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Supreme CourtDismissedPetition E023 of 2023

Gatuma v Kenya Breweries Ltd & 3 others

Supreme Court of Kenya
30 August 2024
Philomena Mbete MwiluP.M. MwiluMohammed Khadhar IbrahimM.K. IbrahimSmokin Charles WanjalaS.C. WanjalaNjoki Susanna NdunguNjoki NdunguWilliam OukoW. Ouko
11,678 words in judgment
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AI-assisted case brief
·~47 min to read original · ~4 min brief

The bottom line

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Supreme Court upholds lawful redundancy and fresh contract, rejecting claims of unfair labour practice.

What this practically means

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The Supreme Court ruled that Kenya Breweries Limited did not violate John Mwangi Nderitu's rights when it changed his pay and terms. The court found that the company followed proper redundancy procedures, paid severance, and Nderitu freely accepted a new contract with a separate company, Kenya Malting Limited. He worked six years without complaint. The court also refused to treat the companies as one entity, saying there was no evidence of fraud or sham.

Executive summary

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The Supreme Court dismissed an appeal by John Mwangi Nderitu against Kenya Breweries Limited and three other companies, affirming the Court of Appeal's decision. The appellant was employed by Kenya Breweries Limited from 1986 until 2003, when the company delinked its malting operations, declared him redundant, and paid him a severance package. He then accepted a new position with Kenya Malting Limited at a significantly reduced salary, working there until he was again declared redundant in 2009. The appellant sued, arguing that the delinking was a charade, the companies were a single economic unit, and the reduction in salary was an unfair labour practice. The Employment and Labour Relations Court (ELRC) agreed, lifting the corporate veil and awarding him underpayment of salary, differential payments, and a long service award. The Court of Appeal reversed this decision, holding that the companies were separate legal entities, the redundancy was procedurally compliant, and the appellant had acquiesced to the new terms. The Supreme Court upheld the Court of Appeal's decision. It held that the corporate veil can only be pierced in exceptional circumstances such as fraud or sham, which the appellant failed to prove. The court found that the 2003 redundancy was valid, the union was notified, and the appellant voluntarily accepted the new contract with Kenya Malting Limited. Consequently, his right to fair labour practices under Article 41 of the Constitution was not infringed. The appeal was dismissed with each party bearing its own costs.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether it is fair labour practice to change terms of employment especially as refers to remuneration while retaining basic tenets of said employment?
  2. 2.Whether the appellant's right to fair labour practices was infringed.
  3. 3.Whether the appellant is entitled to the reliefs sought?

Key legal issues

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01

Whether it is fair labour practice to change terms of employment, especially remuneration, while retaining basic tenets of employment.

Holding

Unilateral variation of employment terms, including remuneration, without employee consultation and consent is an unfair labour practice and may constitute constructive dismissal. However, where the change results from a procedurally compliant redundancy and a subsequent fresh contract with a separate legal entity, it is not unfair.

Reasoning

The court examined sections 10(5) and 13 of the Employment Act, which require consultation and written notification for any variation of contract terms. It held that unilateral changes amount to repudiation. However, in this case, the change in remuneration occurred after a lawful redundancy process where the appellant was paid severance and then accepted a new contract with a different company (Kenya Malting Limited). The court found that the redundancy was procedurally compliant, the union was notified, and the appellant voluntarily accepted the new terms, working for six years without objection. Therefore, the change was not an unfair labour practice.

p. 18
02

Whether the appellant's right to fair labour practices was infringed by the respondents' actions.

Holding

The appellant's right to fair labour practices was not infringed. The 2003 redundancy was procedurally compliant, and the subsequent employment with the 3rd respondent was a fresh contract freely entered into.

Reasoning

The court reviewed the redundancy process, noting that the 1st respondent issued a two-month notice to the union, held meetings, and the union conceded. The appellant was issued a redundancy notice, paid severance, and then accepted a new employment offer from the 3rd respondent. The court found no evidence of fraud, ill-motive, or coercion. The delinking was for economic and organizational reasons. The appellant worked for six years under the new terms without complaint. The court distinguished this from cases where certificates of service were issued by both entities or where employees were not informed of the shift. It concluded that the redundancy was valid and the new contract was distinct.

p. 25
03

Whether the corporate veil of the respondent companies should be lifted to treat them as a single economic unit.

Holding

The corporate veil should not be lifted. The respondent companies are separate legal entities, and the appellant failed to prove exceptional circumstances such as fraud, sham, or agency that would justify piercing the veil.

Reasoning

The court reaffirmed the principle in Salomon v Salomon that each company is a separate legal entity. It noted that the corporate veil can only be pierced in exceptional circumstances, such as fraud, improper conduct, or where a company is a mere façade. The court found that the delinking was a genuine commercial decision, the companies had distinct roles, and there was no evidence that Kenya Malting Limited was a façade or agent of Kenya Breweries Limited. The trial court's finding that the subsidiaries were façades was overturned because the appellant did not provide credible evidence of fraud or improper purpose.

p. 20

Legal principles established

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  • Unilaterally changing an employment contract without employee consent is an unfair labour practice and may be constructive dismissal.
  • A procedurally compliant redundancy followed by a fresh contract with a separate legal entity does not infringe fair labour practices.
  • The corporate veil can only be lifted in exceptional cases like fraud, sham, or improper purpose.
  • Each company is a separate legal entity; subsidiaries are not automatically liable for parent company actions.
  • An employee who accepts a new contract and works for years without objection cannot later claim unfair labour practice.

Court orders

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  1. 1.The petition of appeal dated August 9, 2023 and lodged on December 4, 2023 is hereby dismissed
  2. 2.Each party to bear the costs of the appeal.
  3. 3.We hereby direct that the sum of Kshs. 6,000/= deposited as security for costs in the appeal be refunded to the appellant.

The bench

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One judgment of the whole court — no separate or dissenting opinions.

Philomena Mbete Mwilu
P.M. MwiluDCJ
Currently serving
majority
Mohammed Khadhar Ibrahim
majority
Smokin Charles Wanjala
S.C. WanjalaSCJ
Currently serving
majority
Njoki Susanna Ndungu
Njoki NdunguSCJ
Currently serving
majority
William Ouko
W. OukoSCJ
Currently serving
majority
On appeal from
Court of Appeal at Nairobi
Civil Appeal No 172 of 2013
Jurisdiction invoked
Article 163(4)(b) of the Constitution

Relief refused

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Setting aside the judgment of the Court of Appeal and affirming the judgment of the Employment and Labour Relations Court

The Supreme Court found no merit in the appeal and affirmed the Court of Appeal's decision.

p. 25

Costs

Each party to bear the costs of the appeal.

Quotable passages

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Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

From the provisions of section 10(5) and section 13 of the Employment Act it is clear that any unilateral variation of the terms of an employment contract may be deemed as a repudiation of the contract and in case the same would lead to termination of employment the same may be deemed as constructive dismissal.
p. 18 Unilateral variation of employment contract
The corporate veil can only be pierced or lifted in exceptional circumstances, such as when the court is construing a statute, contract or other document which requires the veil to be lifted; when it can be shown that the company is being used as a mere façade or sham to perpetrate fraud, avoid legal obligations, or achieve some other improper purpose and, when it can be established that the company is an authorised agent of its controllers or its members, corporate or human.
p. 20 Lifting the corporate veil
We therefore agree with the appellate court that the redundancy notice issued by the 1st respondent was valid and procedurally compliant with the Employment Act, the subsequent employment of the appellant was based on a new contract which the appellant agreed to, and stayed in employment for six (6) years. It is therefore our finding that the right to fair labour practice was not infringed upon by the respondents.
p. 25 Fair labour practice and redundancy
The petition of appeal dated August 9, 2023 and lodged on December 4, 2023 is hereby dismissed
p. 25 Final order dismissing the appeal
Each party to bear the costs of the appeal.
p. 4 Costs order

Key timeline

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1986
John Mwangi Nderitu employed by Kenya Breweries Limited.
2003
Kenya Breweries Limited issues redundancy notice; Nderitu paid severance.
2003
Nderitu accepts new employment contract with Kenya Malting Limited.
2009
Nderitu leaves employment after six years under new contract.
2024
Supreme Court dismisses Nderitu's appeal, affirming lower courts.

Practical implications

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For lawyers

Redundancy process must be airtight

Ensure redundancy procedures strictly comply with Employment Act sections 10(5) and 13. Document union notification, employee consultation, and severance payment. A fresh contract with a separate entity is valid if the employee voluntarily accepts it and works without objection for years. Advise clients to avoid unilateral changes without consent.

For businesses

Restructuring can protect against claims

When restructuring, follow redundancy law precisely: notify unions, pay severance, and offer new contracts through separate legal entities. This case shows that a clean break with a new entity can shield you from unfair labour practice claims. Ensure employees understand the new contract is voluntary and document their acceptance.

For individuals

Accepting a new contract may waive rights

If your employer changes your pay or terms, you must object immediately. Accepting a new contract and working for years without complaint can prevent you from later claiming unfair labour practice. If you suspect a sham redundancy, gather evidence of fraud or improper purpose before signing anything.

Frequently asked questions

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Can my employer in Kenya change my salary without telling me?+

No. Under Kenya's Employment Act, any change to your contract, including salary, requires your consent and written notice. Doing it without telling you is an unfair labour practice and could be constructive dismissal.

What is the corporate veil in Kenya and when can it be lifted?+

The corporate veil means each company is a separate legal entity. In Kenya, courts can only lift it in exceptional cases like fraud, sham, or improper purpose. You need strong evidence, not just suspicion.

Is a redundancy followed by a new contract legal in Kenya?+

Yes, if the redundancy follows proper procedures: notify the union, pay severance, and the employee freely accepts a new contract with a separate company. The Supreme Court upheld this in the Kenya Breweries case.

What should I do if my Kenyan employer changes my pay without asking?+

Object immediately in writing. Do not accept the change or sign a new contract without legal advice. If you work under the new terms for years without complaint, you may lose your right to claim unfair labour practice.

Later judgments citing this (15)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Gatuma v Kenya Breweries Ltd & 3 others", Case Analysis (2024). Petition E023 of 2023. Source: https://new.kenyalaw.orghttps://new.kenyalaw.org/akn/ke/judgment/kesc/2024/52/eng@2024-08-30

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.