SRC blocked from setting parastatal workers’ salaries

The Salaries and Remuneration Commission (SRC) has suffered a major operational setback after the High Court found that it has no powers to determine the salaries and benefits of parastatal workers, leaving the functions in the hands of labour unions and the State-owned corporations.

Industrial Court judge Nelson Abuodha found that the constitutional provision defining the SRC’s mandate does not include State corporations whose workers are paid from self-generated funds.

In a judgment delivered in favour of staff of Chemelil, Muhoroni, and South Nyanza (Sony) sugar millers, Justice Abuodha ruled that the SRC cannot meddle in the collective bargaining agreements (CBAs) that employees of State corporations have signed with their employers.

The sugar millers had gone to court for a review of a directive that a CBA they signed with the Kenya Union of Sugar Plantations and Allied Workers (KUSPAW) in September, 2013 be made to comply with the SRC guidelines issued on October 13 of the same year.

Justice Abuodha found that the SRC’s mandate does not extend to parastatals, terming the commission’s intervention as amounting to “meddling with the CBA that was agreeable to the applicants and the labour unions and had been duly registered with the court”.

The judgment is based on the constitutional provision that defines public officers as those whose salaries are paid directly from the consolidated fund or from money that is provided by Parliament in exercise of its budgetary role.

The judge argued that this exclusion is based on the fact that parastatals are not established under the Constitution.

READ: Sugar firms workers cry foul after SRC halts pay raise deal

In addition, their workers are not public officers in that sense and neither are they paid directly from the Consolidated Fund or from money provided by Parliament.

“Whereas the state of law may currently appear cloudy on the scope and breadth of SRC’s jurisdiction, this absence of clarity until addressed by Parliament cannot be construed to admit SRC’s jurisdiction over commercial State corporations, especially when the Constitution as currently crafted provides that the mandate of SRC extends only to cover State officers and public officers whose remuneration is payable directly from the consolidated fund or directly out of money provided by Parliament,” the judge said.

The decision temporarily settles the raging debate over the extent of the commission’s powers to determine the remuneration of people working for agencies that finance their operations through own generated funds.

Justice Abuodha found that commercial State corporations such as the applicants (Chemelil, Muhoroni and Sony) in which the government is [a] mere investor lie beyond the mandate of the SRC.

The SRC’s powers over the commercial entities owned by the State have been the subject of a long-drawn debate in which Attorney-General Githu Muigai has offered a legal opinion that is in line with the latest judgment. 

“From the definition of the terms public service and State organ, a person who is an employee of a State corporation or a member of the board or council of a State corporation cannot be considered to be employed in the public service because a State corporation is not a State organ by virtue of not having been established under the Constitution,” the AG said.

Supporters of the SRC’s involvement in determining the compensation of parastatal employees argue that the agencies often benefit from public funding offered in the form of seed capital, grants and bailouts by the Treasury when they default on loans guaranteed by the State.

The SRC has itself maintained that its mandate extends to the State corporations that are majority-owned by the government and are funded in various forms, including grants.

The Constitution says the SRC has powers to set and regularly review the remuneration and benefits of all State officers. The SRC is also mandated to advise the national and county governments on the remuneration and benefits of all other public officers.

The Constitution goes on to define public officers as those serving in the national and county governments or whose pay comes directly from the Consolidated Fund or from appropriations approved by Parliament.

The latter part of the constitutional definition has been used to include non-salary government funding of the parastatals. Justice Abuodha has suggested that new legislation defining what exactly entails funding be enacted.

The judge noted that while initial funding for purposes of setting up the State corporations comes from the Treasury, this does not necessarily mean that their payroll costs are continuously drawn from such resources.

The State-owned corporations fall in several categories, including commercial, research, health and education institutions as well as regulatory agencies.

A large number of parastatals, including public universities and hospitals, however, receive regular funding from the national government despite their involvement in commercial activities that partly finance their operations.

Even profit-driven parastatals like KenGen and Kenya Power benefit from government loans and State-backed foreign debt that is approved by Parliament — amounting to implicit claims on the Consolidated Fund out of which external debt is paid.

Few parastatals have maintained long-term fiscal independence from the national government, underlining the difficulty of weaning the firms off public funds and generating confusion over their status.

That, however, did not prevent Justice Abuodha from finding that “it is erroneous for the SRC to assume that it was the intention of the Constitution and indeed Parliament to give it omnibus jurisdiction over anybody or agency where public funds have been invested even where such funds are repayable or not clearly discernible from other income or revenue generated by the operations of the body or agency concerned.” 

The judge found that partially financed parastatals are just subjects of State investments that do not form part of government or civil service workforce, whose compensation terms falls under the SRC.

Justice Abuodha’s decision means that the CBA signed between KUSPAW and the sugar firms remains intact. The agreement took effect on May 1, 2013 and was to run for two years.

Amending it to comply with the SRC’s guidelines would have meant changing its commencement date to July 1, 2013 and the cycle would have been extended to four years.