The Shrinking Salary: Employer Obligations and Employee Welfare in an Age of Inflation

Introduction

As with our previous article on redundancy, it is no news that Nigeria is currently navigating one of its most challenging economic periods in recent history. As such, the purchasing power of the average Nigerian has been drastically eroded. An agreed-upon salary that was reasonable twelve months ago may now barely cover essential needs, leaving employees financially distressed and employers in a precarious position.

This raises a critical question at the heart of modern employment relations: When an economic crisis fundamentally devalues wages, what is the employer’s obligation? Is an employer legally, contractually, or even morally bound to adjust employee compensation to reflect the new economic reality? This article explores the legal position and proposes strategic, legally sound approaches for employers.

The Legal Bedrock: Sanctity of the Employment Contract

From a strict legal standpoint, the relationship between an employer and an employee is governed by the employment contract. The foundational principle of Nigerian contract law is pacta sunt servanda—agreements must be kept. The employer’s primary duty regarding remuneration is to pay the salary stipulated in the employment contract.

Generally, Nigerian courts are hesitant to interfere with the terms of a freely negotiated contract. The plea of economic hardship is not a recognised basis for vitiating or compelling a unilateral alteration of a contract. Therefore, an employee cannot legally compel an employer to increase their salary based on inflation alone if it is not a term of their contract. The employer’s strict legal obligation is to pay the agreed sum, regardless of its diminished value.

Beyond the Black Letter: Implied Duties and Statutory Floors

While the express terms of a contract are paramount, the law does recognise certain implied duties. Chief among these is the employer’s duty of care and the implied duty of mutual trust and confidence. This duty requires that an employer not act in a manner likely to destroy or seriously damage the relationship of trust and confidence between both parties.

An argument can be made that failing to address a situation where employees are under severe and prolonged financial distress, impacting their mental health, well-being, and productivity, could, in extreme cases, be seen as a breach of this implied duty. A disengaged, anxious, and demotivated workforce is a direct threat to a company’s success. While this remains a novel argument in our jurisprudence, it speaks to the evolving nature of the employer’s role beyond merely paying a wage.

Furthermore, while the National Minimum Wage Act sets a statutory floor for remuneration, it does not mandate periodic cost-of-living adjustments for those earning above the minimum. This leaves a significant portion of the workforce without a clear statutory mechanism for wage protection against inflation.

A Strategic Approach: From Obligation to Opportunity

Legally, an employer can choose to do nothing. Commercially, this is a perilous strategy. The “do nothing” approach risks catastrophic drops in employee morale, increased disloyalty, a rise in “quiet quitting,” and the loss of key talent to competitors (both local and international) who are more responsive.

The prudent and forward-thinking employer will view this crisis not as a burden, but as an opportunity to build loyalty and reinforce company culture. Instead of focusing solely on what is legally required, the focus should be on what is strategically necessary.

Here are several practical and legally sound interventions employers can consider:

1. Conducting a Wage Review: The most direct approach is to review existing salary structures. This does not have to be a full inflation match but can be a meaningful adjustment that demonstrates the company’s commitment to its staff.

2. Introducing or Increasing Allowances: Rather than altering base pay, companies can introduce or enhance specific allowances. Transport, housing, meals, and data allowances can provide targeted relief to employees’ biggest expense lines and can be more flexible to adjust than base salaries.

3. Formalising Remote and Hybrid Work: Framing flexible work arrangements as a direct financial intervention is crucial. By saving employees significant daily costs on transportation and other ancillary expenses, the company provides a tangible, valuable benefit that can be as impactful as a pay rise.

4. Enhancing Healthcare and Insurance: In times of financial strain, personal health is often the first budget item to be neglected. Expanding the scope of the company’s Health Maintenance Organisation (HMO) plan or introducing other insurance products can provide a critical safety net and immense peace of mind.

5. Facilitating Access to Low-Interest Credit: Supporting or strengthening employee cooperative societies or partnering with fintech platforms to offer low-interest loans for emergencies can prevent employees from falling into the trap of predatory lending.

Conclusion

While Nigerian law does not impose an explicit duty on employers to increase salaries in response to inflation, a purely legalistic approach is shortsighted. The implied duty to foster a relationship of trust and confidence, combined with the clear commercial imperative to maintain a productive and motivated workforce, strongly compels proactive intervention.

Employers who demonstrate strategic empathy and invest in their employees’ welfare during this economic crisis are not merely engaging in corporate social responsibility; they are making a shrewd investment in their long-term resilience and success.