The rule employers still quote — and why it no longer holds
A business owner called us recently, frustrated. An employee was underperforming, the salary had become hard to justify, and the plan was simple: pay off the notice period, say nothing about why, and move on. That plan came from a real rule. Under classic Nigerian master-and-servant law an employer could end a contract for good reason, bad reason or no reason at all, provided proper notice or pay in lieu was given, and the damages were capped at what the employee would have earned during the notice period.
That changed structurally, not by fashion. The Constitution of the Federal Republic of Nigeria 1999 (Third Alteration) Act 2010 gave the National Industrial Court of Nigeria exclusive civil jurisdiction over labour matters and, in section 254C(1)(f) and (h), expressly empowered it to apply international best practices in labour and international labour standards ratified by Nigeria. In Aloysius v Diamond Bank Plc (NICN, 2015) the Court used that power to hold that an employer in a master-servant relationship cannot terminate employment except for good and justifiable reason — reasoning drawn from Article 4 of ILO Convention 158 on Termination of Employment, which requires a valid reason connected with capacity, conduct or the operational requirements of the business.
The decision was controversial and appellate treatment of it has not been perfectly uniform. But two things are settled enough to plan around: the National Industrial Court is the court you will be in, and it has also moved away from the old damages cap, awarding general damages for unlawful termination rather than a month’s salary. An employer whose only defence is “the contract allowed it” is exposed.
Four rules to work to
A reason is now expected
The old common-law formula — an employer may terminate for good reason, bad reason or no reason at all, so long as notice is given — is no longer safe advice. Since the Third Alteration to the Constitution in 2010, the National Industrial Court applies international best practice and international labour standards, and it has repeatedly held that an employer must have a valid reason to end an employment relationship.
Constitution of the Federal Republic of Nigeria 1999 (Third Alteration) Act 2010, s.254C(1)(f) and (h); Aloysius v Diamond Bank Plc (NICN, 2015), applying ILO Convention 158, Article 4.
Dismissal requires proof and procedure
Summary dismissal for gross misconduct — fraud, theft, harassment, gross insubordination — is still available, but only after a fair process. That means a written query, a genuine opportunity to respond, an investigation, and a hearing the employee can attend. The burden of proving the misconduct sits on the employer, not on the employee to disprove it.
Constitution 1999, s.36(1) (fair hearing), applied by the NICN to internal disciplinary processes.
Earned pay cannot be forfeited
The belief that a dismissed employee forfeits everything is wrong. Wages earned up to the date of exit remain payable, and the Labour Act requires all wages payable in money to be paid on or before the expiry of any notice period. Accrued, untaken annual leave and remitted pension contributions are likewise not disciplinary tools.
Labour Act, s.11(7); annual holiday entitlement, s.18.
Notice and dismissal are not the same thing
Termination on notice ends the contract lawfully and requires statutory or contractual notice, or payment in lieu. Summary dismissal ends it without notice — but only where serious misconduct is established and procedural fairness was followed first. Labelling a termination a dismissal to avoid paying notice is one of the most expensive mistakes an employer can make.
Labour Act, s.11(1)–(6).
Fair hearing: what it actually has to contain
Fair hearing is not a formality you perform after the decision. Section 36(1) of the Constitution guarantees it, and the National Industrial Court reads it into internal disciplinary processes. In practice, six things need to exist on file before a dismissal letter is signed.
- A written query that states the specific allegation, with dates and facts — not a vague reference to poor attitude or underperformance.
- A reasonable, stated period to respond in writing (48 to 72 hours is the common practice; anything shorter invites a fairness challenge).
- An investigation that gathers documents and statements before any decision is drafted.
- A disciplinary panel of at least two people, none of whom is the sole complainant, with the employee allowed to attend and to be accompanied by a colleague.
- Minutes of the hearing, signed by the panel, plus the employee's written response on file.
- A decision letter that states the reason, the evidence relied on, and the outcome.
Notice periods and pay in lieu
Section 11 of the Labour Act sets the statutory floor. Where the contract gives a longer notice period, the contract wins — the statute is a minimum, not a ceiling. Notice of one week or more must be in writing, and the day notice is given does not count towards the period.
| Length of service | Minimum notice |
|---|---|
| 3 months or less | 1 day |
| More than 3 months, under 2 years | 1 week |
| 2 years but under 5 years | 2 weeks |
| 5 years or more | 1 month |
Two details catch employers out. First, where payment is made in lieu of notice, the Labour Act calculates it on the money wage only, excluding overtime and other allowances — so a generous allowance structure does not inflate the notice payment unless the contract says it does. Second, the strict statutory definition of “worker” in section 91 excludes administrative, executive, technical and professional staff, so senior contracts are governed mainly by their own terms — which is precisely why those contracts must be drafted properly rather than borrowed.
The final payment: what must go out
- Salary earned up to and including the last working day.
- Notice pay, where notice was not worked — statutory minimum or contractual period, whichever is longer.
- Accrued but untaken annual leave.
- Employer and employee pension contributions remitted to the PFA, including the final month.
- PAYE correctly deducted on terminal payments and remitted to the state internal revenue service.
- Any documented reimbursable expenses already approved.
If you want the employer-side arithmetic behind those figures, our guide on the real cost of employing staff in Nigeria breaks down pension, NHF and the rest, and the free PAYE calculator handles tax on the final payslip.
A five-step offboarding procedure
Step 1
Decide which route you are on
Performance, redundancy, or misconduct. They have different evidence requirements and different documents. Choosing the wrong route — dismissing for misconduct when the real issue is capability — is where most cases unravel.
Step 2
Build the file before the decision
Appraisal records, warning letters, the improvement plan and its review dates, or the investigation report and witness statements. If the file is created after the decision, it reads that way in court.
Step 3
Run the fair-hearing process
Query, response, investigation, hearing, minutes. Do not skip it because the outcome feels obvious. The process is the defence.
Step 4
Write a letter that states the reason
One clear, truthful reason, the effective date, the notice position, and a line-by-line breakdown of the final payment. A letter that says only 'your services are no longer required' is the sentence most often read back to employers in court.
Step 5
Close out cleanly on the last day
Exit interview, handover, asset and access recovery, clearance sign-off, final payslip, and pension remittance. Keep the whole pack in the employee record for at least six years.
Where employers get caught
- Terminating with pay in lieu of notice and no stated reason, on the assumption that the contract clause is a complete defence.
- Calling it a dismissal to avoid notice pay, without an established act of gross misconduct.
- Withholding earned salary, leave pay or pension remittance as leverage in a handover dispute.
- Running the disciplinary hearing with the complainant as the sole decision maker.
- Backdating query letters or minutes — a documented process is worth far less once its dates cannot be reconciled with the payroll and email trail.
Navigating employment law is not only about protecting the business. It is about building transparent, human-centred organisations. Cut the shortcuts out of your offboarding process, or the court will cut them out for you.
Sources
- Labour Act, Cap L1, LFN 2004 — full text (NELEX)
- Labour Act s.11 — termination of contracts by notice
- Aloysius v Diamond Bank Plc: security of employment and ILO conventions (African Journal of International and Comparative Law, 2023)
- ILO Convention No. 158 — Termination of Employment, 1982
- Sahara Energy Resources Ltd v Oyebola — damages in master-servant employment revisited (TheNigeriaLawyer)
This guide is general information for employers and HR teams, current as at September 2026. It is not legal advice, and case law in this area is still developing. For a specific termination, take advice on your own facts and contract.
Related reading: Nigerian labour laws in 2026: what changed.