Legal Literacy

Industrial Redundancy: A Look at the Law and Practice in Ghana



Redundancy is a term used to describe an exercise by which an employer server its contractual ties to either a portion of or the entirety of its employees. Redundancy may occur when a company is restructuring in such a way that the skills of individual workers are no longer in need.

The Redundancy Exercise

It begins when the organization identifies the need to declare some employees redundant. Three months before the exercise, the Chief Labour Officer, and the Trade Union receive a letter. The office must give a FIAT before the activity can begin and measures to reduce affected persons are employed. Where organizations and unions do not come to a consensus, the matter is referred to the National Labour Commission whose decision shall be final.

Firstly, the employee must be informed, in detail, of the reason for the exercise. The employee may voluntarily choose, when the employer describes the criteria of the task (e.g. health, age, qualification, etc.) and requests employees who fall within these criteria and who wish to be included in the exercise to come forward, to do so. When the number of volunteers is insufficient for this exercise, the compulsory stage is employed.

It is not advisable to use illness as a criterion for redundancy. The correct procedure for handling employees who are too ill to work properly is to have them medically certified so that they would have access to their SSNIT contributions.

The Labour Act states that conditions leading to redundancy include significant changes in production, program, organization, structure and technology; also when an undertaking closes down or undergoes a takeover or amalgamation, redundancy may take place. However, it needs to be stressed that redundancy would not apply to probation, casual and regular workers. It is crucial that rules pertaining redundancy are followed due to its strict nature.

Before embarking on redundancy, a company must take into consideration economic and institutional factors, cost/benefits considerations, legal requirements, human resource considerations and ethical responsibility to society.

Companies must use the measures provided by law to undertake the exercise because this is the best way to gauge the success of the exercise as opposed to using the number of lawsuits filed against the company. Organizations are however obliged to support persons affected by the exercise.

Determining the Redundancy Package

Under the Labour Act, an employee who suffers diminution should be paid compensation. Section 65(3) outlines the factors to be taken into account when deciding quantum. Act 651 states that an account should be taken of the employee’s past services, accumulated benefits, and other factors. There is no tax on the redundancy pay. In addition to that, the employer also bears the cost of medical bills, long service awards, provident funds, repatriation awards etc. Also, there are hidden costs such as loss of productivity due to low morale. The cost of re-hiring, re-training and induction and also the loss of good staff due to redundancy.


The redundancy exercises though entirely necessary in certain circumstances is fraught with many challenges. Act 651 provides procedures to be followed. Even so, the acts and industrial practices in Ghana have not fully explored some alternatives to redundancy. Employers must, therefore, brief workers of any possibility of redundancy and allow all employees to address their questions to management. This act creates the space for a full understanding of the exercise and the package attached before they leave the forum.