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Court of AppealPartially AllowedNot stated in judgment (arising from Industrial Court Cause No. 1616 of 2012; interim Civil Application No. Nai 310 of 2012)

Kenya Airways Ltd v Aviation & Allied Workers Union Kenya & 3 others (Civil Appeal 46 of 2013) [2014] KECA 404 (KLR)

Court of Appeal of Kenya
11 July 2014
EGE.M. GithinjiDavid Kenani MaragaD.K. MaragaAMA.K. Murgor
25,693 words in judgment
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The bottom line

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Kenya's Court of Appeal upheld Kenya Airways' right to retrench 447 staff but ruled the selection process unfair, replacing reinstatement with six months' salary damages each.

What this practically means

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Executive summary

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Kenya Airways appealed an Industrial Court award (Rika J, 3rd December 2012) declaring the retrenchment of 447 unionisable employees unjustified, procedurally unfair, and ordering reinstatement with back pay. The Court of Appeal, restricted by section 17(3) of the Industrial Court Act to matters of law, unanimously held the redundancy substantively justified: the airline's five-year profit decline and unsustainable wage bill established a genuine redundancy, and the court cannot substitute its business judgment for the employer's, nor import Article 10 national values into a private company's commercial decisions. On procedure, the court divided. By majority (Maraga and Murgor JJA; Githinji JA dissenting), the appellant failed to prove a fair, objective and transparent selection process under section 40(1)(c) - no assessment results were produced and the injunction had suspended the assessment exercise - so the termination was procedurally unfair on that ground. The majority also found consultation imperative, implicit in section 40(1) read with the ILO Termination of Employment Convention under Article 2(6) of the Constitution, though they differed on who caused its breakdown. LIFO was held not to be the sole mandatory criterion. Unanimously, the court set aside reinstatement with back pay as punitive and impracticable, holding the normal remedy for genuine redundancy is compensation. Each of the 447 employees was awarded six months' gross salary damages in addition to three months' salary in lieu of notice, severance at 20 days per completed year and other dues, all subject to statutory deductions. There was no order as to costs.

Questions the Court framed

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

  1. 1.Whether the declaration of redundancy of the 447 unionisable employees was justified on substantive grounds
  2. 2.Whether the redundancy was implemented lawfully and in accordance with fair procedure under section 40(1) of the Employment Act (notice, consultation and selection criteria)
  3. 3.Whether the Industrial Court was justified in ordering reinstatement of the affected employees with back pay, and if not, what the appropriate remedy should be

Key legal issues

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01

Substantive justification of redundancy

Holding

The redundancy of the 447 employees was substantively justified. The employer genuinely believed, on the audited and unaudited accounts and corroborating evidence, that declining revenue and an unsustainable wage bill rendered the services superfluous, and the court could not substitute its own commercial judgment for that of the employer.

Reasoning

Both Githinji and Maraga JJA found a five-year downward profit trend, a swelling wage bill and abolition of 205 roles, satisfying the statutory definition of redundancy as abolition of office or loss of employment through no fault of the employee. The Industrial Court erred by testing commercial necessity and treating the national carrier as subject to Article 10 and to government oversight, when Kenya Airways is a private listed company with the Government holding only 29.8%. The reasonableness of the decision must be judged at the time it was made.

p. 11
02

Notice and consultation under section 40(1) of the Employment Act

Holding

By majority, the notice of 1st August 2012 was a valid general notice, but consultation is an imperative requirement implicit in section 40(1) read with the ILO Termination of Employment Convention as domesticated by Article 2(6) of the Constitution; consultations must be real and not cosmetic, and the employees were not given a reasonable opportunity to respond.

Reasoning

Maraga JA held that the initial notice need not name affected employees, but its purpose is to elicit genuine consultation on measures to avert or minimise terminations. Giving the union only two days before negotiations, and issuing termination letters days after the injunction lapsed, meant no meaningful consultation was possible. Githinji JA found substantial compliance, holding the Union could not complain after obtaining an injunction that frustrated consultation, while Murgor JA found the Union responsible for the breakdown. The majority result upheld the finding of procedural unfairness.

p. 25
03

Selection criteria under section 40(1)(c)

Holding

By majority (Githinji JA dissenting), the appellant failed to prove application of a fair, objective and transparent selection process, and the termination of the 447 employees was procedurally unfair on this ground alone.

Reasoning

The employer bears the burden of proving compliance with section 40(1)(c). No assessment score sheets, psychometric test results or comparative productivity data were produced; some retrenched employees had scored highly in appraisals; and the injunction suspended the assessment exercise, leaving no evidence the criteria were systematically applied. However, LIFO is not mandatory in isolation. Githinji JA dissented, finding the criteria applied did not depart significantly from the statutory criteria and no individual employee was shown to have been unfairly selected.

p. 26
04

Reinstatement as a remedy

Holding

Unanimously, the order of reinstatement with back pay was set aside. Reinstatement is discretionary, must be guided by section 49(4) of the Employment Act, and was punitive and impracticable in a justified redundancy at a financially distressed employer.

Reasoning

The Industrial Court failed to apply the statutory factors, relied on unproven findings of bad faith, anti-union motive and foreign recruitment, and ordered en masse reinstatement without hearing the parties on practicability, breaching the right to be heard. Practicability requires a balancing of the parties' interests with regard to the future, including effects on the employer, other employees and third parties. The normal remedy for a genuine redundancy, even if procedurally flawed, is compensation.

p. 14
05

Applicability of Article 10 of the Constitution and the right to work

Holding

Article 10 binds State organs, State officers, public officers and persons making public policy decisions; it does not impose consultation obligations on a private employer's commercial redundancy decisions. Neither Article 41 nor the Employment Act secures an absolute right to work.

Reasoning

Kenya Airways is a private limited company listed on the Nairobi, Uganda and Tanzania exchanges, with the Government holding only 29.8%, and is not a parastatal under the State Corporations Act. Article 23 of the UDHR, part of Kenyan law via Article 2(6), recognises the right to work, but that must be read with Article 41 and the Employment Act, whose protection is against unfair termination, not job security. The Board and management retain the corporate latitude to balance stakeholder interests.

p. 19

Legal principles established

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  • For any termination of employment under redundancy to be lawful in Kenya it must be both substantially justified and procedurally fair; all the conditions in section 40(1) of the Employment Act are conjunctive and must all be satisfied.
  • Kenyan law does not prescribe pre-redundancy consultation as a statutory condition beyond what is implicit in section 40(1); the employer, not the court, holds the commercial judgment whether a redundancy situation exists, and the court may not substitute its own business decision.
  • Where the employee is a member of a trade union, the notice under section 40(1)(a) to the union and the labour officer is an alternative to, not cumulative with, personal notice under section 40(1)(b); the initial notice need not name the affected employees.
  • Last-in-first-out (LIFO) is not the sole mandatory selection criterion under section 40(1)(c); the employer may apply the statutory criteria of seniority in time, skill, ability and reliability, but must apply an objective, transparent and uniformly applied selection process.
  • Article 10 of the Constitution on national values binds State organs and public officers and has no, or at most limited, application to private commercial decisions of a private company such as redundancy in a labour dispute.
  • Reinstatement for unfair termination is discretionary, governed by section 49(4) of the Employment Act, including the practicability of reinstatement and the common law rule against specific performance of employment contracts except in very exceptional circumstances.
  • An appeal from the Industrial Court to the Court of Appeal lies only as a matter of law; even on such an appeal, allegations of misapprehension of evidence or reliance on extraneous material are points of law justifying review of the record.

Court orders

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  1. 1.The order of reinstatement together with back pay made by the Industrial Court was set aside
  2. 2.The appeal against the trial judge's finding of procedural unfairness relating to selection criteria was dismissed by majority
  3. 3.Each of the 447 employees whose services were unprocedurally terminated was awarded damages equivalent to six months gross salary, in addition to three months' salary in lieu of notice, severance pay of 20 days for every completed year of service and other unpaid dues
  4. 4.All payments made by the appellant to each of the 447 former employees were made subject to statutory deductions
  5. 5.No order as to costs of the appeal and the court below

The bench

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Judges wrote separately. A dissent does not bind; a concurrence may narrow the ratio.

EG
partial dissent

Wrote the judgment

Wrote the lead judgment holding the redundancy was substantively justified, procedure fair except he dissented on selection criteria, and would have allowed the appeal entirely with no order as to costs.

However, I have the misfortune of being the sole dissentient on the issue of selection criteria.p. 14
David Kenani Maraga
majority

Wrote the judgment

Concurred with Githinji JA on justification but held the appellant breached section 40(1) of the Employment Act on notice, consultation and selection criteria; agreed reinstatement was not an efficacious remedy and would substitute six months' gross salary damages.

I accordingly set aside the learned Judge's order of reinstatement in its entirety and substitute it with an award of damages equivalent to six months' salary to each of the 447 retrenched employees.p. 29
AM
majority

Wrote the judgment

Found the redundancy notice valid, consultation obligations met or frustrated by the Union's injunction, the redundancy justified, but the selection procedure unfair under section 40(1)(c); would set aside reinstatement and award six months' gross salary damages.

I would allow the appeal in part, set aside the order for reinstatement, and in lieu thereof order that the each of the 447 affected employees be paid damages equivalent to six months gross monthly salary for unfair termination of employment.p. 43
On appeal from
Industrial Court of Kenya
Cause No. 1616 of 2012
Jurisdiction invoked
Section 17(3) of the Industrial Court Act, No. 20 of 2011 - appeal lies to the Court of Appeal only as a matter of law

Relief refused

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Reinstatement with back pay and allowances of all 447 employees

Reinstatement was not an efficacious remedy for a justified redundancy procedurally flawed in implementation; the statutory and common law principle is that specific performance of an employment contract should not be ordered except in very exceptional circumstances.

p. 29

The Union's claim for loss of service up to 60 years and severance pay at 120 days per completed year of service

Statutory compensation under section 49(1)(c) is capped at twelve months' gross salary and statutory severance is fixed at not less than fifteen days per completed year; the claim was also seemingly abandoned in favour of reinstatement.

p. 14

Costs

As both parties have partly succeeded in this appeal, there shall be no order of costs of this appeal and the court below.

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.

As a whole, for any termination of employment under redundancy to be lawful, it must be both substantially justified, and procedurally fair.
p. 20Dual requirements for lawful redundancy
As long as the employer genuinely believed that there was a redundancy situation, any termination was justified and it was not for the court to substitute its business decision of what was reasonable. The Court has no supervisory role.
p. 11Court's limited supervisory role over employer's commercial judgment
Unless the circumstances are such that it would be an utterly futile exercise to hold any meaningful negotiations, consultation has to be real and not cosmetic.
p. 25Quality of consultation required
I do not agree with the Industrial Court that LIFO is the sole mandatory criteria to be applied in redundancies. It is evident that section 40 (1)(c) requires the employers to apply all the selection criteria specified, with due regard to seniority in time, skill, ability and reliability of each employee.
p. 41Selection criteria under section 40(1)(c)
in a nutshell, I find that the appellant employed an opaque criteria in the selection of the retrenched employees that did not meet the statutory threshold.
p. 26Failure of proof on selection criteria
The EA has enacted the common law principle that the remedy of reinstatement should not be given except in "very exceptional circumstances".
p. 14Limits on reinstatement
The provisions of Article 10 are therefore not applicable to the issue of redundancy in this appeal.
p. 19Article 10 and private commercial decisions
(1) As regards the appellant's justification to declare the 447 employees redundant and their reinstatement with back pay the Court being unanimous, this appeal is allowed and the order of reinstatement together with back pay is hereby set aside.
p. 14Final orders - unanimous setting aside of reinstatement
(2) The appeal against the trial judge's finding of procedural unfairness relating to selection criteria is by majority and is hereby dismissed and each of the 447 employees whose services were unprocedurally terminated is awarded damages equivalent to six months gross salary in addition to three months' salary in lieu of notice, severance pay of 20 days for every completed year of service and other unpaid dues all which the appellant has agreed to pay.
p. 14Final orders - majority finding on selection criteria and damages
(4) As both parties have partly succeeded in this appeal, there shall be no order of costs of this appeal and the court below.
p. 15Final orders - costs

Issues in the judgment

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minor

Internal date inconsistency: the lead judgment at one point states the rationalization programme was implemented in 2014, whereas all other passages place the implementation on 3rd and 4th September 2012.

material

The case number of this appeal is nowhere stated in the judgment text; only Industrial Court Cause Nos. 1360 and 1616 of 2012 and Civil Application No. Nai 310 of 2012 appear, so the Court of Appeal appeal number must be verified against the record.

minor

The judgment text is corrupted by transcription/OCR errors (e.g. 'stafi' for 'staff', 'afiected' for 'affected', 'difierently' for 'differently'), which may affect verbatim quoting reliability.

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (19)

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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, "Kenya Airways Ltd v Aviation & Allied Workers Union Kenya & 3 others (Civil Appeal 46 of 2013) [2014] KECA 404 (KLR)", Case Analysis (2014). Not stated in judgment (arising from Industrial Court Cause No. 1616 of 2012; interim Civil Application No. Nai 310 of 2012). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2014/404/eng@2014-07-11

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