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Court of AppealPartially AllowedCivil Appeal No 190 of 2013

Pathfinder International Kenya Limited v Stephen Ndegwa Mwangi [2019] KECA 759 (KLR)

Court of Appeal
10 May 2019
EGE. M. GithinjiFSF. SichaleJOJ. Odek
2,285 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Court of Appeal confirmed employers owe no gratuity or severance pay unless it is written into a contract, CBA, or statute.

What this practically means

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Executive summary

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The appellant employed the respondent as a communication officer on a two-year fixed contract that expired without termination. The respondent claimed gratuity and severance pay of two months' salary each, resting not on any express contractual provision but on an alleged implied term, 'best practices' of USAID-funded programmes, and a draft severance pay policy document. The Industrial Court (Mukunya, J.) entered judgment for Kshs 621,000, reasoning that producing the policy document to employees bound the employer, and that Article 41 fair labour practices required the employer to justify allegedly discriminatory payment of severance to some employees. The Court of Appeal allowed the appeal. Restating its established jurisprudence, the Court held that gratuity is a gratuitous payment payable only where provided in the contract of service, a collective bargaining agreement or a statute, and that severance pay under the Employment Act is payable only on termination by redundancy under Section 40(g). The respondent's contract contained no gratuity provision. The draft policy document was not in operation during the respondent's employment and could not found a claim. Further, the respondent, who pleaded differential treatment, bore the burden of proving that other employees were actually paid gratuity or severance to his exclusion, and produced no evidence identifying them. The Court reversed the findings on eligibility for gratuity and severance pay, set aside the Industrial Court's judgment and decree, dismissed the respondent's claim, and awarded costs of both courts to the appellant.

Questions the Court framed

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

  1. 1.Whether gratuity is payable where it is not provided for in the contract of employment, a collective bargaining agreement or a statute
  2. 2.Whether an implied term or 'established practice' based on a draft document could found a claim for severance pay
  3. 3.Whether the trial court properly interfered on the basis of alleged discriminatory payment of severance pay

Key legal issues

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01

Basis of gratuity entitlement

Holding

Gratuity is a gratuitous payment payable only if provided in the contract, a CBA or a statute; no implied term arose here

Reasoning

The court adopted its prior reasoning in H. Young and Bamburi Cement, holding that gratuity denotes a gratis payment in appreciation of service and that the Employment Act 2007 does not make it mandatory. The respondent's contract made no mention of gratuity, so the claim resting on an implied term or 'best practices' had no contractual or statutory foundation.

p. 3
02

Reliance on a draft policy document

Holding

A draft document not yet in operation cannot found a claim for severance or gratuity pay

Reasoning

The trial court relied on a 'DRAFT DOCUMENT' titled Pathfinder International Severance Pay Accounting Policies and Guidelines despite uncontroverted testimony that the document was a draft and not operational, and that the Staff Handbook gratuity provision came into force only in November 2011, after the respondent left. The appellate court held the trial judge failed to apply his mind to this evidence and reversed the findings on eligibility.

p. 3
03

Burden of proof on alleged discriminatory payment

Holding

An employee pleading differential treatment under Article 41 must lead evidence of other employees paid severance pay to his exclusion

Reasoning

Although the respondent pleaded that some former colleagues were paid severance pay, bringing his claim within Article 41 of the Constitution, he tendered no evidence identifying those persons or producing pay slips. The claim was couched in generalities, so the trial court erred in requiring the employer to justify alleged discriminatory payment without a proved factual foundation.

p. 3
04

First appellate court's mandate on facts

Holding

A first appellate court re-evaluates the evidence and arrives at its own conclusions but will not lightly disturb trial court findings of fact

Reasoning

The court stated its mandate under Rule 29(1)(a) of the Court of Appeal Rules, 2010, to appraise and re-evaluate the evidence as a whole, interfering only where findings are based on no evidence or wrong principles, citing Ephantus Mwangi v Duncan Mwangi Wambugu. Having found the trial court acted on a draft document and no evidence of practice, it interfered.

p. 2

Legal principles established

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  • Gratuity is payable only where provided for in the contract of employment, a collective bargaining agreement or a statute; the Employment Act does not make it mandatory
  • Severance pay is payable only under Section 40(g) of the Employment Act on termination by redundancy
  • An employee alleging an established practice of paying gratuity or severance pay must specifically prove that other employees were so paid and that he was accorded differential treatment

Court orders

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  1. 1.The judgment and decree of the Industrial Court is set aside and the respondent's case thereat is dismissed
  2. 2.Costs of this appeal and the court below awarded to the appellant

The bench

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

EG
majority
FS
majority
JO
majority
On appeal from
Industrial Court of Kenya at Nairobi
Industrial Cause No 1023 of 2010
Jurisdiction invoked
First appeal under Rule 29(1)(a) of the Court of Appeal Rules, 2010

Relief refused

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Respondent's claim for gratuity and severance pay of Kshs 621,600

No contractual, CBA or statutory basis; claim rested on an implied term and a draft document not in operation

p. 4

Costs

Costs of this appeal and the court below is awarded to the appellant.

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.

for an employee to claim gratuity, it must be provided in the contract of employment or provided for in a Collective Bargaining Agreement or a statute
p. 3Entitlement to gratuity
Severance pay on the other hand, is only payable under Section 40(g) of the Employment Act where an employee is terminated on account of redundancy
p. 3Severance pay and redundancy
Accordingly, it could not form the basis for making a claim for gratuity or severance pay
p. 3Effect of a draft policy document
Consequently, the judgment and decree of the Industrial Court is hereby set aside and the respondent’s case thereat is dismissed
p. 4Final orders
Costs of this appeal and the court below is awarded to the appellant
p. 4Costs

Issues in the judgment

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minor

The trial court's order awards shs.621,000/- while the claim pleaded totals 621,600/00 - a discrepancy in the quantum as reproduced in the judgment

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (6)

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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, "Pathfinder International Kenya Limited v Stephen Ndegwa Mwangi [2019] KECA 759 (KLR)", Case Analysis (2019). Civil Appeal No 190 of 2013. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2019/759/eng@2019-05-10

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