Effective Contract Management

Contract management, sometimes referred to as contract administration, refers to the processes and procedures that companies may implement in order to manage the negotiation, execution, performance, modification and termination of contracts with various parties including customers, vendors, distributors, contractors and employees. While businesspeople often dismiss contract preparation as “lawyer’s work” that has little or nothing to do with the important aspects of the working relationship between the contractual parties, contracting is actually one of the crucial activities in determining the success of any business arrangement.

We assume that one of your roles as in-house counsel will be assisting your internal clients with contract preparations and it is absolutely essential that you work closely with your clients to establish well in advance your mutual expectations regarding the role that you will be expected to play in the negotiation, drafting, finalization and monitoring of a particular contract. In most cases, you should expect to be responsible for drafting the contract and all related documents as well as spotting and resolving specific legal issues. Managers inside your company will typically be responsible for identifying and resolving all of the business and risk management issues associated with the contract and the underlying relationship between the parties. However, in-house counsel do sometimes become heavily involved in negotiation of business issues and to have a great deal of input into the strategy goals and objectives of a particular contractual arrangement.

For each proposed contractual arrangement you should get in the habit of going through a checklist of the actions that you might be expect to take in order to assist the company. You’ll eventually develop your own checklist that you can refer to as time goes by; however, when you are first starting out we recommend that you consider each of the following “Top 10 Steps for Effective Contract Management”:

  1. Make sure that you begin with a thorough investigation of both the business and legal background for the contract and the proposed transaction and business relationship in which the contract is to be used. Appropriate representatives of the company should be interviewed to determine how the relationship has evolved and what, if any, commitments may have already been made by the parties. This is also the time to give special consideration to the actual and potential impact on the company’s existing obligations and business relationships.
  2. Working with the appropriate representatives of the company, you should identify the steps that need to be taken in order to comply with the requirements of any contract review and signature authority policies and procedures that have been established by the company. For example, does the contract need to be reviewed and approved by senior management and/or the board of directors and, if so, what needs to be done in order to expedite review and consideration.
  3. Once you have a good understanding the scope of the proposed business relationship you should identify the contracts and related documents required to document the relationship and complete any immediate transaction and then proceed with collecting and reviewing examples of the necessary contracts to expedite the drafting process and isolate specific questions that the company will need to answer in order for the contract to be complete and accurate.
  4. If warranted by the complexity of the proposed transaction, you should prepare a time and responsibility schedule for drafting, review, discussion, revision and completion of all required items and activities. For example, a time and responsibility schedule is often useful for a financing transaction that must pass through several stages over an extended period of time including preparation of a business plan, presentations to potential capital providers, preparation of financing documents and satisfaction of closing conditions.
  5. Taking into account discussions with company representatives regarding your role, you should participate in the negotiation of the essential terms of each contract and, if appropriate and useful, prepare a term sheet or letter of understanding to be sure that the parties are in agreement regarding the essential terms before time and effort is spent on contract preparation. If you are not to be directly involved in negotiations you should, at a minimum, provide company representatives with a list of questions that will need to be answered in order for the contracts to be completed so that the representatives can discuss them with their counterparts from the opposite party.
  6. Once background information has been collected and preliminary agreement has been reached on the essential terms, you should prepare the initial draft of each of the required contracts and related documents or, in cases where the opposite party is responsible for drafting, review the initial draft of such items prepared by the opposite party; discuss and negotiate necessary changes in the initial drafts and make sure that revised drafts are circulated for review and finalization. The timing of the drafting and revision process is crucial since delays can push the relationship off track and jeopardize realization of the business opportunities anticipated by both parties.
  7. Once the documentation is finalized you should prepare for the closing of the transaction, including pre-closing meetings and preparation of closing checklists and memoranda. If certificates and/or consents from outside parties are required in order for the contracts to be finalized and become effective they must be planned for well in advance and may themselves require time-consuming negotiations.
  8. Once all conditions to consummation of the proposed business relationship have been satisfied or waived, you should oversee completion of the closing of the transaction at which time all contracts and related documents are executed and exchanged and any required performance at the closing (e.g., cash payments) is completed.
  9. Once the closing is completed you should make sure that all of the closing documents are organized and that copies are delivered to all interested parties. This is also the time for you to make sure that the files relating to the transaction that have been opened during the process described above are organized so that they can be easily accessed in the future should questions arise.
  10. Working with company representatives, you should establish a plan for ongoing review of the performance of each of the parties under the terms of the contract, at least in those cases where the contract is long-term and calls for continuous performance over an extended period of time. As part of the plan you should calendar any dates identified in the contracts that may require follow up action, such as performance milestones and option elections.

We cannot overemphasize the importance of determining your role in the contracting process and the level of active involvement that you may have in negotiations relating to the contract. In-house counsel’s role can vary from active negotiator to behind-the-scenes scrivener. In all situations where you are empowered to take some actions without managers being present, you should make sure that procedures are in place to promptly communicate any new development to the appropriate businesspersons within the company. Absent this type of communication, and a clear delineation of responsibility between you and other company participants, you may find that responsible managers within the company are unhappy with the way the company is being represented. Moreover, lack of coordination increases the risk of embarrassing conflicts and misunderstanding that send the wrong message to the parties on the other side of the transaction.

Even if you are not expected to play a primary role in negotiating the terms of the contract, you should make every effort to encourage managers to notify you as soon as possible that the transaction is contemplated. While businesspersons do not always do the best job of informing their lawyers in advance, even in the best of circumstances, you should always attempt to sensitize managers and other involved parties within the company to the possibility that unforeseen legal issues may emerge from a particular business decision. With that knowledge and understanding, businesspersons can be trained to always discuss business points with the caveat that a final decision will ultimately depend on review by “legal”. This Top Ten helps in-house counsel define the important considerations in the contract management process, regardless of their role.

Culled from Association of Corporate Counsel

 

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Digitalisation, automation and the global labour market

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Introduction

Modern information technology and the daily use of the Internet have strongly influenced the world of work in the 21st century. Intelligent algorithms simplify everyday tasks, and it is impossible to imagine how most steps of a procedure could be managed without them. Further, the use of artificial intelligence (AI) and robotics is accelerating. Thus, the question arises as to what the future world of work will look like and how long it will take for this to happen. Mass unemployment, mass poverty and social distortion may be a possible scenario for the new world of work.(1) Even if intelligent systems and algorithms play an increasingly central role in the new world of work, no jobs will be lost abruptly as a consequence of digitalisation. Rather, a gradual transition will take place, which has already commenced and differs from industry to industry and from company to company.(2)

Big data analyses and intelligent algorithms are also increasingly replacing or supporting humans in the service sector. In the industry sector, automation and the use of production robots will lead to considerable savings with regard to the cost of labour and can release workers from hard and dangerous, repetitive and monotonous work. While in the European automotive industry one working hour in production costs more than €40, the costs for using a robot range from €5 to €8 an hour.(3) A production robot is thus only slightly cheaper than a worker in China.(4)

Robots and intelligent algorithms cannot become ill, have children or go on strike, and are not entitled to annual leave; therefore, for many companies it is worthwhile investing in robots and intelligent software. An autonomous system does not depend on external factors and works reliably and constantly; it can also work in danger zones and overnight.(5)

Categories of AI

The following definitions are of use in this area:

  • Deep learning – machine learning based on a set of algorithms that attempt to model high-level abstractions in data.
  • Gig economy – independent contractors looking for individual tasks that companies advertise on an online platform (eg, Amazon Mechanical Turk).
  • Robotisation – production robots replacing employees because of advanced technology (they work more precisely than humans, eg, three-dimensional printers).
  • Autonomous driving – vehicles have the power for self-governance using sensors and navigation without human input. Taxi and truck drivers are no longer necessary. The same applies to stock managers and postal carriers (eg, delivery drones).
  • Dematerialisation – thanks to automatic data recording and data processing, traditional office activities are no longer necessary (eg, accounting or lawyer assistants).

Impact of digitalisation and automation on labour market

Global view
According to recent studies, about 47% of total US employment is at risk,(6) while around 70% of total employment in Thailand or India is at risk.(7) Low-wage countries such as China, India and Bangladesh are still benefiting from their surplus of low-skilled workers, and western companies have outsourced their production and some services to these countries. In most developing countries, the implementation of (partly) autonomous systems is unlikely to be worthwhile at present for economic reasons, since the labour costs are not much higher than the costs for acquisition, development and maintenance of the necessary equipment.(8) On the other hand, companies also located in low-wage countries must invest in relevant IT systems in order to improve their productivity and attractiveness and remain competitive in the long run.

Eventually, however, these companies will decide to produce in their countries of origin using production robots and only a few workers. In this case, the surplus of low-skilled workers will turn into a curse for developing countries. The question is how to integrate the large number of unskilled production workers into a structurally difficult labour market that depends on the demand of foreign countries. Another problem is that there are no comparable social security systems in place in most developing countries. Possible mass unemployment could lead to humanitarian catastrophes and a wave of migration.

Due to the lack of financial investments in many developing countries, digitalisation will initially be strongly focused on developed countries and Southeast Asia. For example, more than 80% of the robots sold each year are used in Japan, South Korea, the United States and Germany.(9)

New job structures
According to a survey by the Pew Research Centre, 65% of Americans expect that a robot or an intelligent algorithm will be doing their job within 50 years.(10) Individual jobs will disappear partly or completely, and new types of job will come into being, especially in the service sector. That the service sector will be affected can particularly be seen in the insurance and financial branches, where intelligent algorithms are replacing human employees by automatically carrying out traditional back-office tasks, answering client questions via chatbots and presenting financial planning or insurance policies.(11)

A typical example of a new type of job created in recent years is crowdworking. Freelancers represent the typical worker of ‘Industry 4.0’ because they work at any time and in any place. Thanks to the Internet, international borders and time differences also no longer play a role. Owing to the digitalisation and internationalisation of the online platforms on which crowdworkers offer their services, the choice of applicable law is usually uncertain. More precisely, the challenges are how to define ‘crowdworking’, how to establish working conditions for compensation and how to determine which tax regime, social security and welfare rules apply.(12)

It is certain that both blue and white collar sectors will be affected to the same extent. In the medium-wage sector, routine jobs will be eliminated. Up to one-third of the jobs that require a bachelor’s degree may be replaced by a machine or intelligent software in the coming years. At the same time, it is expected that new jobs will be created in the service sector, ranging from data analysts to software programmers.

Labour relations
The role of humans within the world of work is changing. Employee organisations have realised that new challenges are in store for employees from all professional and social classes because of robotics and the computerisation of the workplace. Trade unions will pay particular attention that no ‘lost generation’ is left behind and that there are no mass dismissals caused by the introduction of AI. Unions will advocate further training, advanced training and retraining of employees.(13)

Trade unions will remain the main player when it comes to fighting for employees’ rights and they will expand their constituency by also representing the increasing number of freelancers. Finally, legislators will have to introduce new forms of employee representation structures to avoid their slow decline caused by a decrease in trade union memberships and fewer employees in a company, due to which the required thresholds for works councils can no longer be reached.

Outsourcing employment and creating new internal structures
Companies will focus on their core competencies and will outsource other activities in a cost-effective manner.(14) It is a global trend that ‘Work 4.0’ will take place outside traditional employment structures, with a rise in self-employment.(15) Even in European countries, the so-called platform economy is becoming more and more common. And larger companies use external workers instead of hiring new employees. Some highly qualified young employees enjoy their independence and will focus their work on the development of creative solutions for a changing client base. The demand for social security is no longer as high, but freedom with regard to working time, the place of work and the choice of clients is more important to so-called ‘Generation Y’.

Professional connections between companies, clients, competitors and external providers involve some risks with regard to business secrets, especially if companies create open innovation models or use ‘prosumers’ (who consume and produce media) to develop their products. Particularly in big companies, hierarchy levels will be eliminated and smaller organisational units will be necessary. An automatic supply chain connection between the company’s systems and the systems of its external providers will be the basis for success in the digital world.

Distinction between employee and independent contractor
Classic employment can be detrimental to the business owing to the high wage costs in European countries.(16) An employee is primarily characterised by the fact that he or she is subject to the authority of the employer to issue instructions regarding the job assignment. The borders between the employee’s professional life and private life become blurred. If the place of work, in addition to working time, becomes more flexible, and if employees are granted more powers to work independently, it becomes harder to distinguish between an employee and an external freelance worker or a worker provided by a third-party company.(17)

Liability and safety risks
The introduction of intelligent algorithms and more independent production robots will create new risks for employees and employers. At the moment, a spatial separation between robotic and human workers characterises production facilities. In the future world of work, human workers will have to collaborate with robots and intelligent algorithms. Work will be characterised by the use of connected technical wearables (eg, data glasses or fitness trackers). In the production sector, risk analyses will be carried out in advance.

In addition, software faults can come into consideration as potential safety hazards relating to autonomous systems and assistant robots. Recently, the European Parliament voted for a resolution concerning the introduction of legal standards for robots and intelligent algorithms (eg, electronic person) and compulsory insurance to compensate for damages caused by the systems.(18)

Self-employed contractors are not released from liability. If an independent contractor destroys the principal’s property while working for the principal, he or she must pay full damages, whereas the employee’s liability is limited in most cases.

Working time
In the future, employees and employers will agree on the flexible management of working hours. The breakdown of the boundaries for working hours also makes it possible to implement working life time models that are beneficial to the ‘work-life balance’. In most European countries, the maximum working hours or rest periods are exceeded in everyday practice. National and European lawmakers should create frameworks offering more flexibility and less strict regulations to avoid this legal uncertainty (eg, daily rest periods).

Some (older) alternative working-time models will become common, especially for the younger generation. Examples are home office, job sharing, on-call work, zero-hour contracts, employee-sharing, sabbaticals or reduced working time models for older employees. However, there are individual legal risks concerning the contractual design of every alternative working time model. In most cases, negotiations with employee representatives will be necessary.

Remuneration
The breakdown of boundaries in terms of the place of work and working hours makes it difficult for employers to check how many hours employees have actually worked. There is no factor linking the time/wage system, which makes this system unattractive for employees and employers alike since, in general, employees’ motivation is enhanced by more performance-related payments. In the future, elements of performance-linked payment – or alternatives such as stock options, annual bonuses or company pensions – will thus be used increasingly with regard to non-executive employees.

The central issue regarding performance-related remuneration structures is not the type of agreement, but how to define ‘performance-related’. A combination of an individual team target (turnover or a ‘soft’ target) and the turnover achieved by the company or group is possible.

Data privacy and big data
For big data analyses, data is anonymised and exists in an unstructured form. Thus, in most countries big data analyses do not violate applicable law. For companies, data is not only an asset worth protecting, but at the same time it is merchandise, and has been called the “oil of the future”.(19)Nevertheless, the EU General Data Protection Regulation (applicable as of May 2018) prohibits collecting personal data without a permissive rule in all European countries. US data privacy protection laws are not based on the general assumption that data is confidential, but provide for data confidentiality in individual cases (eg, with regard to health insurance and the protection of minors). In addition, at least in the European Union, the introduction of many technical aids (eg, production robots, wearables, intelligent algorithms and employees’ own devices) is not possible without the consent of employee representatives.

Comment

One certainty is that both blue and white collar sectors will be affected to the same degree.(20) A high level of unemployment in some sectors will be unavoidable, even if the major share of jobs will shift to a different area of work – mainly to the service sector, where new service models will be created. Finally, AI will result in growth and prosperity: employees will also benefit from flexible solutions concerning working time and the place of work caused by the introduction of AI.

The digitalisation (and automation) of services is a global phenomenon affecting a far-reaching and diversified field of advisory services in general, and labour and employment law in particular. Ideally, future laws should take the technological developments and the increased need for flexibility into account. AI is creating a gap between existing legislation and the new laws necessary for an emerging workplace reality.(21)

For further information on this topic please contact Gerlind Wisskirchen or Jan Schwindling at CMS Hasche Sigle by telephone (+49 40 37 63 00) or email (gerlind.wisskirchen@cms-hs.com or jan.schwindling@cms-hs.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.

Endnotes

(1) www.spiegel.de/wirtschaft/soziales/arbeitsmarkt-der-zukunft-die-jobfresser-kommen-a-1105032.html.

(2) Brzeski/Burk, “Die Roboter kommen, Folgen der Automatisierung für den deutschen Arbeitsmarkt“, 2015.

(3) www.bcgperspectives.com/content/articles/lean-manufacturing-innovation-robots-redefine-competitiveness/.

(4) “Kollege Roboter,” Fokus No 38/2015 of October 19 2015, p69.

(5) www.faz.net/aktuell/wirtschaft/fuehrung-und-digitalisierung-mein-chef-der-roboter-14165244.html.

(6) Frey/Osborne, The Future of Employment: How Susceptible Are Jobs to Computerisation,” 2013, p1.

(7) “Automat trifft Armut”, Handelsblatt News am Abend, July 15; No 135, p6.

(8) www.bcgperspectives.com/content/articles/lean-manufacturing-innovation-robots-redefine-competitiveness/.

(9) www.bcgperspectives.com/content/articles/lean-manufacturing-innovation-robots-redefine-competitiveness/.

(10) www.pewinternet.org/2016/03/10/public-predictions-for-the-future-of-workforce-automation/ p3.

(11) www3.asiainsurancereview.com/News/View-NewsLetter-Article/id/38286/Type/eDaily/South-Korea-Insurers-to-evolve-into-integrated-service-providers-integrated-service-providers.

(12) “The On-Demand Economy and the impact on employment law”, International Bar Association Employment & Industrial Relations Law, September 2016, p31.

(13) https://innovation-gute-arbeit.verdi.de/++file++540998f5ba949b358400004e/download/138.1411_digit_arbeit_RZ3_web.pdf S.25.

(14) “Understanding the Future of Work“, International Organisation of Employers Brief, July 6 2016, p7.

(15) “Automation and Independent Work in a Digital Economy”, OECD Policy Brief on the Future of Work, May 2016, p3.

(16) “The On-Demand Economy and the impact on employment law”, International Bar Association Employment & Industrial Relations Law, September 2016, p27.

(17) “The On-Demand Economy and the impact on employment law”, International Bar Association Employment & Industrial Relations Law, September 2016, p26.

(18) www.spiegel.de/netzwelt/netzpolitik/kuenstliche-intelligenz-eu-parlament-fordert-regeln-fuer-roboter-technologie-a-1134949.html.

(19) www.faz.net/aktuell/wirtschaft/netzwirtschaft/was-taugt-die-eu-datenschutz-verordnung-13972055.htm.

(20) www.pewinternet.org/2016/03/10/public-predictions-for-the-future-of-workforce-automation/ p5.

Source: International Law Office

EFCC secures 137 convictions, recovers N419 billion, others in seven months

  • Commission invites senator over alleged bribery allegation against IGP
  • Group seeks sack of IGP over corruption charges

Acting Chairman of the Economic and Financial Crimes Commission (EFCC), Ibrahim Magu, yesterday disclosed that the commission recovered N419 billion and secured 137 convictions between January and August 2017.

Speaking at an interactive forum with journalists in Abuja, Magu said other cash haul within the period include £230,000.00, €610,000.00, $69.5million, 432,000.00 Dinars and 70,500 Saudi Riyad.

He appealed to the media not to relent in their support for the anti-corruption war, insisting that the corruption fight requires a concerted effort to succeed.

Magu also noted that it would be naive for anyone to expect that the fight against corruption will be smooth even as he called for unity among stakeholders to expose corrupt persons and all proceeds of corruption.

While expressing gratitude to the media for supporting the anti-graft crusade, Magu said: “The fight against corruption is getting tougher as corruption is continuously fighting back.

Magu also vowed to bring any EFCC operatives indicted for corruption to book and disclosed that nine cadet officers of the commission were recently discharged because they had issues with their certificates.

He promised to protect all whistle-blowers who provide information to the commission and maintained that it was declaring a total war against corruption.

Meanwhile, the Police Service Commission (PSC) has invited Chairman, Senate Committee on Navy, Isah Hamman Misau, to appear before its special panel investigating allegation of corruption in the Force on Wednesday, September 6, 2017.

A statement signed late Wednesday in Abuja by Head, Press and Public Relations, Ikechukwu Ani, said the Commission in a letter signed by the Chairman of the Special Panel, Justice O. Adekeye, a retired Justice of the Supreme Court, has invited Misau to appear before PSC panel.

“The Police Service Commission, the only organ saddled with the statutory responsibility of issuing letters of retirement to all police officers except the IGP has a vital role to play in determining the authenticity of this letter.”

“Senator Misau is invited to appear before the panel with the original copy of his letter of retirement for authentication,” the statement said.

In another development, the Progressive Mind for Development (PMDI), a civil society organisation, yesterday asked President Muhammadu Buhari to sack the Inspector-General of Police (IGP), Ibrahim Idris, over the recent corruption charges levelled against him by Misau.

The group said this would restore Nigerians’ hope in his anti-corruption war. President of the group, Abubakar Abdulsalam, in statement issued in Yola, Adamawa State, said that the anti-corruption war would be a shadow fight if the president fails to act decisively on the allegations against the IGP.

Source: The Guardian Nigeria

#SME FUNDING: FGN, BoI launch N5b fund for artisanal, small scale miners

The  Ministry of Mines and Steel Development has signed a Memorandum of Understanding  (MoU) with the Bank of Industry (BoI) for the management of a N5 billion fund in support  of artisanal and small scale miners in the country.

Under the arrangement, the Ministry would contribute N2.5billion which would be matched by another N2.5 billion by BoI. A certified artisanal scale miner, under the scheme, can access between N100,000 and N10million; while a small scale miner can access between N10million and N100million.

The MoU was signed by the Minister of Mines and Steel Development, Dr Kayode Fayemi and the Managing Director/CEO of BoI, Mr Olukayode Pitan, in Abuja yesterday. The event was witnessed by the Minister of State for Mines and Steel Development, Hon Abubakar Bawa Bwari, Permanent Secretary of the Ministry, Mohammed Abass and Chair of the board of the Solid Minerals Development Fund, Alhaji Uba Saida Malami.

Speaking at the event, Fayemi said the development is aimed at addressing the issue of insufficient funding and access to capital, which is a major factor militating against artisanal and small scale miners who account for about 80 per cent of activities in the mining sector. According to him, the BoI would serve as the custodian and manager of the fund, which would be given to the artisanal and small scale miners at five per cent interest.

Fayemi said: “This agreement is a meeting of minds between the FMMSD and the BoI. We are in the first instance launching a N5billion fund. With our ministry’s pilot contribution of N2.5billion, BoI will match our contribution with another N2.5billion.

“Consequently, with this agreement, the FMMSD appoints BoI as the custodian and manager of the Nigerian Artisanal and Small-Scale Miners (ASM) Financing Support Fund, for the purpose of financing artisanal and small scale mining projects involving industrial minerals, precious stones, precious metal (gold), dimension stone and such other strategic minerals in Nigeria as shall be approved by the ministry and BoI from time to time.”

Fayemi said the fund would be available in the form of term loans or working capital to be utilised for the purchase of requisite items of plant and machinery; payment for drilling, geological and other services related to mining business as may be required, among others.

He added that proper funding would help to integrate the artisanal and small-scale miners into the formal sector, enhance their growth and development in a structured manner, and spur productivity and job creation in the mining sector.

Speaking further, Fayemi said: “The single obligor limit of loans to be granted under the Fund shall be from N100,000.00 to N10,000,000.00 for artisanal scale miners; and from N10,000,000.00 to N100,000,000.00 for small scale miners.

“The loans would be made available to certified industry participants at a single digit interest rate of five per cent per annum, which is by far about the most attractive within our jurisdiction.

“In addressing the challenge of insufficient funding and lack of access to capital, the ministry secured approval for N30billion (about $100million) from the mining sector component of the Natural Resources Development Fund from the Federal Government. We also secured the World Bank’s approval for $150 million to support the ministry’s Mineral Sector Support for Economic Diversification (MinDiver) programme.

“The Solid Minerals Development Fund (SMDF) is now spearheading the assembling of a $600million investment fund for the sector, working with entities such as the Nigerian Sovereign Investment Authority, the Nigeria Stock Exchange and others. This is a departure from the past, judging by the fact that in 2015, out of the meagre N1 billion allocated to the ministry, only N352 million was released.

“It is noteworthy that in addition to funding support from multilateral agencies, partnerships on technical cooperation have also been brokered or re-activated with several foreign governments. Existing technical partnerships have been operationalised with the governments of South Africa, China, Australia, Canada, the United Kingdom and the United States of America. Nigeria now takes the lead in regional efforts to develop mining, especially within the framework of the Africa Mining Vision.”

Mr Pitan in his response said the bank was convinced that the fund would step up a rapid development in the mining sector, just as a similar funding arrangement administered by the BoI boosted the country’s movie sector.

He said BoI is a pioneer in the area of funding mining activities where other banks are reluctant to invest. He, however  stated that the Fund is not an aid, but repayable by beneficiaries.

The Minister of State for Mines and Steel Development, Hon Abubakar Bawa Bwari, would head the Project Management Committee which includes BoI officials with expertise in Mining Finance and Project Supervision. The committee is charged with the responsibility of  appraising, recommending, disbursing, implementing and monitoring the projects as well as recovering the loans and interests from the approved projects.

Source: The Nation

 

Perspectives on Probation, Confirmation and Promotion in Employment Contracts

By Kayode Omosehin 

Probation is simply an agreed trial period for a worker to prove his worth on a job to his employer and assess the worth of the job to himself. Promotion is an elevation of a worker in status within a company based on performance or other considerations as may be agreed in an employment contract or determined by the employer. Confirmation is the intermediate act of endorsement of a new worker’s performance by a company sometimes between the periods of probation and promotion; it is a testament that an employer is satisfied with the performance of a new employee.

Probation and promotion of a worker are, generally, matters which are based on each worker’s contract. As such, an employment lawyer needs to review the employment contract before an opinion can be formed on the ramifications of an employee’s probation or promotion. Where the terms of employment are contained in various documents, it is important to read all the various documents together to decipher the intention of the parties regarding probation or promotion. From experience, the offer letter of employment, the appointment letter (if it is different from the offer letter), the terms and conditions of employment, staff hand book, policy on review of rank/grade level, disciplinary procedures rules as well as official circulars and notices circulated internally are all relevant in determining the respective rights and powers of workers and employers on probation and promotion.

The rights of a worker under probation

A person does not cease to be an employee of a company merely because he is on probation. As such, in my view, a worker on probation is entitled to all express benefits in an employment contract or those implied by the labour law. Interestingly, however, Justice J. D. Peters of the National Industrial Court held in Ogbonna v. Neptune Software Limited [2016] 64 N.L.L.R. (Pt. 228) 511 that an employer is not under any obligation to give notice of termination of the service of an employee who is on probation until the employment is confirmed. In other words, according to Honourable Justice J. D. Peters, the employment relationship between a worker and a company in that Ogbonna case was inchoate and that the need to give a notice for termination for one calendar month stated in the claimant’s letter of employment would only arise after the confirmation of his employment.

It is difficult to agree with the reasoning of the judge in the foregoing case given that an employment relationship is founded on contract following offer and acceptance, with consideration taking the form of the employee’s resumption and performance of a designated job. There are many judicial decisions of a superior court to the effect that a contract of employment comes into existence when a clear offer made by a company is unequivocally accepted by a job applicant provided that there is no outstanding condition precedent to assumption of work which must be fulfilled by the applicant. In fact, and law, if such outstanding conditions are in the form of medical clearance, provision of referees, verification of credentials etc. (as they usually are), the employer can neither unilaterally revoke the offer after the applicant’s acceptance of same before the deadline for fulfilling the other outstanding conditions, nor prevent the applicant from fulfilling the rest of the conditions. So, upon fulfilling the conditions for acceptance of an employment offer and resumption of duty with a company, it will be inconsistent with judicial precedent to hold that the employment contract between the worker and the company, in the circumstances, is inchoate, as Justice J. D. Peters did in the Ogbonna’s case, merely because the employment relationship commenced with probation. Employment contracts are not sui generis as they are governed by common law rules on general contract making which entail offer, acceptance and consideration, including part-performance. See Federal Government of Nigeria v. Zebra Energy (2002) 18 NWLR (Pt. 798) 162.

In my view, a worker on probation is entitled to all the benefits stated in a contract of employment which are enjoyable on probation and those implied by law in deserving circumstances. A worker on probation is entitled to be paid the agreed salaries for the probationary period. He is also entitled to pension contribution from the employer. An employer of a worker on probation cannot deny liability for remitting personal income tax of the employee on the ground that the worker’s employment was probationary. If probation lasts longer than a year, in my view, the worker is entitled to an annual leave. Both the employer and employee are entitled to terminate the working relationship during probation as agreed in the employment contract. It is necessary to repeat here, only for emphasis, that in addition to the foregoing benefits, a worker on probation is entitled to all other benefits or rights provided in his contract of employment which are enjoyable during probation.

The effect of confirmation of employment

Confirmation is an attestation of an employer that a worker’s performance is satisfactory in a period of probation for the purpose of extending the employment in accordance with agreement. The length of probation before confirmation is a matter of agreement. Most employment contracts provide for power of the employer to extend a period of probation if the worker’s performance is unsatisfactory. Whenever confirmation is due, it is advised to be in writing (in a letter or memo of confirmation) with all necessary incidental terms clearly spelt out to avoid the incidence of legal presumptions. Upon confirmation, a worker stands to enjoy all the benefits which are attached to his employment.

Confirmation of employment may be express such that an employer writes a letter or memo to the employee or circulates same within the company to confirm a worker’s employment at the end of probation. However, where probationary period has ended but the employer neither expressly extends it nor terminates the employment, the law presumes that the employment has been confirmed impliedly. Under Nigerian employment law, at least from the various cases reviewed in the course of this work, there is no implied extension of probation by the employer and no such presumption is made in favour of an employer where such employer fails to expressly extends a probationary period or terminates an unsatisfactory service of a worker which extended after the expiration of an agreed probation.

In line with international best practice and labour standard, a Nigerian court held in a case that the continuation of services after expiry of the probation period without a new contract being drawn up means that the employment has been impliedly confirmed and that a contract of indeterminate duration has taken effect from the date when the offer for probationary service began. In the said case, the claimant was engaged for a probationary period of two (2) years but he was made to work for six (6) years without confirmation. The employment was eventually terminated without notice or salary in lieu of notice. The argument advanced by the employer was that the employment was never confirmed. The court rejected the argument of the company and upheld the claims of the employee in part. According to Honourable Justice P. O. Lifu (JP), such termination amounted to unfair labour practice contrary to section254C (1) (f) of the Constitution as same was incompatible with international best labour practice.

There is no specific legislation regulating confirmation of employment in Nigeria. However, whenever there is any employment dispute regarding probationary service, the employment contract is usually the proper guide to understanding the rights of a worker under probation and after confirmation. The employer must follow whatever procedure that is agreed in the employment contract. Where confirmation of employment is subject to satisfactory performance by the worker, a performance appraisal is essential, in my opinion, to evidence a transparent process by which an employer arrives at a decision not to confirm an employee’s service after probation.

Promotion as a right or privilege

Promotion of staff is a most controversial aspect of employment relationship largely because of its perception or misconception as a right or privilege. Promotion or lack of it can turn out to be ugly, leaving an unsavoury feeling in a work environment, depending on the procedures adopted by a company to arrive at a decision to promote or not to promote. Generally, under Nigerian employment law, promotion is not a right but a privilege; it is usually expected to be earned. Though the foregoing principle of law has its exceptions. In a case decided by Honourable Justice Shogbola of the National Industrial Court on 9th April 2014, the court found for a claimant who has been unlawfully terminated from employment as a police officer but refused to grant the reliefs on promotion on the ground that promotion of staff is not a right. Interestingly, however, about a year after, Honourable Justice J. D. Peters of the same court, in another case, held on 5th March 2015 that where promotion is based on agreed conditions which the employee has fulfilled, it would be a breach of agreement if the employer fails to approve his promotion.

What is clear from a review of cases on promotion is that where a company’s staff handbook or terms and conditions of employment provide for clear procedure for promotion, failure of an employer to comply with the procedures may give rise to liability for breach of contract in an action against the company by an aggrieved staff. There is no laid down rule or guide for determining a right or wrong promotion decision. Every employment contract will have its own peculiarities on which, upon a proper review, an employment lawyer can provide independent advice regarding the rights of either party. Perhaps I should add that it is an onerous task for an aggrieved employee to successfully challenge his employer’s decision on promotion, however unfavourable. There is a presumption that every employee understands the terms of his or her engagement at the time of accepting an offer of employment; and the onus to prove any allegation of fraud or inducement rests on him. Malice and discrimination are not enough in themselves to impute liability to a company unless there is a clear evidence to support such allegations. Where a decision on promotion has been wrongfully exercised, the court has power to entertain the complaints of an aggrieved employee who has been affected by such decision.

How to determine “satisfactory performance” of worker in matters of promotion

In the discussion of promotion in employment law, the requirement of “satisfactory performance” is the most subjective condition a worker is required to meet. This is because the management of company determines what amounts to satisfactory performance of a worker. Hence, the court usually adopts a strict rule of interpretation of any promotion policy and will readily resolve any ambiguity in the policy in favour of a worker. In a case decided against Zenith Bank Plc, the employment contract stated that the claimant would be promoted upon confirmation and subject to an above average performance rating (minimum of B+).

The claimant’s employment was confirmed at the end of probation but he was not promoted despite his “A” performance rating. The court, relying on the last performance appraisal, found for the claimant on the ground that his performance was satisfactory to merit promotion. Consequently, the court awarded damages in the sum of money representing the difference in salaries of the claimant as the time of the suit and those which he would have earned in (as well as bonuses and benefits accruable to) the higher office to which he ought to have been promoted.

Review of Promotion procedures

The management of a company reserves the right to review the terms and conditions of an employment contract, including those pertaining to promotion of staff. However, when such review takes place, every affected staff ought to be promptly informed about the details of the new promotion policy. It is advisable to ensure that such management decision is not perverse as such that will give the impression that an employee is obviously prejudiced or denied of an entitlement which has become due. Where promotion is due to a worker, any unilateral decision by a company to review a promotion policy to prejudice or deny the worker may be deemed as a breach of agreement. Such affected worker may be entitled to compensation in damages in any action challenging the company’s decision during or after his resignation from the employment. It only needs to be added that when a prejudicial decision is taken on promotion, a right of action is deemed have accrued to an affected staff and he or she is entitled to resign immediately and seek redress against the company.

 

SEC to strengthen corporate governance, enforcement

Securities and Exchange Commission (SEC), the country’s apex capital market regulator, has launched a major amendment to Nigeria’s Code of Corporate Governance for public companies. The code will empower the Commission to sanction companies that fail to comply with its directives.

The new amendment is expected to remove the persuasive provision that entitles companies to be put on notice, so they could seek redress. This will reinforce the mandatory nature of the code and the authorities of SEC to sanction companies without recourse to notice or redress.

A draft of the amendment to the code of corporate governance obtained at the weekend, currently undergoing rule-making process and exposure to stakeholders, will completely remove clause 1.3(d).

The clause states that whenever SEC determines that a company, or entity required to comply with, or observe the principles or provisions of this code is in breach, the SEC shall notify the company or entity concerned, specifying the areas of non-compliance or non-observance and the specific action, or actions needed to remedy the non- compliance, or non-observance.

According to the Commission, the provision is redundant in view of the mandatory nature of the Code. Companies are mandated to comply with its provision failing which they will be sanctioned without first requiring them to remedy the non compliance, or non observance.

The code empowers SEC to sanction individuals and companies that violate the code. Besides the stipulated fines, the code gives SEC unfettered power to apply “any other sanction” it “may deem fit in the circumstance”.

The Code of Corporate Governance for Public Companies, sets the minimum acceptable standards for quoted companies. Launched in 2003, the code was reviewed and re-launched in 2011, with several changes to reflect the current globally acceptable practices.

Some salient points in the code, include board composition, remuneration, independent director, shareholding disclosure, insider knowledge, meeting and whistle blowing.

Under the code, publicly quoted companies are required to include in their annual reports and accounts, a compliance report on codes of corporate governance. On board composition, the code requires that members of the board of directors should not be less than five, and that the board should comprise a mix of executive and non-executive directors, headed by a non-executive chairman.

According to the code, the majority of directors should be non-executive directors, at least one of whom should be independent director. The positions of chairman of the board and chief executive officer shall be separate and held by different individuals. To safeguard the independence of the board, not more than two members of the same family should sit on the board of a public company at the same time.

Also, the code requires that the remuneration of the Chief Executive Officer, as well as other executive directors should comprise a component that is long-term performance, and may include stock options and bonuses, which should however, be disclosed in the company’s annual reports.

Also, executive directors are not allowed to be involved in the determination of their remuneration. Executive directors should not receive sitting allowances or director’s fees paid to non-executive directors, it stated.

It said every public company is expected to have a minimum of one Independent Director on its board. An independent director is a non-executive director whose shareholding does not exceed 0.1 per cent of the company’s paid up capital and is not a representative of a shareholder that has the ability to control, or significantly influence management. In fact, an independent director must not have any contractual, or familiar relationship with the company.

Also, every quoted company is expected to disclose in its annual report, details of shares of the company held by all directors, including an “if-converted” basis. This disclosure should include indirect holdings. All directors are required to disclose their shareholding whether on a proprietary or fiduciary basis in the public company in which they are proposed to be appointed as directors, prior to their appointment.

The code provides that directors of public companies, their immediate families-spouse, son, daughter, mother or father; and other insiders as defined under Section 315 of ISA and Rule 110 (3) of the SEC Rules and Regulations, in possession of price sensitive information or other confidential information, shall not deal with the securities of the company where such would amount to insider trading as defined under the Investment and Securities Act 2007.

With regards to meeting, general meetings are expected to be conducted in an open manner allowing for free discussions on all issues on the agenda. Sufficient time should be allocated to shareholders to participate fully and contribute effectively at the meetings. The chairmen of all board committees and of the statutory audit committee should be present at general meetings of the company to respond to shareholders queries and questions. Notices of general meetings shall be 21 days from the date on which the notice was sent out. Companies shall also allow at least seven days for service of notice if sent out by post from the day the letter containing the same is posted. The notices should include copies of documents, including annual reports and audited financial statements and other information as will enable members prepare adequately for the meeting. The board is expected to ensure that all shareholders are treated fairly and are given equal access to information about the company;

The code also makes provision for whistle-blowing with every company required to have a whistle-blowing policy which should be known to shareholders, employees, contractors, job applicants, other stakeholders and the general public. It is the responsibility of the board to implement such a policy and to establish a whistle-blowing mechanism for reporting any illegal or substantial unethical behavior.

Source: The Nation

The measure of damages in an action for breach of contract

FOXGLOVE NIGERIA LIMITED v. MTN NIGERIA COMMUNICATIONS LIMITED

COURT OF APPEAL LAGOS DIVISION

(SANKEY; OTISI; EKANEM, JJ.CA)

In 2002, the appellant entered into a distribution agreement with the respondent. The agreement stated that the respondent was to distribute and sell the respondent’s products which included starter packs, handsets, recharge vouchers and accessories. By the agreement, the appellant was entitled to be paid a commission known as On-going Revenue Service Commission (ORSC) upon meeting its monthly performance target. Furthermore, the contract between the parties provided that on a monthly basis, the respondent shall calculate and pay a discount of 5% as ORSC on post-paid starter packs which were activated within the month and the discount credited to the appellant’s account at the end of every quarter. It was also included in the contract agreement that the respondent shall pay to the appellant a credit to the value of 1% which was referred to as back end commission, of the total invoiced amount of purchases of the physical and logical recharge vouchers and virtual airtime for every month, which shall be credited into the appellant’s account at the end of each year.

The business relationship between the parties continued until June 16th, 2008 when the respondent informed the appellant that Guaranty Trust Bank Plc had terminated its bank guarantee and there was need for a replacement before June 30th, 2008. The appellant complied with the respondent’s request by delivering another bank guarantee. However, on the same date, the respondent relying on certain clauses of the agreement, sent another letter in which it terminated the distribution agreement with the respondent. The respondent was alleged to have violated the procedure agreed upon by the parties before a termination could be effected. By the said clause, a 14 days’ notice was required to be given by the respondent indicating the nature of the breach where it occurs for the first time and a termination if the breach reoccurred within the preceding 12 months after the initial notice had been given to the appellant. Yet, the respondent in spite of the termination which took effect on July 1, 2008, continued its business relationship with the appellant until mid-July 2008 and accumulated a total sum of N29,000,000.00 (Twenty Nine Million Naira) but refused to pay the agreed ORSC including the back-end commission for the period.

The appellant was aggrieved and filed a claim against the respondent at the High Court of Lagos State claiming among several reliefs, a declaration that the contract termination by the respondent was unlawful having not complied with the procedures laid down in the agreement. However, the appellant also sought damages which were general and special in nature. At the end of trial, the court gave judgment in parts in favour of the appellant and dismissed the reliefs of the appellant which bordered on special damages which, according to the court were not pleaded and proved. The appellant was dissatisfied with the court’s judgment and consequently filed a notice of appeal at the Court of Appeal, Lagos Division.

One of the issues raised for determination was whether the trial court properly evaluated the evidence before dismissing the appellant’s claim for damages.

Arguing the issue, counsel for the appellant submitted that the damages sought but not granted by the lower court were within the contemplation of the parties and that even though what was claimed by the appellant was less than the correct amount, the court ought to have granted it. Counsel posited that the lower court was in error and he urged the court to resolve the issue in favour of the appellant.

Responding to the argument of the appellant, learned counsel for the respondent noted that the items claimed by the appellant are at best special damages which do not arise from any particular or specific loss suffered by the appellant as a result of the breach by the respondent. Counsel further argued that losses which do not directly flow from the breach cannot be pleaded as special damages. He urged the court to discountenance the argument of the appellant and resolve the issue in favour of the respondent.

Resolving the issue, the court held thus:

The position of the law however is that in an action for damages for breach of contract, the terms general and special damages are inappropriate. The dichotomy between special and general damages in an action for contract, unlike in tort, has been described as one without a difference; G.F.K. Investment Nigeria Ltd v. Nigeria Telecommunications Plc (2009) LPELR-1294 (SC). The Supreme Court has made definite pronouncements on the nature of damages that may be considered and granted by a court in an action for breach of contract. Musdapher JSC (as he then was) in G. Chitex Industries Ltd v. Oceanic Bank International (Nig) Ltd (2005) 7 S.C. (Pt. 11) 50; (2005) LPELR-1293 (SC):

“I shall now consider the measure of damages in a case of a breach of contract. Now, generally the amount of damages to be paid to a person for breach of contract is the amount it will entail to put the person in the position he would have been if there had not been any breach of contract… In cases of breach of contract a plaintiff is only entitled to damages naturally flowing or resulting from the breach… The measure of damages, in such cases of breach of contract, is in the terms of the loss which is reasonably within the contemplation of the parties at the time of the contract.”

The Supreme Court therein relied on its earlier decision in Wahabi v. Omonuwa (1976) 4 SC 37 at 41, per Idigbe, JSC thus:

“… In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach. What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits breach…”

Issue resolved in favour of the respondent.

Olusegun Olaiya, Esq., for the Appellant
Afolabi Kuti, Esq. for the Respondent

This summary is fully reported at (2017) 6 CLRN