Legal Issues Arising From The Requirement For CBN Approval for Termination Of Employment of Bank Employees
In the wake of the dreaded COVID-19 pandemic, several major regulatory decisions have been made across the world to manage the spread of the virus and curb its effect on global economies. Governments have instituted the shutdown of many businesses and enforced remote working policies as well as provided palliative measures to manage the economic effect of rising unemployment and bankrupt businesses. Nigerian regulators have not been left out of making these unprecedented decisions. One such notable decision is the recently issued press release by the Central Bank of Nigeria (CBN) (Press Release) on behalf of itself and the Bankers’ Committee, which noted the decision of the Bankers’ Committee from its meeting held on May 2, 2020, to restrain banks in Nigeria from retrenching or laying off any staff member (whether full-time or part-time) without ht express approval of the CBN. This means that banks require the CBN approval for the termination of employment of any bank employees.. The decision was reached upon deliberation by the Bankers’ Committee on the issues of the operating costs of banks in view of the disruptions resulting from COVID-19. The Bankers’ Committee is made up of CBN officials and managing directors (MDs) of Nigerian deposit money banks which implies that the decision was jointly taken by the Bank MDs and the CBN.
While the intention of the CBN and the Bankers’ Committee to “help minimize and mitigate the negative impact of the COVID-19 pandemic on families and livelihoods” is commendable and has been applauded in many circles, the weighty implication of the decision on employment contracts between the banks and their employees cannot be ignored. It is important to consider the implications of the statements in the Press Release requiring the express approval of the CBN in order to effect the disengagement of any bank employee.
Generally, private employment contracts may only be terminated in the manner agreed by parties, and employment contracts governed by statute may only be terminated in the manner prescribed by the relevant statute. The introduction of a second-limb requirement that the termination of the private employment contracts between banks and their employees should first be approved by the CBN goes against these general principles of law and raises questions as to the legality of the decision in the Press Release, the implications on contractual principles and other related issues. These considerations are discussed below.
2. Extent of the CBN’s Powers on Bank Employment Contracts
The CBN exists pursuant to the Central Bank of Nigeria Act, 2007 (CBN Act) and it is statutorily obliged to administer the CBN Act and the Banks and other Financial Institutions Act (BOFIA). As part of its core mandate, the CBN regulates the affairs of all banks established pursuant to the provisions of BOFIA. Notably, the CBN is statutorily interested in the employment of certain categories of persons who work in banks. For example, the CBN is required to approve the employment of persons who are to serve as directors (executive and non-executive) or chief executives and also has the power to sanction banks for the wilful employment of certain categories of persons who due to their criminal conduct or record are unfit for banking roles.
Although section 42(1)(c) of the CBN Act, which provides for CBN co-operation with Nigerian banks, grants the CBN the power to scrutinize proposed retrenchments by banks, neither the CBN Act nor the BOFIA requires a bank to seek the approval of the CBN before terminating the employment contract of any employee.. Section 42 of the CBN Act provides:
- The Bank shall wherever necessary seek the co-operation of and co-operate with other banks in Nigeria to:
- promote and maintain adequate and reasonable financial service for the public;
- ensure high standards of conduct and management throughout the banking system; and
- further such policies not inconsistent with this Act as shall in the opinion of the Bank be in the national interest. (emphasis ours)
It may be argued that the decision of the Bankers’ Committee and the CBN as set out in the Press Release, is in furtherance of CBN’s statutory powers to cooperate with other banks to establish policies that are not inconsistent with the CBN Act and are in the national interest. It may also be argued that the decision set out in the Press Release can be situated within the context of the CBN’s core statutory object to promote a sound financial system within the country as mass retrenchment of bank employees during the COVID 19 pandemic may likely erode public confidence in banking institutions as depositors may see the same as an indication that the banks are struggling.
However, in order for section 42(1) of the CBN Act to be an adequate basis for the provisions of the Press Release and the CBN’s imposition of its approval before the termination of any employment contracts in the banking industry, whether the decision in the Press Release is sufficiently qualified to be a “policy” within the meaning of the CBN Act needs to be considered and if so, whether there are limitations to the kind of policies contemplated by the section. Whether the CBN can, by a policy it considers to be in the national interest, change extant statutory principles of employment law such as the freedom of an employer to terminate an employment contract in line with contractual terms needs to be considered.
In Ogundipe v. The Minister of FCT & Ors, the Court of Appeal by Tur, JCA in his dissenting judgment at page 53, paragraph B – D defined policy as follows:
“A ‘policy’ is a ‘set of ideas or a plan of what to do in particular situations that has been agreed officially by a group of people, a business organization, a government or a political party.’ See Cambridge Advanced Learned Dictionary, 2003 edition, page 958. In legal parlance, it is ‘The general principles by which a government is guided in its management of public affairs.’ See Black’s Law Dictionary (supra) page 1276.”
In light of the principal objects of the CBN set out in section 2 of the CBN Act, the decision to grant the CBN supervisory authority over bank employment contracts does not fall within the core policy mandates of the CBN which are to: (a) ensure monetary and price stability; (b) issue legal tender currency in Nigeria; (c) maintain external reserves to safeguard the international value of the legal tender currency; (d) promote a sound financial system in Nigeria; and (e) act as banker and provide economic and financial advice to the Federal Government.
Thus, it cannot be the intention of the legislature that the CBN will rely on Section 42(1) (c) to change provisions in the substantive legislation on employment law such as section 11 of the Labour Act which provides that parties to an employment contract may terminate their contract by giving notice.
3. Privity of Employment Contracts between Banks and their Employees
Under contract law, the rights and obligations due under a contract enure for the benefits of the parties to the contract. Therefore, under an employment contract, the right to determine whether to terminate an employment lies with the parties to the contract which in this case are the banks and their employees. Since the employment contracts between banks and their employees exist for the benefits of the two parties only, any “interference” by the CBN to require any prior approval to enforce any of the terms of the contract including termination terms may amount to a violation of the doctrine of privity of contract.
Indeed, in agreement with the reasoning above, the CBN had by a press statement issued on 4 January, 2010 stated that issues relating to the engagement or disengagement of bank workers are best left to parties (banks and their employees) and particularly noted that those decisions are taken on the basis of business imperatives. The CBN further stated that it expected all banks to follow due process in honouring all contractual obligations with their employees. Clearly, the CBN’s 2010 press statement agreed with the position that it has no right under the employment contracts between banks and their employees to direct or restrain employee terminations.
Please access full version here.