Cutting Costs, Not Corners: A Legal Playbook for Layoffs in Nigeria’s Tech Sector

Introduction

Across global tech ecosystems, the shift from “growth at all costs” to disciplined, efficiency-driven operations is unmistakable. Major companies have reduced headcount, restructured teams, and doubled down on profitability and productivity.

This global reset is not happening in isolation. Nigerian founders, operating in a capital-constrained environment, are facing similar pressures to extend runway, optimise costs, and build leaner organisations.

One of the most immediate levers available is workforce reduction.

However, layoffs are not merely operational decisions. In Nigeria, poorly executed redundancies can expose companies to wrongful termination claims, financial liabilities, and reputational damage that may outweigh any cost savings.

This edition of TALP’s Tech Brief outlines the legal framework governing redundancy in Nigeria and provides a practical guide for founders seeking to navigate layoffs without attracting liability.

Redundancy under Nigerian Law

Put simply, redundancy is an “involuntary and permanent loss of employment caused by excess manpower.”  Unlike other forms of termination (i.e., termination due to poor performance or summary dismissal for gross misconduct), a redundancy is triggered solely by business considerations such as restructuring, automation, or operational efficiency. If the company is merely replacing employees while keeping the same role, it does not qualify as redundancy.

Importantly, employers cannot recharacterise redundancy as a termination for cause (e.g., poor performance) to avoid severance obligations. Courts will look beyond the stated reason and assess the substance of the exit; where the underlying driver is redundancy, it may be treated as such regardless of the label applied.

Legal Procedure for Redundancies

The Nigerian Labour Act (the “Act”) prescribes the requirements for redundancy, but its protections apply primarily to “Workers”—employees in junior, manual, or clerical roles. For employees outside this category (“Non–workers”), redundancy is governed by the terms of their employment contracts, applicable collective bargaining agreements, and internal policies, which may adopt or mirror the Act’s standards. Accordingly, roles such as software engineers, product managers, accountants, legal, and other senior or managerial staff will typically fall outside the Act’s direct scope.

For Workers, the Act sets out the procedure for implementing a lawful redundancy as follows:

1. Notification: Inform the relevant trade union or workers’ representative (if any) of the reasons and extent of the layoff. This is done by a formal written notice of redundancy;
2. Selection: Apply the Last-In, First-Out (LIFO) principle when selecting employees for redundancy. LIFO requires that recently hired employees are among the first out the door, while longer-serving employees are retained last. However, a founder may not apply LIFO where there is a “relative merit” for such a decision. Relative merit is decided by the employee’s skill, ability, and reliability (based on documented appraisals). This allows founders to retain high-performing technical members of the team who occupy business-critical roles, even if they have shorter tenures than other employees.
3. Negotiation: The employer must use his/her best endeavours to negotiate redundancy payments with the affected employees either individually or with their Trade Union(s).
4. Settlement: Due procedure also includes paying all the entitlements of affected employees. These include earned salary, accrued/unused leave, outstanding pension, and redundancy allowance. If a Collective Bargaining Agreement (CBA) or Redundancy Benefits Agreement (RBA) negotiated by a trade union defines how redundancy allowance will be paid (e.g., based on ceilings or caps on the number of years of service counted), an employer is bound by it.

Redundancy for Non-Workers

In the case of Non-workers, an employer must comply with the procedure for redundancy set out in the;

1. the Contract of Employment;
2. Company’s policy (e.g., Employee Handbook, HR Policy); and
3. Collective Bargaining Agreements, if negotiated with the employees’ Trade Union.

Where redundancy provisions are absent from the contract of employment, any applicable collective bargaining agreement, or internal policies, employers should adopt the principles and procedures in the Labour Act as a baseline. In particular, redundancy terms should be negotiated in good faith—courts may view “take-it-or-leave-it” offers as evidence of bad faith. In determining severance, relevant factors include length of service, role, and remuneration.

Before making any payments, employers should secure a properly structured severance agreement to mitigate post-exit claims. Key provisions typically include:

1. Mutual Non-Disparagement: Clauses should be balanced and reciprocal. Overly broad or one-sided restrictions may be unenforceable.
2. “Full and Final” Settlement: Payments should be expressly designated as redundancy payments and stated to constitute full and final settlement of all claims.
3. Waivers of Claims: Waivers can be an effective tool for reducing post-exit litigation risk, provided they are properly structured. To enhance their enforceability, they should be freely negotiated between the parties, supported by adequate consideration, and not obtained under any form of duress or undue pressure. Where a waiver is overly broad or appears coercive in nature, a court may scrutinise it closely and, in appropriate circumstances, decline to enforce it.

Common Pitfalls Founders Must Avoid

In practice, legal exposure often arises not from the decision to downsize, but from how it is executed.

Key risks include:

• Rehiring shortly after redundancy, which undermines the rationale for the exit
• Lack of documentation supporting “relative merit” decisions
• Inconsistent severance packages across similarly situated employees
• Failure to consult or communicate adequately
• Absence of clear contractual redundancy provisions

Each of these can form the basis of a dispute.

Conclusion

The current wave of global restructuring has made one point clear: efficiency is no longer optional. Nigerian founders are responding accordingly, often by reducing headcount and refocusing their organisations.

However, redundancy in Nigeria sits at the intersection of statute, contract, and policy.

While the Labour Act provides a useful procedural baseline, the real legal risk, particularly in the tech sector, lies in how well employment relationships have been structured in advance and how carefully exits are executed.

Founders who approach layoffs as a purely operational exercise often incur avoidable liability. Those who treat redundancy as both a legal and strategic process are far better positioned to reduce costs without creating future disputes.