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ELRCOtherNot stated in judgment· [2025] KEELRC 2356 (KLR)

Kinyeki & 88 others v Kenya Ports Authority & another (Cause 40 of 2015) [2025] KEELRC 2356 (KLR)

Employment and Labour Relations Court
8 August 2025
MMM. Mbarũ
1,575 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 confirmed that unfair termination compensation under section 49 is taxable—PAYE applies based on the employee's last gross wage.

What this practically means

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Executive summary

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This ruling by the Employment and Labour Relations Court at Mombasa (M. Mbarũ, J) resolves three issues arising from the court's judgment of 31 October 2024, which awarded each claimant damages of three months' salary and costs at 50%. The parties could not agree on whether the compensation is subject to PAYE, whether interest is subject to income tax, and whether interest attracts 5% withholding tax. The claimants argued that the January 2012 salary had already suffered PAYE and that a fresh deduction would amount to double taxation, and that compensation for unfair termination is restorative rather than income. The respondent relied on the Income Tax Act, contending that the employer must deduct and remit PAYE under sections 5 and 37, citing authority that decrees founded on employment benefits are taxable. The court held that compensation awarded under section 49 of the Employment Act is expressly subject to statutory deductions under section 49(2), including PAYE, and that the award accrues as of the date of judgment, so the applicable rate is the last gross wage earned by the employee. On interest, the court found that the compensation award was made without interest and costs were awarded without interest, rendering the contestation over interest rates and withholding tax academic. The court directed the parties to tabulate the three months' compensation subject to statutory deductions based on the last wage earned, with costs at 50% to be assessed by the taxing master.

Key legal issues

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01

Whether the 3 months' compensation is subject to PAYE

Holding

Yes. The compensation awarded under section 49 is subject to statutory deductions including PAYE, computed on the last gross monthly wage earned.

Reasoning

Section 49(2) of the Employment Act expressly subjects payments under that section to statutory deductions. The court distinguished the January 2012 wage (already subjected to PAYE) from the award, which accrues only on the date of judgment and had not been previously paid, so a fresh PAYE deduction is not double taxation.

p. 5
02

Whether interest on the award attracts income tax or withholding tax

Holding

The contestation does not arise because the award of compensation was made without interest; costs were awarded at 50% without interest.

Reasoning

Under section 12(4) of the Employment and Labour Relations Court Act and Rule 70 of the Procedure Rules, awards of costs and interest are discretionary and must be specified in the court's orders. Since the judgment of 31 October 2024 made no order for interest on the compensation, questions of income tax or 5% withholding tax on interest are moot.

p. 6
03

What rate applies in computing the compensation for statutory deductions

Holding

The last gross wage paid to the claimant applies, whether the employee is still in service, retired or has exited.

Reasoning

Section 49(1)(c) ties the compensation to the gross monthly wage or salary of the employee at the time of dismissal. The court held that the sequence upon judgment is for the employer to apply the last gross monthly wage and then subject it to statutory deductions.

p. 6

Legal principles established

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  • Payments made by an employer under section 49 of the Employment Act are subject to statutory deductions including PAYE.
  • The rate for computing compensation under section 49(1)(c) is the employee's last gross monthly wage at the time of dismissal.

Court orders

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  1. 1.Parties to proceed with the tabulation of the 3 months compensation awarded based on section 49(1) and (2) of the Employment Act
  2. 2.The awards shall be subject to statutory deductions based on the last wage earned
  3. 3.The costs due shall be at 50% and shall be assessed by the taxing master
Jurisdiction invoked
Employment Act, section 49; Employment and Labour Relations Court Act, section 12; E&LRC (Procedure) Rules, Rule 70

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, "Kinyeki & 88 others v Kenya Ports Authority & another (Cause 40 of 2015) [2025] KEELRC 2356 (KLR)", Case Analysis (2025). Not stated in judgment. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2025/2356/eng@2025-08-08

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