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Restructuring is a term that often causes feelings of uncertainty or unease among business owners and organizations. However, from a legal standpoint, restructuring can be an incredibly beneficial process; helping businesses adapt to new market conditions, improve operational efficiency, and ensure long-term stability.
In the last few months, we have noticed an increasing trend in organizational restructuring of a businesses and international organizations in Ethiopia. This need for organizational restructuring is being necessitated due to both global crises as well as the security concerns in the country.
Why do businesses/organizations/ do a restructuring?
Restructuring may be necessary due to various reasons. Among the reasons could be financial health, technological advancements, operational efficiency, mergers, and acquisitions, change in the business strategy, and regulatory matters.
Employment law considerations when restructuring a business.
One of the most sensitive aspects of restructuring is potential redundancies of the positions of employees thereby necessitating termination of employment contracts of some employees. Any business considering a restructure must ensure compliance with labor regime to avoid undesired labor rights litigation.
Under Ethiopian labor rights regime, the employer (be it a business or non-profit organization) has a discretion to undertake a restructuring as it deems necessary. In this regard, Article 28 of the Labor Proclamation No. 1156/2019 states that an employment contract may be terminated with a notice on the grounds attributable to the organizational or operational requirements of an undertaking. As per the proclamation, some of these grounds leading to a termination of employment with a notice are:
a) Any event which entails direct and permanent cessation of the worker’s activities in part or in whole resulting in the necessity of a terminating a contract of employment.
b) A demand falls for the products or services of the employer resulting in the reduction of the volume of the work or profit of the undertaking and thereby requiring termination of a contract of employment.
c) A decision to alter work methods or introduce new technology with a view to raise productivity resulting in termination of a contract of employment.
The above grounds could require an organizational change or restructuring which might involve termination of employment contracts.
At Legacy Law Firm, we provide bespoke legal solutions for businesses undergoing restructuring.
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