EMPLOYMENT LAW: 2018 IN REVIEW

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Introduction2018 was a year characterised by numerous changes in the laws affecting the employment landscape. Top among these changes was the introduction of the National Housing Development Fund and the tabling of the Data Protection Bill in Parliament, which has far reaching implications on the right of privacy for employees.

We set out a summary of these changes below, including a summary of notable case law from the employment courts.

The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter


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Legislative changes

National Housing Development Fund (NHDF)The Finance Act, 2018 introduced the requirement for all employers in Kenya to pay to the National Housing Development Fund 1.5% of each employee’s monthly basic salary with an equivalent contribution being made by employers, subject to a maximum monthly contribution of KES 5,000. This requirement came into force on 1 July 2018. The NHDF is administered by the National Housing Corporation (the NHC) established under the provisions of the Housing Act.

As is the case with the National Social Security Fund (NSSF) contributions, every employer is required to register itself and its employees. An employee is also required to register with the NHDF as a contributing employee. It is noteworthy that unlike the NSSF Act, the National Housing Fund Regulations, 2018 are silent on whether foreign citizens should also be registered as contributing employees or whether they are exempt persons as the Regulations provide that only Kenyan citizens can apply for affordable housing loans. Such an exemption would avoid requiring foreign citizens to contribute to a scheme they cannot benefit from.

There have been a number of criticisms of the NHDF scheme, including that:

a. It is not mandatory for self-employed persons to register with the NHDF. However, they may register with the NHDF as voluntary members. This would mean therefore that employees of such persons would be contributing to the fund but derive no benefit.

b. It appears that employees who earn KES 50,000 and above would not qualify to purchase a low cost house under the NHDF, even though they would be contributories to the scheme.

c. Individuals earning more than KES 100,000 would not qualify for a mortgage under the NHDF.

d. Any person registered under the scheme may obtain a loan at 7% interest rate from the NHDF but this seems to be only available to Kenyan citizens, thereby excluding foreign citizens who have not been expressly excluded from making contributions to the scheme.

e. The imposition of the obligation for employees to make contributions fails to take into account employees who have already acquired homes or those who are already servicing mortgages for houses acquired privately.

f. For employers, there is an obvious increase in the wage bill coming at a time when many businesses have reportedly experienced a slowdown in growth. This new obligation will place added pressure on many small and medium enterprises operating under tough economic circumstances.

Failure to register under the NHDF and to make a contribution both attract a penalty of imprisonment for a term of 2 years and/or a fine not exceeding KES 10,000.

Lady Justice Wasilwa, pending the hearing and determination of ELRC Petition No. 138 of 2018 in which the Central Organisation for Trade Unions challenged the implementation of the NHDF, suspended its implementation on 19 December 2018. This is definitely something to watch out for in 2019.


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Data Protection Bill, 2018

1 Section 4(d), Data Protection Bill

The purpose of the Data Protection Bill 2018 is to promote the protection of personal data, and to regulate the manner in which personal data may be processed. The aim of the Bill is to provide consumers with rights and remedies to protect their personal data, while regulating the flow of personal information across the country’s borders.

The Bill appears to borrow from the United Kingdom’s Data Protection Act, which was passed in 2018 and aims to protect consumers, while laying down strict regulations to control data.

The Bill defines ‘personal data’ to include information relating to the education, medical, criminal or employment history of the person, or information relating to financial transactions in which the person has been involved.

Where information is held by a third party, such as an employer, it can only be shared with the employee’s consent. Therefore, the employee should be informed of the purpose for which the information will be used, and the intended recipients of that information at the time of collection1.

The Bill provides that an agency may process personal information relating to a data subject’s trade union membership where the agency is a trade union to which the data subject belongs, and the processing is necessary for the aims of the trade union. Insurance companies, medical institutions and/or social service institutions, are all entitled to information about the data subject. The section also includes a public or private body acting under a lawful duty to manage the welfare of a data subject, which would include employers. This means that there is a significant amount of data available regarding the data subject that is gathered and shared between institutions. However, all of this must be done with the data subject’s consent.

This information would be valuable to employers, especially in the course of the recruitment process when carrying out background on potential recruits.

It is important to note that the Bill provides that an agency (which includes any organisation that gathers and holds information) shall not transfer information outside the Republic of Kenya unless the below requirements are fulfilled:

1. The third party is subject to a law or agreement that requires the putting in place of adequate measures for the protection of personal data;

2. The data subject consents to the transfer;

3. The transfer is necessary for the performance or conclusion of a contract between the agency and the third party; and

4. The transfer is for the benefit of the data subject.

Multi-national corporations would need to take this into account should the Bill be signed into law.


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The Bill holds employers responsible in relation to the gathering and receiving of personal information about their employees. The protections put into place assist both parties, as the aim is to use information for the benefit of the employee, as long as it is acquired responsibly and with the employee’s consent. The Bill also provides for the protection of personal information and remedies that either party can use if their personal information has been used to their detriment. The Kenya National Commission on Human Rights will be the responsible institution for oversight and implementation, including investigating abuses. The Bill is currently awaiting its Third Reading, after which it is expected to receive Presidential Assent and become an Act of Kenya.

Notable case law

Barclays Bank Of Kenya Ltd & 1 other v Gladys Muthoni & 20 others [2018] eKLRBarclays Africa Group Limited (BAGL) is a South African registered company which holds shares in Barclays Bank of Kenya (BBK), a listed company in the Kenya stock exchange. BAGL holds shares in subsidiaries across Africa but it had its regional office in Kenya. For its staff and other technical assistance, BAGL relied on the employees of BBK who were seconded to work there and the contracts of service for all hired employees were signed with BBK which paid their salaries.

BAGL in 2016 decided to relocate its head office functions to South Africa from where it would control and manage its African subsidiaries. As a result, twenty one employees (the respondents) were rendered redundant. BAGL’s staff were informed about the relocation decision at a meeting, after which BBK issued individual letters to each employee informing them that the last day of their employment would be 31 March 2016. The letters offered them several exit terms. However, despite multiple meetings with the employees, BAGL and BBK did not reach a consensus on severance plans, and in March 2016, before their contracts were due to end, these twenty one employees filed a petition against both BBK and BAGL for unfair termination.

The prayers made in the petition included the following remedies:

1. A declaration that the intended restructuring of BAGL’s business was unconstitutional, null and void, as closing down regional offices without consultation and proper information was detrimental to the employees who stood to be affected by the significant change. It was argued that therefore the restructuring was in disregard of BAGL’s constitutional, statutory and contractual obligations;

2. A declaration that the employees are entitled to the best comparable redundancy package in line with the industry standard in the banking sector and in BAGL, including three months’ pay in lieu of notice; three months’ service pay for every year worked; outstanding leave balance payment, staff loans to continue at staff rates until payment in full, with the option of 25% discount for early repayment, motor vehicle assets availed to the staff; and a further twelve months compensation for unfair dismissal.


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3. A declaration that the employees be entitled to general and aggravated damages for discrimination and breach of human dignity and the right to fair administrative action.

BAGL and BBK opposed the petition asserting that they had followed the law in terminating the employees’ employment on account of redundancy due to operational reasons after giving notice to each one of them; notifying the relevant Minister; offering a redundancy package that exceeded the legal minimum; and offering first priority to each employee for redeployment to other positions in BBK. They emphasised that the petition was filed in bad faith and abused the court process. They also objected to the joinder of BAGL in the petition when it was neither the employer of the respondents nor subject to the jurisdiction of Kenyan courts as it was no longer resident in Kenya.

They filed a cross petition arguing that:

a. The two companies had a constitutional right to determine the size, scope and direction of their business within the bounds of the law;

b. BAGL and BBK were entitled to declare redundancy when their business ceased or diminished;

c. They had no obligation to consult with their employees;

d. The respondents refusal to accept reasonable exit terms offered had caused additional costs in salaries from the anticipated termination date of 31 March 2016;

e. Five of the respondents who had been redeployed to other positions of employment in BBK but rejected them were not entitled to make any claim;

f. The respondents refund, with interest, to BBK the salaries paid to them for the period of their employment extended past 31 March 2016.

The companies sought dismissal of the petition and prayed for orders that the redundancy notice issued on 14 January 2016 be reinstated, as well as a declaration that the five respondents who were offered redeployment were not entitled to redundancy pay.

The Employment and Labour Relations Court (the ELRC) held the following:

i. BBK and BAGL were correct to be enjoined together in the action;

ii. The notices BAGL issued to the employees were unprocedural;

iii. Due process had not been followed in accordance with the law; and

iv. BBK and BAGL’s practices had been discriminatory on the basis of nationality as there was evidence that the respondents were working with other employees of different nationalities.

The Court of Appeal (CoA) took into account the ELRC’S findings when reaching their own verdict, which included the view that there ought to have been two notices from the employer: a specific notice alerting the respondents about the impending redundancy and the reasons thereof, and a notice terminating their services2. As there was no redundancy notice issued or served on the employees, with

2 This was also outlined in Caroline Wanjiru Luzze vs Nestle Equatorial African Regional Limited, which held that the employer is supposed to give

two distinct written notices on account of redundancy.


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only a ‘termination letter’ being received, the ELRC found that the termination of the employees had been unprocedural.

The ELRC stated that any termination of employment must be based on genuine, valid and fair reasons, in the absence of which the termination will be deemed unfair. Specifically, where an employer relies on the provisions of section 403 so as to terminate employment without justifying the redundancy, it amounts to unfair termination of employment.

The CoA reflected on the following matters in arriving at their judgment:

1. Importance of consultation4: Maraga, JA emphasised that consultation is an imperative requirement under our law and must be real, not cosmetic. This is because the consultations are meant for the parties to discuss and negotiate a way out of the intended redundancy, if possible, or the best way of implementing it if unavoidable.

2. Finding of discrimination: the CoA found that there was no firm basis for the ELRC’s finding that the respondents were discriminated against. It therefore set aside the finding on discrimination and related damages. The CoA also set aside the award for aggravated damages. It upheld all other awards made by the lower court.

In conclusion, this decision confirms that following the relevant procedures set out in the law is imperative in order for employers to protect themselves from having to pay large damage awards.

3 Employment Act4 Article 13 of Recommendation No. 166 of the ILO Convention No. 158 - Termination of Employment Convention, 1982.

Jacqueline Arkle v Five Forty Aviation Limited [2018]In this matter, Jacqueline Arkle (the Claimant) sues her former employer. Five Forty Aviation Limited (the Respondent), on the basis that she was unfairly terminated as Country Manager for Uganda.

Issues for determination by the Court1. Whether the Claimant’s termination was lawful and fair;

2. Whether the Claimant had made a case for defamation;

3. Whether the Claimant was entitled to the remedies sought; and

4. Whether the Respondent had made a proper counterclaim against the Claimant.

Claimant’s CaseThe Claimant made the following submissions:

1. The Respondent’s decline in regional sales after the Claimant’s transfer to Uganda were due to poor maintenance of aircrafts, poor customer care and a number of other factors that were beyond her control. Her contractual duties did not include the strategic and overall management of the airline.

2. She was never issued with a performance benchmark, and the accusation that she had advanced unauthorised credit on airline tickets had been fully settled.


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3. She was not given any opportunity to explain herself after her employment was terminated on 2 September 2011.

4. The Respondent was malicious and unfair in effecting her termination, evidenced by the fact that the Respondent placed a public advertisement in leading daily newspapers in Kenya and Uganda for a period of one month.

5. Her profile and picture had also been posted on a website which ordinarily publishes pictures of criminals and fraudulent employees.

6. The Respondent’s actions tarnished her professional reputation and caused her severe distress and the Respondent failed to pay her relocation allowance back to Kenya.

The Claimant claimed:

1. Damages for unlawful termination (USD 45,600);

2. Relocation costs (KES 263,000)

3. Refund of tickets to Kamanga and Uganda Rugby Union (USD 5,135)

4. General damages for defamation

5. Exemplary damages

6. Certificate of service

7. Costs plus interests

Respondent’s CaseThe Respondent made the following submissions and arguments:

1. There was no reasonable cause of action as the Claimant voluntarily signed for her terminal dues in full and final settlement discharging the Respondent from any liability, and she was lawfully and fairly terminated on grounds of poor performance.

2. The Claimant also intentionally and dishonestly concealed, altered and/or forged her letter of termination with the sole purpose of misleading the Court.

3. The Claimant was responsible for the poor performance of the Uganda branch office which was discovered when the Respondent sent an internal auditor to audit the affairs of the Uganda office. The audit report prepared by the internal auditor revealed an unacceptable state of affairs of the Respondent’s Uganda business. The Claimant was then invited for a meeting at the Respondent’s Head Office in Nairobi to discuss the audit report.

4. An email had been sent to the Claimant on 26 June 2011 where she was advised that if the sales did not improve then her contract would be terminated. The Respondent further added that in the meeting held to discuss the audit report the Claimant was accorded a fair hearing where she actively participated in deliberations about her poor performance. After seeing no change in the status of the Uganda Branch, the Claimant’s services were terminated.


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5. The Respondent defended their public advertisement on the Claimant’s termination, as protecting their customers and the general public by informing them that the Claimant was no longer working for the Respondent.

6. The Respondent counterclaimed the following:

a. USD 6,492 erroneously paid as severance pay to the Claimant

b. KES 4,336,000 for unauthorised advances taken by the Claimant

c. Costs and interest.

Whether the Claimant’s termination was lawful and fair The Claimant’s termination letter accused the Claimant of poor performance and misconduct arising from the credit sales and handling of cash belonging to the Respondent. The Court held that in as much as they are both lawful grounds for termination of employment, they must be established prior to termination, and the employee must be given a reasonable timeframe to improve, i.e. two to three months5. The Court did not find any assignment of fault that could lead to the Claimant’s termination on account of the audit report.

Disciplinary hearing

The Court held that the disciplinary panel, which was made up of the Respondent’s external counsel and head of security, wasn’t impartial and therefore the Claimant was not granted an objective hearing.

The Claimant was not given an agenda or the charges against her prior to the meeting. Therefore she could not prepare for the disciplinary meeting. This failure to inform her of the charges against her also meant that the Claimant could not know whether to be accompanied and by whom.

The correct procedure would have been for the Respondent to document all the issues of performance and/or conduct and serve them on the Claimant for her response before the disciplinary hearing to enable the Claimant to prepare for her response at the meeting. Additionally, the Claimant should have been granted time to prepare for her defence.

The Court held that the Respondent failed to adhere to the mandatory procedural fairness requirements set out under section 41 of the Employment Act. As a result the Claimant’s termination was substantively and procedurally unfair and she was entitled to compensation.

Discharge

The Court held that the fact that the Claimant voluntarily signed for her terminal dues in a full and final settlement does not absolve an employer from its obligations to an employee.

5 Kenya Science Research International Technical and Allied Workers Union (KSRITAWU) v Stanley Kinyanjui and Magnate Ventures Limited

(Cause No 273 of 2010)


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Surcharge

As the Respondent deducted USD 5,135 from the Claimant’s dues in relation to air tickets issued on credit to Uganda Rugby Union and Kamanga Mwangi, the Court held that the Respondent’s actions amounted to a disciplinary action in the nature of surcharge without regard to due process.

Whether the Claimant had made a case for defamation With regard to the public announcement in the newspapers the Court held that the purpose of the advertisement was to guard the employer against liability arising from the actions of a former employee. As such, a single run of the advertisement would have been sufficient in such a case. However, where the public advertisement is repeated then the Court must inquire into the employer’s intention. The Respondent did not explain why they felt it was necessary to run the advertisement more than once and this together with the website advertisement that included information on criminals was malicious. The Court held that the Claimant had proved a case of defamation and was entitled to general damages.

Whether the Respondent had made a proper counterclaim against the Claimant In the termination letter issued to the Claimant, the Respondent undertook to pay what it referred to as ‘years of service’. In Court the Respondent argued that because the Claimant was a contributing member of the National Social Security Fund (NSSF) then she ought not to have been paid service pay. In response to this the Court held that:

1. The Employment Act only sets the minimum conditions of service and nothing stops an employer from offering superior terms to its employees, including service pay even where the employees are members of NSSF.

2. The Respondent did not provide either the Claimant’s appointment letter to the position of Country Manager or its Human Resource Policies to show that the Claimant was not entitled to ‘years of service’.

3. The counterclaim refers to severance pay and not service pay.

Final OrdersThe Respondent’s counterclaim was dismissed and judgment in favour of the Claimant entered in the following terms:

1. USD 38,000 being 10 months’ salary in compensation for unlawful and unfair termination of employment. In arriving at this award the court took into account the Claimant’s length of service together with the Respondent’s ‘callous conduct’ in effecting the termination.

2. KES 5 million (approximately USD 50,000) as damages for defamation. In making this award the Court considered the effect of the publication which in the Court’s view had effectively destroyed the Claimant’s career in the highly sensitive and regulated aviation industry.

3. USD 5,235 being unlawful surcharge on account of air tickets for Kamanga Mwangi and the Uganda Rugby Union.


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The court also directed the Respondent to issue the Claimant with a certificate of service and to pay the costs of the case.

Kenyan courts usually lean in favour of the employee and judge harshly when proper protocol and procedure, as set out in the law, is not adhered to. Employers therefore need to ensure that their internal policies reflect the legislative requirements, in order to best protect themselves.

The TeamShould you have any questions regarding the information in this legal alert or any other employment matters, please do not hesitate to contact Sonal Sejpal ([email protected]) or Rosa Nduati-Mutero ([email protected]).

Sonal SejpalPartner

E: [email protected]

Rosa Nduati-MuterooPartner


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