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ELRCPartially AllowedNot stated in the judgment as provided· [2016] KEELRC 817 (KLR)

Kimathi Mithika v Coastal Bottlers Limited [2016] KEELRC 817 (KLR)

Employment and Labour Relations Court
29 July 2016
3,662 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Employment Court ruled that a signed 'full and final' settlement cannot stop an employee from challenging an unfair redundancy, awarding the manager Kshs. 7,010,000.

What this practically means

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Executive summary

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The claimant, employed as General Sales Manager on a two-year fixed term contract from 9 December 2013 at a monthly salary of Kshs. 650,000 plus Kshs. 50,000 house allowance, was terminated by letter dated 4 November 2014. The respondent defended the suit on the basis that the claimant was dismissed for poor performance and that he had been paid his full and final dues. The court framed three issues: estoppel arising from the final settlement, the fairness of the termination, and entitlement to reliefs. On the first issue, following Thomas De La Rue (K) Ltd v David Opondo Omutelema, the court held that a discharge voucher cannot absolve an employer from statutory obligations, and it also rejected the defence reliance on section 45(3) of the Employment Act, having been declared unconstitutional in Samuel G. Momanyi v A.G., with the unratified ILO Convention No. 158 having no force under Article 2(6) of the Constitution. On the second issue, the court examined the termination letter and found the real reason was business decline and restructuring, amounting to redundancy rather than disciplinary poor performance. The respondent admitted no one month's notice was given to the employee or the Labour Officer as mandated by section 40 of the Employment Act; that default alone rendered the termination unfair, wrongful and unlawful. The court awarded the claimant salary for the unexpired 13 months of the contract, computed at Kshs. 9,100,000 less Kshs. 2,090,000 already paid, namely Kshs. 7,010,000, holding that a fixed term employee is entitled only to lost salary and not additionally to notice pay and 12 months' compensation. Claims for lost commission of Kshs. 870,000 and unremitted pension contributions were dismissed for lack of proof. Judgment was entered for the claimant with costs and interest.

Key legal issues

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01

Estoppel arising from a full and final settlement agreement

Holding

The settlement did not bar the suit; the court has jurisdiction to inquire into the fairness of post-termination settlements and statutory obligations cannot be extinguished by such an agreement.

Reasoning

Relying on the Court of Appeal's decision in Thomas De La Rue (K) Ltd v David Opondo Omutelema, the court held that a discharge voucher cannot absolve an employer from statutory obligation. The respondent also conceded jurisdiction in its defence. The court found no evidence that the employer paid any money beyond the employee's entitlements as consideration, and therefore interfered with the settlement, directing that payments made be taken into account under section 49(4)(m) of the Employment Act.

p. 6
02

Section 45(3) Employment Act bar for employees with less than 13 months' service

Holding

Section 45(3) of the Employment Act no longer exists in law, having been declared unconstitutional by the High Court, and the ILO Convention No. 158 relied on against that decision is unratified and not part of Kenyan law.

Reasoning

The court noted the defence submission invoking section 45(3) but found the provision was declared unconstitutional by Lenaola J in Samuel G. Momanyi v A.G. Although counsel argued the Momanyi decision conflicted with ILO Convention No. 158, the court held that the convention had not been ratified by Kenya and therefore does not form part of Kenyan law under Article 2(6) of the Constitution, and declined to depart from the High Court decision.

p. 4
03

Whether the termination was for poor performance (discipline) or redundancy

Holding

Despite the respondent's assertion of poor performance, the letter terminating the claimant showed the real reason was restructuring due to declining business, amounting to redundancy.

Reasoning

The court analysed the termination letter dated 4 November 2014, which cited unprecedented decline in company performance and board-level restructuring to reduce operating costs. The court concluded the claimant lost employment through redundancy, not for disciplinary reasons, notwithstanding the defence's characterization of the dismissal as being for poor performance.

p. 5
04

Procedural fairness of the redundancy under section 40 of the Employment Act

Holding

The termination was unfair, wrongful and unlawful because no one month's notice was given to the employee or the Labour Officer as mandated by section 40 of the Employment Act.

Reasoning

The court set out the mandatory procedure under section 40, which requires at least one month's written notice to the employee (or union) and the Labour Officer before declaring redundancy. Rw1 admitted no such notice was served. On that default alone, the termination was rendered unfair and unlawful, entitling the claimant to compensation as the unexpired portion of the fixed term contract.

p. 6

Legal principles established

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  • A discharge voucher or final settlement agreement cannot absolve an employer from statutory obligations or preclude the court from inquiring into the fairness of a termination.
  • An employer's failure to comply with the mandatory statutory procedure for redundancy under section 40 of the Employment Act renders the termination unfair, wrongful and unlawful.
  • Where a fixed term contract is prematurely terminated, the employee is entitled to the salary he would have earned for the remainder of the term, subject to payments already made, and not additionally to salary in lieu of notice plus 12 months' compensation.

Court orders

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  1. 1.Declaration that the termination of the claimant's employment contract was unfair and unlawful
  2. 2.Judgment for the claimant in the sum of Kshs. 7,010,000 being salary for the unexpired 13 months of the fixed term contract, subject to payments already made
  3. 3.Costs of the suit to the claimant
  4. 4.Interest on the award
Jurisdiction invoked
Section 87 of the Employment Act and section 12 of the Employment and Labour Relations Court Act

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Kimathi Mithika v Coastal Bottlers Limited [2016] KEELRC 817 (KLR)", Case Analysis (2016). Not stated in the judgment as provided. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2016/817/eng@2016-07-29

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