What Happens to Employees in an M&A in Kenya? Practical Guide for Buyers, Sellers and HR (2026)

Last updated: 14 May 2026

Employee transfer in M&A in Kenya is one of the most misunderstood, and most consequential, issues that buyers, sellers and HR teams face during a transaction. Unlike the United Kingdom’s TUPE regulations or South Africa’s Section 197 of the Labour Relations Act, Kenya has no single statute that mandates the automatic transfer of employment contracts when a business changes hands. The 2026 overhaul of merger-control rules by the Competition Authority of Kenya (CAK), which introduced higher filing fees, revised suspensory thresholds and stricter gating requirements, has made pre-deal employment-risk management more time-sensitive than ever.

This guide provides a transaction-focused playbook, grounded in the Employment Act (Cap 226), current CAK guidance and prevailing market practice, for general counsel, in-house M&A teams, HR leaders and deal advisers navigating employee rights in mergers in Kenya.

Who should read this guide: Buyers evaluating workforce liabilities, sellers preparing disclosure schedules and employee warranties, and HR professionals tasked with executing workforce transitions before, during and after a Kenyan M&A deal.

Executive Summary: Action Checklists for Buyers, Sellers and HR

Before diving into the legal detail, here are the core actions each stakeholder must take, mapped to deal phase. These checklists serve as a quick-reference framework; each item is explored in depth in the sections that follow.

Buyer checklist

1. Pre-signing: Commission full HR due diligence, contracts, collective agreements, pension records, pending claims and payroll data.
2. Pre-signing: Determine deal structure (asset vs share purchase) and its impact on which entity remains the employer of record.
3. Pre-signing: Negotiate seller warranties and indemnities covering employee liabilities, outstanding claims and unfunded pension obligations.
4. Pre-closing: Prepare new employment contracts or novation letters (asset deal) or transition communications (share deal).
5. Pre-closing: Align CAK filing timeline with any planned workforce restructuring, do not restructure before merger clearance.
6. Post-closing: Onboard transferred employees, harmonise benefits and confirm NSSF/KRA registrations under the acquiring entity.

Seller checklist

1. Pre-signing: Compile a comprehensive employee disclosure schedule (contracts, benefits, outstanding disputes, collective bargaining agreements).
2. Pre-signing: Resolve or quantify any outstanding employee claims, unpaid wages or termination liabilities.
3. Pre-signing: Draft employee warranties that accurately reflect workforce composition and compliance history.
4. Pre-closing: Notify employees of the proposed transaction and, where required, consult with unions or employee representatives.
5. Pre-closing: Settle all PAYE, NSSF and pension contributions up to the effective date.
6. Post-closing: Cooperate with buyer on transition, handover of personnel files and any indemnity claims.

HR checklist

1. Pre-signing: Audit all employment contracts for change-of-control clauses, non-compete restrictions and benefit entitlements.
2. Pre-signing: Map the employee population to business units being transferred and identify key-person risks.
3. Pre-closing: Prepare employee communications (FAQ documents, town-hall scripts, individual letters).
4. Pre-closing: Coordinate with legal counsel on redundancy procedure if post-deal restructuring is planned.
5. Post-closing: Execute payroll migration, update statutory registrations and issue new contracts or assignment letters.
6. Post-closing: Monitor employee retention against deal-model assumptions and report to management.

Legal Framework for Employee Transfer in M&A in Kenya

Key statutory provisions under the Employment Act (Cap 226)

The Employment Act, 2007 (Cap 226 of the Laws of Kenya) is the primary legislation governing employment relationships. Several provisions are particularly relevant to the transfer of employees in an acquisition in Kenya:

• Section 10, Written particulars of employment. Every employer must provide written particulars within two months of engagement, including the identity of the employer. A change of employer therefore engages this provision, requiring updated particulars to the employee.
• Section 10(5), Continuity of employment on transfer of business. This subsection provides that where a trade, business or undertaking is transferred from one employer to another, the period of employment of an employee at the date of transfer counts as a period of employment with the new employer. This is the closest Kenyan law comes to a continuity-of-service provision, but it addresses continuity of tenure rather than mandating the automatic transfer of the employment contract itself.
• Section 27, Notice and termination. Sets out statutory notice periods (at least 28 days for monthly-paid employees), which apply if contracts are terminated rather than transferred during a transaction.
• Section 47, Redundancy. Establishes the procedural requirements for redundancy, including notification to the relevant labour officer, consultation with employees or their representatives, and payment of statutory severance (not less than fifteen days’ pay for each completed year of service).
• Section 74, Continuity of employment for purposes of the Act. Reinforces that continuity of employment is not broken by a change of employer arising from a transfer of business, provided the employee’s service continues.

Are employment contracts assignable in Kenya?

A common question in Kenyan M&A practice is whether employment contracts can be assigned from one party to another without the employee’s consent. The answer, grounded in both statute and common-law principle, is that employment contracts are personal in nature and cannot be unilaterally assigned. The employer cannot simply transfer an employee’s contract to a third party as though it were a commercial receivable.

Section 10(5) of the Employment Act preserves continuity of service where a business is transferred, but industry observers note that this provision does not create an automatic TUPE-style transfer mechanism. The likely practical effect is that employees retain their accrued rights (length of service, leave entitlements, redundancy qualification) but the contractual relationship itself requires either novation (a tripartite agreement among old employer, new employer and employee) or a fresh offer and acceptance from the acquiring entity. Leading commentators have highlighted this gap and called for specific legislation, comparable to the UK’s TUPE regime or South Africa’s Section 197, to provide legal certainty in Kenyan transactions.

In practice, well-advised deal teams treat this ambiguity as a risk to be managed through robust warranties, indemnities and operational planning rather than relying on any implied statutory transfer.

Pre-Deal HR Due Diligence and CAK Interplay

Who to involve and when

Effective HR due diligence in a Kenyan M&A requires early coordination among several stakeholders. The general counsel or external M&A adviser should engage the HR team, the compensation and benefits function, payroll, and, critically, CAK merger-control counsel from the outset. This is because the 2026 CAK reforms have made it necessary to sequence employment decisions around merger notification timelines. Restructuring the workforce before obtaining CAK clearance can constitute gun-jumping, with potentially severe consequences including the unwinding of the transaction.

Document checklist for HR due diligence in M&A in Kenya

CAK-related due diligence: why timing matters

The 2026 CAK merger-control reforms introduced stricter suspensory filing requirements. Transactions that meet the revised notification thresholds cannot be completed, and the parties must not take steps to integrate operations, until the CAK has issued its determination. For employment purposes, this means buyers must not issue new employment contracts, commence redundancy consultations or make binding retention offers until after clearance, unless these actions can be clearly separated from the notifiable transaction. Failure to observe this sequencing can expose both parties to CAK penalties and may undermine the validity of employee consents obtained prematurely.

Early engagement with CAK merger-control counsel is essential for any deal that involves Kenya, particularly given the evolving regulatory landscape for business registration and compliance in Kenya.

Buyer Obligations on Acquisition: Approaches to Employee Transfer in M&A in Kenya

Asset purchase vs share purchase: who remains the employer?

The deal structure fundamentally determines the buyer’s obligations regarding employees. In a share purchase, the buyer acquires the shares of the target company. The target company, as the employing entity, continues to exist, and its employment contracts remain in place. The employees’ legal employer does not change, although beneficial ownership of their employer has shifted. Buyer obligations in a share deal focus on updating governance, aligning benefits and addressing any operational restructuring that may follow.

In an asset purchase (including the acquisition of a business as a going concern), the buyer acquires specific assets, premises, equipment, customer contracts and, potentially, the workforce, but the selling entity remains a separate legal person. Employment contracts do not automatically transfer with the assets. The buyer must either negotiate the novation of existing contracts (requiring the employee’s consent) or offer fresh employment contracts to the individuals it wishes to retain. Section 10(5) of the Employment Act preserves continuity of service for employees who continue working after the transfer, but it does not compel the buyer to offer employment or the employee to accept.

Fresh contracts, novation and operational pitfalls

Where the buyer offers fresh contracts, several practical risks arise. If the new terms are materially less favourable than the existing ones, employees may refuse and claim constructive dismissal against the seller. If the buyer fails to offer employment to some employees while taking on others, the seller may face redundancy obligations for those left behind. In practice, the most effective approach is a coordinated process in which:

1. The buyer identifies which employees it wishes to retain.
2. The seller communicates the planned transfer and facilitates introductions.
3. The buyer issues offer letters or novation agreements on terms no less favourable than current employment.
4. Employees are given a reasonable period (typically 7–14 days) to accept.
5. Those who decline are managed through the seller’s redundancy process.

Indemnities vs purchase-price holdbacks for employment liabilities

Sophisticated buyers negotiate specific indemnities from the seller for pre-closing employment liabilities, including pending claims, unpaid wages, unremitted statutory contributions and unfunded pension obligations. Common mechanisms include a purchase-price holdback (where a portion of the consideration is retained in escrow for an agreed period, typically 12–24 months) or a pound-for-pound indemnity with a de minimis threshold and an overall cap. Industry observers expect escrow holdbacks to be particularly important in Kenyan deals involving businesses with large workforces, given the absence of automatic transfer protections and the potential for latent claims. Buyers should also consider whether to require the seller to fund any redundancy costs arising from employees who do not transfer.

Seller Obligations, Disclosures and Drafting Employee Warranties

Seller disclosure schedule: key employment disclosures

The seller’s disclosure schedule should cover, at a minimum:

• A complete list of employees, including role, tenure, compensation, benefits and notice period.
• Details of any collective bargaining agreements and union membership.
• Pending or threatened employment disputes, claims or regulatory investigations.
• Compliance status for PAYE, NSSF contributions, pension contributions and any work-permit requirements for foreign employees.
• Change-of-control or enhanced termination provisions in senior executive contracts.

Recommended warranty language

Seller warranties employee liabilities clauses in Kenyan M&A transactions typically address the following themes. Sample wording follows each:

• Compliance warranty: “The Seller has complied in all material respects with all applicable employment laws, including the Employment Act (Cap 226), and all amounts due to employees, the KRA and the NSSF have been paid or adequately provided for.”
• No undisclosed claims warranty: “There are no pending or, to the Seller’s knowledge, threatened claims by or on behalf of any employee, former employee or labour authority against the Company.”
• Contracts warranty: “True and complete copies of all employment contracts, collective bargaining agreements and benefit plan documents have been disclosed in the Data Room.”
• No change-of-control triggers warranty: “No employment contract contains a change-of-control, enhanced severance or acceleration provision that would be triggered by the Transaction.”

Indemnity triggers and limits

Typical Kenyan deal practice sets seller indemnity caps for employment warranties at between 10 % and 25 % of the purchase price, with a de minimis threshold per claim and a basket (aggregate threshold) before the buyer can claim. Survival periods for employment warranties commonly run for 18–24 months post-closing, though claims relating to fraud or tax are usually carved out and given longer survival periods. These parameters are, of course, negotiable and should reflect the specific risk profile identified during due diligence into the target’s regulatory compliance posture.

Redundancy in M&A in Kenya: Retrenchment and Restructuring

When is redundancy lawful?

Post-acquisition restructuring frequently results in role duplications, and buyers may need to reduce headcount. Redundancy in Kenyan law is governed by Section 47 of the Employment Act, which defines redundancy as the loss of employment through no fault of the employee, arising from factors such as the employer’s need to reduce the workforce. The statutory process is strict, and failure to follow it exposes the employer to claims for unfair termination.

Consultation and notice requirements

Section 47 requires the employer to:

1. Notify the relevant labour officer in writing of the reasons for, and the extent of, the intended redundancy.
2. Inform and consult with the affected employees or, where a trade union is recognised, with the union. Consultation must be genuine and must occur before any final decisions are taken.
3. Apply fair and objective criteria for selecting employees for redundancy (for example, “last in, first out,” performance metrics, or skills-based criteria), and ensure that the criteria do not discriminate on prohibited grounds.
4. Provide statutory notice, at least 28 days for monthly-paid employees, or pay in lieu of notice.

Compensation formula and disputes

The Employment Act provides for a minimum redundancy payment of not less than fifteen days’ pay for each completed year of service. The employment contract or CBA may stipulate a more generous formula, and buyers should verify the applicable terms during due diligence. Disputes over redundancy, including challenges to the fairness of the selection criteria or the adequacy of consultation, are adjudicated by the Employment and Labour Relations Court. For context on how East African neighbours are reforming employment law in 2026, see our companion analysis on Uganda’s recent amendments.

Practical redundancy timeline

1. Week 1–2: Notify the labour officer and commence consultation with employees or union.
2. Week 3–4: Apply selection criteria, compile affected-employee list, and conclude consultation.
3. Week 5: Issue individual redundancy notices (at least 28 days before effective termination).
4. Week 9: Effective termination date. Calculate and pay final entitlements, including redundancy pay, accrued leave, notice pay and any contractual severance.
5. Week 10+: File final statutory returns (PAYE, NSSF) and issue certificates of service.

Pensions, Benefits, PAYE, NSSF and Tax Considerations

Pension and retirement scheme transfers

Many Kenyan employers operate occupational pension schemes, often structured as irrevocable trusts registered with the Retirement Benefits Authority (RBA). Where the seller’s scheme is a standalone trust, the buyer must decide whether to admit transferring employees to its own scheme, maintain the seller’s scheme as a closed fund, or arrange for a bulk transfer of accrued benefits. The RBA must approve any transfer of scheme assets, and the process can take several months, a factor that should be built into the transaction timeline.

In addition, both the seller and the buyer must ensure that all employer and employee contributions to the National Social Security Fund (NSSF) are current. NSSF arrears constitute a statutory debt that can attach to the business, and buyers should insist on a clean compliance certificate before closing.

PAYE, withholding and termination-payment taxation

Termination payments, including redundancy pay, notice pay and accrued leave, are subject to PAYE withholding in accordance with the Income Tax Act and Kenya Revenue Authority (KRA) guidelines. Statutory redundancy pay (the minimum fifteen days per year of service under Section 47) benefits from a tax exemption up to a prescribed threshold, but any amount paid above the statutory minimum is taxable. Buyers inheriting a payroll mid-month must coordinate a clean cut-off with the seller to avoid double-reporting. A practical payroll close-out checklist should confirm that all PAYE, NSSF and pension remittances are settled up to the effective transfer date, and that employees receive accurate P9 tax deduction certificates reflecting the correct employer for each period.

For further insight into Kenya’s tax landscape, see our guide to Kenya’s residential rental income rules (2026).

CAK Merger Control (2026 Reforms): Timelines, Gating and Employee Implications

Overview of the 2026 CAK reforms

The Competition Authority of Kenya introduced significant changes to its merger-control framework in 2026. The reforms include revised notification thresholds, increased filing fees and, most critically for workforce planning, a strengthened suspensory regime. Transactions that meet the relevant thresholds must not be completed, and the merging parties must not begin to integrate operations, until the CAK has issued its determination. The practical effect is a gating period between signing and closing during which the buyer has no legal authority to direct the target’s workforce, issue new contracts or commence restructuring. Any CAK merger compliance obligation relating to employees must therefore be coordinated carefully with the employment-law steps outlined above.

CAK and labour strategy: sequencing the key decisions

The interplay between CAK gating and employment-law obligations creates a sequencing challenge that deal teams must plan for:

• Pre-CAK filing: Complete HR due diligence and agree in principle on retention offers, but do not communicate binding commitments to employees.
• During CAK review: Maintain the target business as a going concern. Avoid hiring freezes or restructuring that could be interpreted as integration. Prepare (but do not issue) new contracts and redundancy plans.
• Post-CAK clearance, pre-closing: Issue retention offers or novation agreements, commence any required redundancy consultation, and finalise benefit harmonisation plans.
• Post-closing: Execute the employment transition, payroll migration, statutory registrations, onboarding under the acquiring entity.

Failure to respect this sequencing can result in CAK sanctions, the potential unwinding of the transaction, and exposure to employment claims from employees who received, and acted upon, premature commitments. For practitioners seeking to locate experienced M&A counsel in Kenya, the Global Law Experts lawyer directory is a useful starting point.

Practical Checklists, Sample Clauses and Document Templates

The following resources summarise the operational steps covered throughout this guide. Deal teams are encouraged to adapt them to the specific circumstances of each transaction.

Compact due diligence checklist

• All employment contracts (written and oral arrangements identified)
• Collective bargaining agreements and union recognition records
• Pension scheme trust deeds, RBA compliance certificates and contribution records
• NSSF and PAYE compliance status (obtain clearance certificates)
• Pending and threatened employee claims (court filings, demand letters, internal grievances)
• Organisational chart with headcount, tenure and compensation data
• Non-compete, non-solicitation and change-of-control provisions
• Work permits and immigration status for foreign employees

Red flags triage matrix

• Critical (deal risk): Unremitted PAYE or NSSF contributions; active strikes or court injunctions; unfunded pension deficit exceeding agreed threshold.
• High (price adjustment): Multiple pending Employment Court claims; change-of-control acceleration clauses in senior contracts; CBA renegotiation due within 6 months.
• Medium (operational planning): Informal employment arrangements lacking written contracts; key-person dependency without retention agreements; outdated HR policies.

Sample employee warranty bullets (for sale and purchase agreement)

• Full and accurate disclosure of all employees, terms and benefits.
• Material compliance with the Employment Act, NSSF Act and all applicable labour regulations.
• No undisclosed employment claims, whether pending or threatened.
• All statutory contributions paid current to the Effective Date.
• No change-of-control, golden-parachute or enhanced-severance provisions not disclosed in the Data Room.

Employee Transfer in M&A in Kenya: Comparison by Transaction Type

Conclusion and Next Steps

Managing employee transfer in M&A in Kenya demands careful legal analysis, rigorous due diligence and precise sequencing around the 2026 CAK merger-control gating requirements. Without a TUPE-equivalent statute, the burden falls squarely on deal teams to craft contractual protections, warranties, indemnities, novation frameworks and escrow mechanisms, that allocate employment risk fairly between buyer and seller. The practical checklists and sample clauses in this guide provide a starting framework, but every transaction carries unique risks that require tailored advice from experienced Kenyan M&A counsel.

Sources

1. Employment Act, Cap 226 (Kenya), Kenya Law
2. Competition Authority of Kenya (CAK), Merger Control Guidance
3. Bowmans, Proposed Law on Automatic Transfer of Employees in Kenya
4. Oraro & Company Advocates, The Fate of Employees in Mergers and Acquisitions
5. F.M. Muteti & Company Advocates, Employee Transfer in Kenya: Legal Guide
6. Lexology, Why Kenya Needs a Law on Transfer of Undertakings