On 1st May, Nigeria joined over 160 countries in celebrating International Workers’ Day, a public holiday that offers not just celebration, but a time for reflection. It is also a reminder of how wide the gap is between Nigerian labour law as written and the realities in many Nigerian workplaces. – This gap is not merely academic, but has real commercial consequences. For businesses that are unaware they are being targeted for unfair dismissal claims, for employees whose rights are not known, and for employers who think a one-page offer letter is sufficient for an employment contract, this article examines both sides of the employment relationship, because Workers’ Day is not about one without the other.
 

The Legal Framework: What Governs Nigerian Employment

The main legislation governing employment is the Labour Act (Cap L1), Laws of the Federation of Nigeria 2004 alongside the Employees Compensation Act, 2010, the Factories Act, LFN 2004, the 1999 Constitution (as amended) amongst others. The Act itself was passed in 1971 and has received little substantive reform since, thus, it does not adequately reflect the current realities of the modern Nigerian workplace.

Other sources of employment law in Nigeria include the Trade Unions Act Chapter T8, LFN 2004 and the National Industrial Court Act 2006 which made the National Industrial Court of Nigeria (NICN) the employment disputes court of record. In practice, however, the NICN sets the standard for how employer-employee disputes are settled in Nigeria and its judicial pronouncements in the last decade have moved decisively in the employees’ favour.

Five Things Nigerian Employers Should Audit Today

1. Your employment contracts are NOT optional

Section 7 of the Labour Act requires employers to give employees a written declaration of terms of employment within 3 weeks of engagement. Most Nigerian employers satisfy this obligation with offer letters confirming salary, job title and start date – and little else. This is legally inadequate. A legally compliant employment contract should include: probation terms & conditions; grounds for termination & procedure; discipline and grievance procedures, confidentiality & intellectual property ownership; for senior staff, non-competition obligations (which must be drafted carefully to be enforceable under Nigerian law).

An unfinished contract does not protect the employer. This creates ambiguity which courts will resolve against the drafter – the employer.

2. Wrongful Dismissal

The NIC has in a plethora of decided cases held that a fair hearing is an implied term in every employment contract in Nigeria, whether or not the contract provides for it explicitly. A company that fires an employee for gross misconduct without first investigating and without giving the employee time to respond is placing the employer at great legal risk. This is true even where the contract provides for a “termination with cause” or a “termination on notice” provision. The NICN has in several decisions required employers to exercise procedural fairness even where the substantive right to terminate is not in dispute.

There is no loan facility stronger than the security that underlies it. Any bank that doesn’t properly secure its assets is not a secured creditor. And a borrower that does not understand its perfection obligations might find that its representations to its lender were false. These are five security perfection mistakes we see often and every party involved in a Nigerian credit transaction needs to know about them.

1. Unregistered Charges at the CAC

Charges by a Nigerian company over its assets must be registered with the CAC within 90 days under the Companies and Allied Matters Act 2020. An unregistered charge is void against a liquidator, administrator, or any other creditor, so the secured lender is essentially on par with all other unsecured creditors in an insolvency or enforcement situation.

We know this is a requirement, but it is often not met, especially in transactions where several parties move very quickly, where the borrower’s lawyers are doing all the perfecting without the lender being involved in the process, or where post-closing perfection undertakings are given but never enforced.

A documented perfection checklist, under lender counsel supervision, with CAC registration evidence gathered and verified before drawdown – that’s the solution. The principle is simple: There is no registration and there is no drawdown.

2. Missed or Incorrect Stamp Duty

Loan agreements, debentures and mortgages in Nigeria are subject to Stamp Duty. In Nigerian courts, an unstamped or inadequately stamped document is not admissible as evidence. The document does not disappear; the parties remain obligated to each other. It removes the possibility that those obligations can be enforced in courts.

In many cases, the stamp duty position on complex instruments such as debentures with multiple asset classes, syndicated facilities with multiple lenders, and cross-border security packages is not clear, and Nigerian stamp duty law has not kept up with the pace of modern lending transactions. Lenders and their advisers should not rely on precedent or think that what was accepted in a previous transaction will be accepted here. Specific advice on the position of each instrument before execution is the standard.

 

3. DEFECTIVE DEBENTURES

Debentures with defects create both fixed and floating charges on a company’s assets. But the scope and enforceability of those charges depends entirely on how the debenture is written – and badly written debentures are very common in Nigerian lending transactions.

The most common defects are:

• It fails to mention the asset classes that bear the primary security value.
• Use of ambiguous descriptions of charged assets.
• Not including important provisions for the crystallization of the floating charge into a fixed charge.

Debenture provisions that violate the company’s articles of association are unlikely to be fit for purpose. That goes for FinTechs, technology companies and businesses whose assets are intangible.