Kaharu v Ark Limited (Appeal E005 of 2021) [2025] KEELRC 441 (KLR)
The bottom line
#A Kenyan employment court dismissed a worker's bid to inflate his award, ruling service charge isn't salary and gratuity is taxable.
What this practically means
#Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether service charge should form part of the Appellant's salary for purposes of assessing the decreed sum herein
- 2.Whether the gratuity should be subjected to PAYE tax
- 3.Whether costs of the application should be awarded
Key legal issues
#Whether service charge forms part of salary for assessing the decreed sum
Service charge is excluded; it is not a fixed monthly pay but dependent on actual performance of service, and the applicant never pleaded or proved it as part of his salary
The court adopted Black's Law Dictionary's definition of service charge, noting it varies with actual services rendered. The claim and witness statement contained no figures; the salary of Kshs.54,181.77 was raised for the first time in submissions on appeal. Applying the Leakey principle, allowances dependent on actual service are excluded from gross salary when computing employment damages. The salary for assessing the decree is therefore exclusive of the Kshs.31,058.77 service charge.
Whether gratuity should be exempt from PAYE
No; the direction that gratuity be paid subject to statutory deductions stands, as section 5(2) of the Income Tax Act captures gratuity and the applicant never challenged the judgment on appeal
The respondent, relying on section 5(2) of the Income Tax Act, deposed that gratuity is taxable as gains or profits from employment. The applicant cited no provision exempting the gratuity and had not appealed or otherwise challenged the judgment which expressly made the award subject to statutory deductions. The court therefore held that the said direction remains binding.
Costs of the application
Costs awarded to the respondent because the applicant dragged it back to court without justification
Having failed on both substantive issues, the applicant was held to have brought the motion without justification. The court exercised its discretion on costs against him, condemning him to pay the respondent's costs of the application.
Legal principles established
#- Employment dues are in the nature of special damages and must be specifically pleaded and strictly proved
- Allowances dependent on actual performance of the contract of employment are excluded when calculating damages due to an employee upon unfair or wrongful termination
Court orders
#- 1.The Notice of Motion dated 11th October 2024 is dismissed for lack of merits
- 2.The applicant is condemned to pay the respondent's costs of the application
The bench
#One judgment of the whole court — no separate or dissenting opinions.
Wrote the judgment
- Jurisdiction invoked
- Employment and Labour Relations Court jurisdiction; motion brought under Order 50 Rule 1 of the Civil Procedure Rules seeking execution/assessment of a decree from the Court's judgment of 30th January 2024
Relief refused
#Recalculation of the 11 months' suspension salary at Kshs.54,181.77 per month (inclusive of service charge)
The claim was not pleaded or proved; employment dues are special damages which must be specifically pleaded and strictly proved, and service charge is dependent on actual performance and not part of gross salary
Payment of gratuity without subjecting it to PAYE tax
The applicant did not demonstrate that gratuity is tax-free under the Income Tax Act and did not appeal or challenge the judgment directing payment subject to statutory deductions
Costs
The applicant is condemned to pay the respondent's costs of the application
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
It is trite law that employment dues are in the nature of special damages and as such they ought to be specifically pleaded and strictly proved.
When calculating damages due to an employee in the event of unfair or wrongful termination, it is only the emoluments or gross salary of the employee that should be taken into account not allowances and privileges dependent on actual service and performance of the contract.
Gross salary would then be the amount calculated by adding up one's basic salary and allowances, before deduction of taxes and other deductions. Each case must be examined to identify the nature of the allowances given and whether they form part of the gross salary.
the application fails and it is dismissed for lack of merits. Since the applicant has dragged the respondent back to Court without any justification, he is condemned to pay it costs of the application.
Issues in the judgment
#The judgment refers to gratuity under 'clause 27(b) of the CBA' in the recital of the 30th January 2024 judgment but to 'clause 29(b) of the CBA' in the analysis
The service charge figure is inconsistently stated as Kshs.31,058.51 in the deposition and Kshs.31,058.77 in the court's findings
The case number of the suit and the motion are not stated in the judgment
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Kaharu v Ark Limited (Appeal E005 of 2021) [2025] KEELRC 441 (KLR)", Case Analysis (2025). Not stated in the judgment (ruling on Notice of Motion dated 11th October 2024). Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2025/441/eng@2025-02-20
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.