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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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

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.

 

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

Legal Treatment of Contracts for Service and of Service in Employment Relationships

 

Employment-Law

Introduction

Contracts of service and contracts for service both connote an employment relationship between the parties. However, they differ in their nature and the legal consequences.  Understanding the difference between both contracts is important for two main reasons, namely, the nature of each party’s respective obligations, and which court has jurisdiction in the event of dispute between the parties.

Delineation

A contract of service is an agreement between an employer and an employee. In a contract for service, an independent contractor, such as a self-employed person or vendor, is engaged for a fee to carry out an assignment or project.

The line of demarcation between an independent contractor and an employee is very thin and the two concepts sometimes overlap. In such a situation, the question about the relationship of employer and employee needs to be determined with reference to the facts and circumstances of each case as to who are the parties to the contract, who pays the wages, who has the power to dismiss, what is the nature of the job, and the place of executing the job, all have to be kept in mind.

 The Supreme Court, in Shena Security Co. Ltd v. Afropak (Nig.) Ltd & 2 Others [2008] 18 NWLR (Pt. 1118) 77 SC; [2008] 4 – 5 SC (Pt. II) 117 laid down the following factors that should guide courts in determining which kind of contract the parties entered into –

  • If payments are made by way of “wages” or salaries” this is indicative that the contract is one of service. If it is a contract for service, the independent contractor gets his payment by way of fees”. In like manner, where payment is by way of commission only or on the completion of the job, that indicates that the contract is for service.
  • Where the employer supplies the tools and other capital equipment there is a strong likelihood that the contract is that of employment or of service. But where the person engaged has to invest and provide capital for the work to progress that indicates that it is a contract for service.
  • In a contract of service/employment, it is inconsistent for an employer to delegate his duties under the contract. Thus, where a contract allows a person to delegate his duties there under, it becomes a contract for services.
  • Where the hours of work are not fixed it is not a contract of employment/of service. See Milway (Southern) Ltd v. Willshire [1978] 1 RLR 322.
  • It is not fatal to the existence of a contract of employment/of service that the work is not carried out on the emjployer’s premises. However, a contract which allows the work to be carried on outside the employer’s premises is more likely to be a contract for service.
  • Where an office accommodation and a secretary are provided by the employer, it is a contract of service/of employment.

 Dispute resolution in contracts of service and for service

Jurisdiction is the all important factor that the courts will consider in any case that is brought before them. It is tempting to assume that all employment or work related disputes are to be settled by the National Industrial Court (NIC) by virtue of the Constitution of the Federal Republic of Nigeria (Third Alteration) Act 2010. However, this is not always the case.

Section 254 C (i) (a) of the Act provides that “the National Industrial Court shall have and exercise jurisdiction to the exclusion of any other court in civil causes and matters (a) relating to or connected with any labour, employment, trade unions, industrial relations and matters arising from workplace, the conditions of service, including health, safety, welfare of labour, employee, worker and matters incidental thereto or connected therewith”.

The above provision notwithstanding, the NIC has held in many cases that its jurisdiction covers only disputes relating to contracts of service, and not contracts for service. This means that only strictly employment contracts may be litigated before the NIC. Cases of an independent contractor, such as a self-employed person or vendor, engaged for a fee to carry out an assignment or project, are not justiciable before the NIC. Such cases may therefore be more appropriately brought before the regular courts (i.e High courts or magistrates courts, depending on the circumstances). In other words, breach of contract for service is regarded as any other breach of contract and treated as such.

In a recent case of The Registered Trustees of Three Wheeler Beneficiaries Operators Association, Lagos State v. Road Transport Employers Association of Nigeria (unreported Suit No. NICN/LA/407/2013), the ruling of which was delivered on 10th May 2017, the NIC held thus:

“This Court does not have jurisdiction over every workplace issue. For instance, as against contracts of service, this Court does not assume jurisdiction over contracts for service, and yet contracts for service are workplace issues strictly so called. See Mr. Henry Adoh v. EMC Communications Infrastructure Limited [2015] 55 NLLR (Pt. 189) 546 NIC, Ozafe Nigeria Limited v. Access Bank of Nigeria Plc unreported Suit No. NICN/LA/179/2014 the ruling of which was delivered on 16th March 2016 and Engr. Jude Ononiwu (Trading under the name of Judeson Chemical and Engineering Co. Ltd) v. National Directorate of Employment & Another unreported Appeal No. CA/OW/32/2015 the ruling of which was delivered on 22nd May 2015”.

In the case of Lawrence Igwegbe v. Standard Alliance Life Assurance Limited (unreported Suit No. NICN/LA/465/2013), the judgment of which was delivered on 11 July 2017, the NIC had to determine on the facts before it, if the relationship between the Claimant and the Defendant was one of an employment relationship (contract of service) or one in which the claimant was an independent contractor (contract for service). The court held that the fact that the Claimant was on commission and not on salary was very suggestive that the relationship was one of a contract for service. The court relied on the Supreme Court decision in Shena Security Co. Ltd and held that salary is a component part of the employment relationship strictly speaking (contract of service).

The facts of the case are that the Claimant was employed as Agency Manager by the Defendant, who is an insurance company. While the Claimant argued before the court that his relationship with the Defendant was an employment relationship, his evidence before the court showed that he was on commission and not on a salary. This meant that he was an independent contractor to the Defendant, and not necessarily its staff. The court in this case took judicial notice of the fact that insurance agents are in the main not salaried employees, but are paid commission based on the volume of insurance business they bring in. The court declined jurisdiction, since it was a case of contract for service as against contract of service.

In the case of Engr. Jude Ononiwu (Trading under the name of Judeson Chemical and Engineering Co. Ltd) v. National Directorate of Employment & Another, the claimant had entered into a contract as a trainer with the 1st defendant under the 1st defendant’s National Open Apprenticeship Scheme of Skill Acquisition Programme. As a result, the 1st defendant sent trainees to the claimant for training. Between 1996 and 2000, the claimant trained for the 1st defendant a total number of 2204 trainees at the training cost of N6,000.00 per trainee bringing the total debt owed the claimant to N13,776,000.00 only. When the 1st defendant refused to pay this sum after repeated demands, the claimant accordingly sued for it at the Federal High Court. The Federal High Court transferred the matter to the Owerri Division of the NIC on the ground that the issue is a labour issue in respect of which it had no jurisdiction given the provision of section 254C(1) of the 1999 Constitution, as amended.

The NIC, not certain as to whether it had jurisdiction either, decided to refer the case to the Court of Appeal to determine if the NIC has jurisdiction over contracts for service. In determining this issue, the Court of Appeal held that the court with jurisdiction, considering the facts of the case, was the State High Court, and not the Federal High Court nor the NIC. The Court of Appeal based its decision on the fact that the case arose from a simple contract between the claimant and the 1st defendant/respondent; and that the relationship between the parties was contractual, the contract being one of contract for service as opposed to a contract of service. The Court of Appeal then considered section 254C (1) in terms of the jurisdiction of the NIC, section 251(1) in terms of the jurisdiction of the Federal High Court and section 272(1), (2) and (3) in terms of the jurisdiction of the State High Court, and then concluded that the claims of the claimant in the case do not relate to the sections dealing with the jurisdiction of the NIC and the Federal High Court. Relying on Onuorah v. Kaduna refining and Petrochemical Co. Ltd [2005] LPELR 2707 (SC) and Integrated Timber & Plywood Products Ltd v. Union Bank of Nig. Plc [2006] 5 SCNJ 289, the Court of Appeal held that neither the NIC nor the Federal High Court had jurisdiction over the matter.

Employer tax obligations in contracts of service and contracts for service

 Employees under contract of service are deemed to have employment contract with the organisation that they work for, which entitle them to employment benefits such as wages and salary, pension, medical insurance and other similar employment benefits. In a contract for service, however, an independent, self-employed, individual is contracted to provide a specific service for the organisation in return for a fee. There is no employer-employee relationship between the organisation and the employees of the independent contractor.

Section 81 of the Personal Income Tax Act Cap P8, LFN 2004, as amended to date (PITA) provides that for employees – under a contract of service, it is the responsibility of their employers to deduct and remit income taxes from the emoluments paid to such employees. Section 82 of PITA provides further that the employer is answerable to the tax authorities for taxes deducted from the employees. The employer is required to file annual returns in respect of emoluments paid to their employees and account for the taxes withheld and remitted to the relevant tax authorities.

Section 81(2) of PITA requires the employer to file annual returns not later than 31 January of every year in respect of all emoluments paid to its employees in the preceding year. Failure to comply attracts a penalty, upon conviction. Whenever the tax authorities intend to conduct tax audit enquiries in respect of employees’ personal income taxes, the employer is usually held answerable.

In cases of contracts for service, however, the independent contractor or self-employed individual is personally responsible for his own taxes. Such individuals are expected to file personal income tax returns under the self-assessment regime. However, the company to whom the services are rendered has the responsibility for deducting and remitting withholding taxes on the fees payable under the contract at applicable rate. In the same vein, a self-employed individual has an obligation to register for value added tax (VAT) and charge VAT on invoices issued for services rendered, unless such service is specifically exempt from VAT.

The Value Added Tax Act Cap V1 LFN 2004 as amended (VATA) defines a taxable person as an individual or body of individuals, family, corporations sole, trustee or executor or a person who carries out in a place an economic activity, a person exploiting tangible or intangible property for the purpose of obtaining income therefrom by way of trade or business or a person or agency of government acting in that capacity. For the purpose of VATA, an individuals under a contract for service falls under this category.

In addition to the need to account for tax, the Pension Reform Act, 2104 mandates employers with five or more employees to make contributions on behalf of their employees into an approved pension fund. As explained earlier, individuals with contracts of service are employees. Hence, pension contributions are mandated for them but not for individuals with a contract for service. Individual with a contract for service could make voluntary pension contributions into their Retirement Savings Account (RSA) if they so desire.

Conclusion

In the world of work, it is not always easy to distinguish a contract of service from a contract for service. Sometimes, the nature of the relationship between the parties is deliberately made nebulous in order to hide its true identity (and thereby deny one party of certain rights). The International Labour Organisation (ILO), well aware of this fact, has provided guidance on how Courts should approach the issue, if it arises. In the ILO Report titled, The Scope of the Employment Relationship (ILO Office: Geneva), 2003 at pages 23 – 25, it is stated thus:

The determination of the existence of an employment relationship should be guided by the facts of what was actually agreed and performed by the parties, and not by the name they have given the contract. That is why the existence of an employment relationship depends on certain objective conditions being met (the form in which the worker and the employer have established their respective positions, rights and obligations, and the actual services to be provided), and not on how either or both of the parties, describe the relationship. This is known in law as the principle of the primacy of facts, which is explicitly enshrined in some national systems. This principle might also be applied by judges in the absence of an express rule.

The ILO concluded by advising that the Judge in a labour dispute must normally decide on the basis of the facts, irrespective of how the parties construe or describe a given contractual relationship.

Regulation of Local Content in the ICT Sector in Nigeria

 

regulatory-compliance-chartIntroduction

The regulation of ICT towards achieving domestic capacity in Nigeria is more honoured in its breach, as the National information Technology Development Agency (NITDA) appears overwhelmed by the sheer size of the sector. The essence of this article is to buttress this point through the appraisal of the NITDA issued Guidelines for Nigerian Content Development in ICT.

NITDA was established by the National Information Technology Development Agency Act 2007 with the mandate to foster the development and growth of ICT in Nigeria. The role of the Agency, among other things, is to encourage local production and manufacture of ICT components in a competitive manner, in order to generate foreign earnings and create jobs.

The National ICT Policy was formulated and embedded in the 2009 National Development Plan titled: “Nigeria Vision 20:20:20” towards developing and enhancing indigenous capacity in ICT technologies and software development.

The main objectives of the National ICT Policy are the creation of an environment conducive for rapid expansion of ICT networks and services that are accessible to all at reasonable costs, and the transformation of Nigeria into a knowledge-based economy.

However, ICT manufacturing is grossly underdeveloped in Nigeria, resulting in reliance on the importation of software and hardware, and diminishing opportunity for capacity building in ICT content creation.

In December 2013, NITDA issued Guidelines for Nigerian Content Development in ICT applicable to the entire gamut of users of ICT products and services in Nigeria. The scope immediately raises the issue of capacity for its effective implementation. The ICT sector is very wide, cutting across both the public and private sectors, and individual activities. An effective regulation of the sector requires enormous resources, which is currently lacking within NITDA.

Legal Basis for Local Content Regulation

Section 6 of the NITDA Act confers on NITDA regulatory powers in the ICT industry. NITDA is empowered to create a framework for: planning, research, development, standardization, application, coordination, monitoring, evaluation and regulation of information technology practices, activities and systems in Nigeria.

The Guidelines, which have introduced local content requirements, tax incentives and minimum capital requirements in the ICT sector, are focused on three main areas: driving indigenous innovation; developing the local ICT industry; and establishing intellectual property regulation and protection standards. These focus areas are expected to stimulate the restructuring of the industry, as well as create opportunities for local companies.

The Local Content Requirements

‘Local Content’, (also ‘Nigerian Content’) is “the equivalent of local value added to the development, design, fabrication and assembling of ICT products in Nigeria measured in monetary terms as a proportion of production cost or the proportion of indigenous manpower involved in the various stages associated with the provision of an ICT service in Nigeria.

The Guidelines further state thus:

“…focus on Local content aims to achieve the development of local skills, technology transfer, use of local manpower and local manufacturing. It is … the amount of incremental value added or created in Nigeria through the utilization of Nigerian human and material resources for the provision of goods and services in the ICT industry … in order to stimulate the development of indigenous capabilities.”

The Guidelines require all companies operating within the industry to provide a Local Content Plan. Companies specifically mentioned under the Guidelines include Original Equipment Manufacturers (OEMs); Original Design Manufacturers (ODMs); Hardware Computer Companies; Technology Platform Companies; Independent Software Vendors (ISV); Software Development Firms (SDF); Internet Service Providers (ISP); Systems Integrators (SI); Professional Service Firms (PSF); Telecommunications Companies (Telcos); and Call Centres.

Some of the local content requirements for the companies (including Ministries, Departments and Agencies) include:

  1. OEMs to maintain at least 50% local content by value, either directly or through outsourcing to local manufacturers engaged in any segment of the product value chain;
  2. OEMs to maintain local capacity for the production of multiple computing form factors and devices – desktops, laptops, tablets, etc., either directly or through a local ODM;
  3. Both OEMs and ODMs to assemble all hardware within Nigeria and maintain fully staffed facilities for this purpose;
  4. OEMs to maintain in-country Research &Development departments;
  5. OEMs, SDFs and ODMs to design and develop products that support Nigerian languages and local use cases;
  6. ODMs must maintain local capacity to assemble and install minimum of one million devices per annum for multiple form factors – desktops, laptops, tablets, etc., directly or through a local ODM; and
  7. OEMs to setup and operate after sales support, warranty support, return/ repair centre, as well as a customer service centre for their products, all of which should be outsourced locally.

The IT procurement process in the public sector is opaque, as many cases of budgetary allocation for ‘IT products and services’ are unascertainable. The procurement clearances issued by NITDA to MDAs are aimed at ensuring that funds budgeted for IT products and services are used for the desired purposes and the products and services are sourced locally. The NITDA is inter alia responsible for: subjecting IT product to value-for-money analysis; justifying the spending of public funds on IT projects; and advising MDAs on the alternative options of IT products and service.

The effective regulation of ICT in the public sector should positively impact on the ease of doing business if the content and the list of website links of MDAs are complete and up-to-date, and contain detailed requirements or conditions for service provision and electronic mode of communicating acceptance and rejection of applications. This is hardly the case in practice.

Clause 12.1 of the Guidelines further provides that all ICT Companies shall:

  1. Register as Nigerian entities, which under the Guidelines means a firm formed and registered in Nigeria under the Companies and Allied Matters Act 1990 with not less than 51% equity shares owned by Nigerians and which has a domain name on the .ng domain;
  2. Provide a local content development plan for the creation of jobs, recruitment of local engineers, human capital development and value creation for the local ecosystem;
  3. Use only locally manufactured SIM cards for the provision of data and telephony services …;
  4. Host all subscriber and consumer data locally within the country;
  5. Host their websites on .ng;
  6. Migrate internet peering provisions to locally available services such as the Internet Exchange Point of Nigeria within two years;
  7. Use indigenous companies to build out cell sites, towers and base stations and ensure that at least 50% of the value of such sites are locally sourced; and
  8. Use Nigerian companies for the provision of at least 60% of all Value Added Services on their networks within the first two years of operation or within the first two years of the coming into effect of these Guidelines and 80% within three years of the coming into effect of these Guidelines. They must also ensure that such companies are creating at least 50% of the value of services provided locally.

Legislation requiring ICT companies to source for materials locally should be balanced against the availability, affordability and quality of locally made products and resources. NITDA may need to collaborate with stakeholders like the Institute of Software Practitioners of Nigeria (ISPON) to develop the required local capacity for globally competitive software suitable for businesses and investors. The present experience is that companies are under-utilising the Internet Service Point in Nigeria. Some multinational entities operating in Nigeria have established their subscriber and customer data centres outside the country, contravening the NITDA regulations requiring the local hosting of data.

Clause 10.3 of the Guidelines provides local content requirements for Multinational Companies in the ICT industry, which require them to provide a local content development plan for the creation of jobs, recruitment of local engineers, human capital development and value creation for the local ecosystem. Submission of a Local Content Development Plan to NITDA/NCC is part of the requirements for registration within Nigeria and pre-qualification for any project to be carried out with any MDAs. This applies to companies already registered and operating within the country.

Clause 10.5 enjoins all MDAs to procure all computer hardware from NITDA approved OEMs only; purchase all hardware products locally; and purchase ICT hardware that have soft and hard keyboards, that supports Nigerian languages and the Naira sign. All of these are expected to provide an incentive for innovation and creativity in Nigeria.

Conclusion

The regulation of local content in the ICT sector is aimed at increasing the scale and scope of the domestic ICT market and facilitates its growth. The provisions of the NITDA Guidelines, if properly implemented would enable the local ICT industry to contribute meaningfully towards the achievement of national development targets; and would stimulate and increase the production, sales, consumption of high quality information technology products and services developed by indigenous companies that serve the needs of the local and global market. This would enable Nigeria reach a significant milestone in its journey to the target of 50% local content in the ICT industry.

 

Expired Tenancy? Don’t Issue a Notice to Quit

By Princess Obare Dafiaghor

Most Lawyers inadvertently issue Notices to quit even after the tenancy has been determined by effluxion of time.

Fejiro, my friend, is a yearly tenant. His last payment of rent for one year was made on the 2nd of January, 2016.  His rent expired on the 1st of January, 2017. However, he still resides in the rented apartment and wouldn’t leave because his landlord has not served him with a Notice to quit. He poses as someone who knows his right and as such believes that he cannot be evicted from the apartment without first getting a 6 months’ notice from his landlord.

DETERMINATION OF TENANCY

  1. A tenancy is determined by the effluxion of time: where the period for which rent was paid has elapsed. For instance, Mr. Ako rents a duplex from Mr. Otuk for one year; from 1st January, 2016 to 31st December, 2016. At the expiration of the said one year, the tenancy is determined. Hence, from 1st January, 2017, the tenancy is deemed expired/determined.
  2. By Service of the proper notices: where the tenancy is still subsisting, and the Landlord is not minded towards renewal or further renewal (for renewed tenancy), the Landlord

WHEN IS A NOTICE TO QUIT NECESSARY?

Service of a notice to quit is not always a condition precedent for recovery of premises. A notice to quit is ONLY necessary for the determination of a tenancy, where the tenancy has not been determined.

WHEN IS A NOTICE TO QUIT IRRELEVANT?

  • Where a tenant is in arrears of rent for a specific period provided by statute, a Notice to quit becomes irrelevant. This is particularly in respect of periodic tenancies. Once a yearly tenant does not pay his/her rent as at when it becomes due for payment, the tenancy is automatically converted to a tenancy at will; which requires only the service of a 7 days notice of owners intention to recover possession. When I first put up this post, some Learned friends and Colleagues (particularly those practicing in Lagos) put up the argument that periodic tenancies MUST be determined by a notice to quit and that non payment of rent does not change the nature of the tenancy. NEWS FLASH! NON PAYMENT OF RENT AS AT WHEN DUE CHANGES THE NATURE OF A PERIODIC TENANCY, even in Lagos. This issue was considered by the Court of Appeal, Lagos, in the case of BOCAS NIGERIA LTD v. WEMABOD ESTATES LTD (2016) LPELR-40193(CA). The Court held thus:  ” Cases of tenancy at will are common where a tenant for a fixed term holds over the property with consent of the landlord while negotiations for further lease are going on. The general rule is that if a tenant pays rent during this period, he becomes a periodic tenant, e.g. if he pays a year’s rent, then he is a yearly tenant.In Odutola V. Papersack Nig. Ltd. (2006) 18 NWLR (Pt 1012) 470 SC, the landlord had permitted the tenant to stay on until 1982 on payment of money as compensation for use and occupation of a warehouse. The tenant stayed on until 1994 when the landlord commenced the action, Meanwhile, the tenant paid annually until 1994 when it fell into arrears in its payment. The landlord served a seven-day notice on the tenant on the ground that it was a tenant at will, and thereafter sued to recover possession and arrears for the sum payable for the tenant’s use and occupation of the premises. The tenant argued that the tenancy was converted from a tenancy at will to a yearly tenancy by virtue of the annual payments it made. The trial Court held that it was a tenant at will, and that its tenancy was determined by the seven-day notice served by the landlord. This Court held that the tenancy was not properly determined, and allowed the Appeal. In unanimously allowing the appeal to it, the Supreme Court per Onnoghen, JSC, held thus : ‘- – -From the expiration of the extended tenancy of THORESEN & CO. (NIG) LTD, the original tenant of the 1st Appellant the Respondent was a trespasser on the property, However from the time the Respondent started to pay rent which was on yearly basis, and in advance a yearly tenancy by conduct of the Parties may have been created and continued in existence until when the Respondent stopped paying the rent as and when due and or failed to secure a tenancy agreement for the property – – -From the moment a year’s rent became due and payable by the Respondent but remained unpaid, the yearly tenancy, if any, created by the conduct of the parties thereto came to an end by effluxion of time and the Respondent thereby became a tenant at will of the 1st Appellant by continuing in possession of the property. In law we describe the Respondent at that stage as holding over the property and in that capacity it became a tenant at will. The situation of failure to pay rent continued from 1991 to 1997 yet learned counsel and the Court of Appeal contend that there was a yearly tenancy, – – – – It is not disputed that a tenancy at will is determinable by seven days’ notice of intention of the landlord to recover possession which was duly complied with in this case. Even if six months’ notice was given it does not, per se, change the nature and legal character of the tenancy in issue”.As we can see, in Odutola v. Papersack Nig. Ltd. (supra), the yearly tenancy was converted to a tenancy at will when the tenant stopped paying its rent.“Per AUGIE, J.C.A. (Pp. 18-20), http://lawpavilionplus.com/summary/judgments/?suitno=CA%2FL%2F108%2F09&from=sjIo5vQR3pKO6LiapkwdILmwaRWLVg6PxDbZTuBRZUA%3D
  • Once the tenancy has been determined by effluxion of time, a Notice to quit becomes irrelevant. Thus, from the day the tenancy expires by effluxion of time, the landlord is NOT under any obligation whatsoever to issue the tenant a notice to quit. The Landlord is only required to serve the statutory 7 days notice of his intention to recover possession on the tenant. See the case of SPLINTERS (NIG.) LTD V. OASIS FINANCE LTD (2013) 18 N.W.L.R. (PT. 1385) 188 AT 220, where the Court of Appeal per IYIZOBA, J.C.A. held thus:

“I have carefully considered the submissions of counsel, in the case of IHEANACHO V. UZOCHUKWU (1997) 2 N.W.L.R. (PT. 487) 257 AT 268-270, H-A, the Supreme Court set out the procedure for recovery of premises as follows:

A landlord desiring to recover possession of premises let to his tenant shall:

  1. a)   Firstly, UNLESS THE TENANCY HAS EXPIRED, determine the tenancy by service on the tenant an appropriate notice to quit.
  2. b)   On the determination of the tenancy, he shall serve the tenant with the statutory 7 days notice of intention to apply to court to recover possession of the premises.
  3. c)   Thereafter, he shall file his action in court and may only proceed to recover possession of the premises according to law in terms of the judgment of the court in the action.”

See also AYINKE STORES LTD V. ADEBOGUN (2008) 10 NWLR (PT. 1096)612. As clearly set out in IHEANACHO V. UZOCHUKWU(Supra), it is only when the tenancy has not expired that there will be need to determine same by notice to quit. It is obvious that if at the time the landlord seeks to recover his premises, the tenancy had already expired, it is reasonable to assume that there will be no need for a quit notice. All the Landlord would be required to serve on the tenant would be the statutory 7 days notice of intention to apply to court to recover possession of the premises. … the learned trial judge clearly erred in holding that services of C1P and C1Q are superfluous, more especially, in the case of notice to tenant of owner’s intention to recover possession generally known as 7 days notice. That particular notice must in all cases be served. It is only the quit notice that may be dispensed with when the tenancy has validly expired by effluxion of time.”(Emphasis supplied).

From the forgoing, it is vivid that once the tenancy has expired, a Landlord does not need to serve the tenant with a notice to quit. All that is required is service of the 7 days notice on the tenant. Note that a landlord does not have to wait for months before serving this notice. Like my friend whose tenancy expired on 2nd January, 2017, it is legal to serve him with a 7 days notice on the 3rd of January, 2017.

Source: LinkedIn