never uses the word consultation, but the courts have read it in. In The German School Society v Ohany (2023), the Court of Appeal held that consultation must not be cosmetic and must be a reality rather than a charade, and that it is essential to the redundancy process. The line traces back to the Kenya Airways litigation, where notice of an intention to declare redundancy was treated as triggering a duty to consult first.
That means a real gap between notice and decision, in which you meet affected staff, explain the commercial reasons, hear their proposals — reduced hours, redeployment, voluntary exit — and respond in writing. Minute every meeting. Consultation starting after the termination letters are printed is what courts call cosmetic.
How to calculate severance pay in Kenya
Section 40(1)(g) sets the floor at not less than fifteen days' pay for each completed year of service. A contract or collective agreement can be more generous; it cannot be less. Note "completed" — a partial final year attracts no statutory severance unless your policy says otherwise.
Three payments are confused constantly; all three are owed:
- Severance pay — fifteen days' pay per completed year, under section 40(1)(g).
- Notice pay — one month's notice, or one month's wages in lieu, under section 40(1)(f).
- Accrued leave — section 40(1)(e) requires untaken leave to be paid off in cash. The statutory minimum is twenty-one working days with full pay for every twelve consecutive months of service (section 28).
The Act does not prescribe how to convert a monthly salary into a daily rate, and Kenyan practice varies between dividing by 30 and dividing by working days. Whichever you adopt, apply it consistently across the exercise, state it in the redundancy letter, and confirm it with your advocate first.
How KRA taxes severance, notice pay and leave pay
Terminal dues are taxable employment income. What catches employers out is that the components are taxed in different periods, not all at once in the final month.
According to KRA's employer guide to PAYE, a service gratuity or similar terminal lump sum is spread backwards and taxed with the income of the years it relates to, subject to a five-year maximum lookback, with anything older assessed in the fifth year prior to receipt. Pay in lieu of notice is assessable in the period immediately after employment ends, and leave pay is taxed in the year the leave days relate to. Get this wrong and you over-deduct in the final month. You also owe a certificate of service and the P9.
The mistake that costs Kenyan employers twelve months' salary
The expensive error is not a missed form. It is treating redundancy as a decision about people rather than positions, then having no evidence the position went away.
The Nokia judgment is the benchmark. The court wanted proof that a commercial decision had eliminated the role — positions merged, a department closed, technology that made the work unnecessary — and found the opposite. Section 49(1)(c) allows an award of up to twelve months' gross salary, and the KES 9.8 million awarded was reported as roughly that. Scaled to an SME, one such finding against an employee on KES 150,000 a month is around KES 1.8 million in compensation alone, before severance, notice, leave, interest and costs.
Three documents decide most of these cases: the minute recording the commercial reason and its date, the scoring matrix for the selection pool, and the consultation minutes. Dated in the right order, they usually make you defensible. Written after the termination letters, they usually do not.
Frequently asked questions
Is severance pay mandatory in Kenya?
Yes. On a redundancy, section 40(1)(g) makes severance of at least fifteen days' pay per completed year of service a statutory minimum, not a discretionary gesture. It cannot be contracted below, and it is payable on top of notice pay and accrued leave.
Can I pay one month's salary instead of giving redundancy notice?
Partly. Section 40(1)(f) lets you pay one month's wages in lieu of the employee's termination notice. It does not excuse the separate one-month notice to the labour officer and any relevant union, which is a procedural requirement in its own right and cannot be bought out.
Do I owe severance to an employee with less than a year of service?
The formula is tied to completed years, so an employee with under twelve months of service has no completed year and no statutory severance. They are still owed notice or pay in lieu, accrued leave in cash, and a certificate of service. Running the figures in a system like Force HRM avoids the common error of paying severance correctly but forgetting the leave balance.
Getting the payroll side of redundancy right
The legal process is your advocate's job. The arithmetic underneath it — service measured to the day, accrued leave balances, a consistent severance calculation, PAYE applied to each component in the right period — is a payroll job, and it is where otherwise sound redundancies come apart. Force HRM is built mobile-first for Kenyan SMEs, keeps PAYE, SHIF, NSSF and the Housing Levy current as rates change, holds the service and leave records a terminal dues calculation depends on, and can be operated through AI assistants over MCP. See how Force HRM handles terminal dues and statutory deductions.
This is general information on Kenyan employment law, not legal advice. Confirm your process with an advocate before declaring a redundancy.
