Employment Law

Most accountants will spend part of their careers as employees, and every accountant will deal with employees as a manager or auditor. The contract of employment looks like any other contract, but the law adds a layer of protection for the employee and a layer of duties for the employer.

It also decides who counts as an employee at all, which matters for tax, for pensions, and for who is liable when an employee does something wrong. This topic comes up every year in the exam, nearly always as a list.

This topic covers the meaning of employment, the difference between a contract of service and a contract for service (the control, organisation and circumstances tests), capacity and formation, the form and terms of the contract (probation and duration), the duties of the employee and the employer, the termination of employment (notice, fixed terms, civil servants), dismissal and the right to a fair hearing, and interdiction.

Meaning of employment

Employment law is a branch of labour law dealing with the creation, regulation and formulation of a contract of employment between one person and another, for learning a trade or working for wages, whether or not the work is done independently of control. It also decides the rights and duties of the relationship under the common law and statute.

A contract of employment is a voluntary agreement between a master (employer) and a servant (employee) under which the employee, for a money consideration or remuneration, promises to render services to the master. This definition was asked in November 2020 (2 marks) and November 2023, and it was the subject of a Section A question (a contract of employment is also called a contract of service).

Contract of service and contract for service

A contract of service is employment. A contract for service engages an independent contractor. In both, work is done, but the incidents differ. For example, an employer may be liable for the torts of an employee, but not of an independent contractor unless the act is expressly authorised. The tests are:

May 2021 asked the examiners to apply the organisation test to distinguish a contract of employment from a contract for employment (7 marks).

Formation of the contract

Capacity

Capacity is largely the same as in the general law of contract. Section 9 of the Labour Act says that a person below sixteen cannot validly enter a contract of employment, though he may validly enter a contract of training or apprenticeship.

Young persons may be engaged on a daily basis for wages, but not at night or on public holidays, not in underground operations or on machines or shipping vessels, and not against the wishes of a parent or guardian notified to the employer.

Women have the same capacity as men, but the Labour Act gives them special protections as implied terms:

• maternity leave of six weeks before and six weeks after delivery, on a medical certificate;
• no notice of dismissal during maternity leave, even if she stays away longer because of illness; and
• no employment on night work or underground work in a mine, except women in management who do no manual labour, women in health and welfare services, and those not otherwise engaged in manual labour.

Form of the contract

No particular form is required. It may be oral, in writing, or by conduct. November 2014 and May 2019 asked for ways of forming the contract, and the examiners listed: verbally, in writing, by conduct, and partly verbally, partly in writing and partly by conduct. Section 49 of the Labour Act requires a contract of apprenticeship, or an assignment of it, to be in writing.

Where the contract is oral, the terms are inferred from the circumstances.

Terms

• For civil servants, terms are in their conditions of service. In the private sector they are in a signed document or the letter of employment, covering duration, remuneration, fringe benefits, probation, duties, pension, termination, dismissal, redundancy, retirement notice and workers’ compensation.
• Where the contract is written, the court applies the written terms strictly. For example, where commission is payable entirely at the master’s discretion, the court will not fix the amount.
• Terms are also implied by common law and by statute, such as the Labour Act.

Probationary period

A probation is a period of trial during which the employer studies the new employee and tests his skill and suitability. The relationship is usually terminable at short notice during it.

In May 2019 the examiners said that a clause making confirmation of appointment subject to good performance in a probation period of three months means the appointment is confirmed only after the trial, during which the company can test the employee’s skill and suitability. May 2024 asked about a six-month probation clause for two accountants (1½ marks).

Duration

If the relationship is for a definite term, the term must be stated, otherwise it is indefinite. It may also be for a particular project and end on completion.

• A contract for an indefinite period can be ended by reasonable notice or payment in lieu.
• A contract for a term certain cannot be ended before the term expires. If it is wrongfully terminated, the employee is entitled to all his earnings for the full term.

Duties of the employee

November 2023 asked for four duties (4 marks). The employee must:

1. obey the employer’s lawful orders that are within the contract and not illegal or against public policy;
2. exercise the skill and diligence he professes, though not more commitment than he disclosed;
3. do the work he was employed for, or closely related work;
4. render personal service and not delegate without the employer’s consent;
5. keep the employer’s confidential information and trade secrets; and
6. serve faithfully and avoid a conflict of interest with the employer.

Remedies of the employer for breach

• dismiss the employee without notice, for example where he has committed an offence;
• suspend him for breach or defaults (section 16 Labour Act);
• sue him for indemnity for losses caused by his negligence or default;
• sue to enforce a reasonable restraint of trade; and
• terminate the appointment.

Duties of the employer

March/July 2020 Section A asked which is a duty of the employer (to provide a safe working environment), and November 2017 asked for four (4 marks). The employer must:

1. provide work, where the opportunity to work is part of the contract;
2. pay wages in legal tender, such as by cheque (section 1 Labour Act), regularly: weekly, fortnightly or monthly, but not longer than monthly (section 9(4));
3. give a written statement of the terms within three months after the employee starts;
4. provide a safe system of work, which includes:
   • proper appliances and plant. If an employee is hurt by defective materials or plant, the employer is liable in negligence unless he took proper care (Latimer v AEC), with special provision for handicapped and vulnerable staff;
   • competent staff. The employer is liable if an employee is hurt by a colleague’s incompetence;
   • a proper system of work and effective supervision, including layout, sequence, warnings and special instructions;
5. pay expenses reasonably incurred in the course of duty: travel, hotel and entertainment (section 13);
6. pay compensation under the Workmen’s Compensation Act to injured workers or the relatives of a deceased worker;
7. grant at least one work-free day a week (section 12(7));
8. grant periodic leave with pay (section 17);
9. grant maternity leave (section 53);
10. grant sick leave of up to 12 working days in a calendar year for temporary sickness (section 15). If sickness is so serious and protracted that it frustrates the contract, the contract is discharged;
11. pay redundancy allowance where staff are discharged for redundancy owing to excess manpower (section 19), usually negotiated with the union;
12. indemnify the servant for losses lawfully and reasonably incurred in the course of his duties; and
13. be vicariously liable for the servant’s torts committed in the course of the master’s work, with a right to claim an indemnity from the servant (Lister v Romford Ice). A warning to the servant is no defence (Ayodele James v Mid-Motors).

Termination of the contract

A contract of employment may end by natural events (death, frustration, operation of law) or by the following reasons. May 2022 asked for five ways.

Notice

Notice may be for a fixed or reasonable time, or as the contract provides. The notice should not state reasons, because if it does the court may examine the reasons and declare the termination wrongful. The employer may instead pay salary in lieu of notice, which is the usual and safer course, since an employee’s commitment is likely to fall once he receives notice.

Fixed term and civil servants

• For a fixed term, the employer cannot end the contract early. If he does, he is liable in damages for wrongful termination, and not to an order of reinstatement, because the courts will not force an employee on an employer.
• A civil or public servant may have a right to work until the normal retirement age, so a wrongful termination leads to an order of reinstatement.

Dismissal

Dismissal is removal of an employee without formalities by the employer. It is distinguished from termination by notice, which follows the formalities of the contract (November 2017, 4 marks). May 2018 asked the examiners to distinguish dismissal from interdiction (4 marks), and to give four reasons for dismissal. March/July 2020 asked for three grounds (9 marks), and November 2023 for two.

Grounds

1. an act or conduct likely to bring the employer into disrepute;
2. practice or conduct that exposes the master to loss of public confidence;
3. gross immorality;
4. absenteeism without leave, amounting to abandonment of duties; and
5. gross misconduct, such as insubordination, habitual drunkenness, gross negligence and wilful disobedience of lawful orders.

The examiners in March/July 2020 gave: disobedience of lawful instructions, incompetence in the skills he professes, commission of a crime after conviction by a court, gross misconduct (drunkenness, violence, insubordination, immorality), and long unauthorised absence from duty.

Fair hearing

An employee cannot be dismissed without being heard, because that breaches his fundamental right to a fair hearing under section 33 of the Constitution (Garba v University of Maiduguri; Olaniyan v University of Lagos). Where the allegation amounts to an offence, he must be charged to court and tried.

If the employer’s disciplinary committee tries and finds him guilty, the dismissal is wrongful, and the court may order reinstatement (a civil servant) or damages (anyone else).

Interdiction

Interdiction is the suspension of the employee pending the determination of a criminal charge against him. If he is discharged and acquitted at the end of the trial, he is reinstated. In May 2019 the examiners put it as the right of the company to suspend an employee pending the determination of a criminal charge.

Working through the rules

Employee or independent contractor?

How may the contract be ended?

Damages for wrongful termination of a fixed term

An accountant is on a three-year contract at ₦600,000 a month. After 12 months he is wrongfully dismissed. The remaining term is 24 months, so his earnings for the term are 24 × ₦600,000 = ₦14,400,000, which he is entitled to recover as damages, as if he had been allowed to run the full term.

Worked problems

Problem 1: Olu’s probation and interdiction

1. Probation. Olu’s appointment will be confirmed only after three months of trial, during which the company studies him and tests his skill and suitability. Termination during probation is usually at short notice.
2. Interdiction. The company may suspend Olu pending the determination of a criminal charge against him. If he is acquitted, he is reinstated.

Problem 2: the two accountants

1. Indefinite period. By reasonable notice, or pay in lieu of notice.
2. Term certain. The answer differs. The contract cannot be ended before the term expires.
3. Remedy. If wrongfully terminated, they are entitled to all their earnings on the contract as if they had run the full term, as damages. The court will not order reinstatement for a private employee.

Problem 3: dismissal without a hearing

1. The rule. An employee cannot be dismissed without a fair hearing (section 33 of the Constitution). Where the allegation is an offence, he must be charged and tried in court.
2. The application. The disciplinary committee tried and found him guilty of what is an offence.
3. Advice. The dismissal is wrongful. A private employee is entitled to damages, and a civil servant could be reinstated (Garba v University of Maiduguri).

Problem 4: the driver’s accident

1. The rule. The employer is vicariously liable for torts committed in the course of the servant’s work. A warning is no defence.
2. The indemnity. The employer may claim an indemnity from the servant (Lister v Romford Ice), and may sue him for losses caused by his negligence.
3. Advice. The company is liable to the pedestrian, and may then recover from the driver.

Questions that have been asked on this topic, and how to answer them

Common mistakes in the exam

• Confusing a contract of service with a contract for service.
• Saying a contract of employment must be in writing. Only apprenticeship must be.
• Saying a fixed-term employee can be dismissed on notice. The term cannot be cut short without damages.
• Dismissing for misconduct without a fair hearing.
• Confusing dismissal with interdiction. Interdiction is suspension pending a criminal charge.
• Saying a private employee wrongly dismissed gets reinstatement. He gets damages, but a civil servant may be reinstated.
• Stating reasons in a notice of termination.
• Forgetting the employer’s duty to provide a safe system of work.

Quick revision

• Employment: contract of service, not for service. Tests: control, organisation, circumstances. No form needed, except apprenticeship in writing. Written terms within three months.
• Under 16 cannot be employed. Women: maternity leave 6 + 6 weeks, no notice during leave, no night work.
• Employee: obey, skill, personal service, confidentiality, fidelity. Employer: work, wages (not less often than monthly), safe system, expenses, compensation, leave, redundancy, indemnity, vicarious liability.
• Termination: notice or pay in lieu (indefinite); damages for the whole term (fixed term); civil servants reinstated. Dismissal needs a fair hearing (s.33). Interdiction: suspension pending a charge.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Section A style: multiple choice

Section B style: written questions

Model answers

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