Why Appeals Court cut ex-KQ staff’s hefty award

When the Employment and Labour Relations Court (ELRC) awarded former finance director of Kenya Airways Alex Mbugua Sh155, 767,000 about two years ago as compensation for unfair termination, employers and labour law experts were in shock.

It was feared that the astronomical award would set an unsustainable precedent that could potentially drive businesses into insolvency.

In an ironic stroke of fate, however, employees were dumb-struck when the Court of Appeal delivered its judgment on June 7 in which it slashed the juicy award to Sh29,206,313.

The brief facts of the case were that Mr Mbugua was asked by his employer to either resign or be fired on grounds of poor performance. He declined to resign and was immediately suspended and summoned to a “performance appraisal” meeting which he understood to be a euphemism for a disciplinary meeting for firing him.

He requested an extension of time and some documents from the employer to enable him to prepare his defence. The employer declined both requests and terminated him, stating that his failure to attend the meeting was an act of insubordination and that he had also been found guilty of poor performance.

This was in spite of the fact that no major performance issues had been raised in his appraisals.

In his claim before the ELRC, Mr Mbugua sought, among other remedies, an order for reinstatement or, in the alternative, damages equivalent to 12 months salary in addition to other contractual dues.

The ELRC, in addition to granting him all the remedies he sought, the court awarded him a further compensation equivalent to three years salary that he had not asked for in his pleadings.

Both courts were in agreement that the termination of Mr Mbugua’s employment was wrong and unfair. Not only were there no valid reasons for the termination but KQ also failed to adhere to its own disciplinary procedures and, instead, adopted what the court described as a “hybrid mongrel process” which was neither a genuine disciplinary hearing nor a performance review.

The two courts, however, differed fundamentally on the amount of compensation.

In a short but well-reasoned judgment, the Court of Appeal affirmed what labour law practitioners have always believed to be the correct legal position concerning the quantum of damages payable for unfair termination.

Despite the Employment Act stating in unequivocal terms that 12 months salary is the maximum amount payable, the ELRC has persistently made rulings which have implied that this is the default amount payable to every employee whose contract has been unfairly terminated.

Such rulings have made negotiations between employers and employees for out-of-court settlements extremely difficult and protracted due to the belligerent attitude usually adopted by employees suffering from this mistaken but widespread belief that no offer below 12 months is good enough.

They end up rejecting very generous offers ranging from 3-8 months salary on the grounds that they would easily be awarded 12 months by ELRC.

Fortunately, the Court of Appeal has now firmly and conclusively debunked this myth. It has clarified that 12 months pay is merely the maximum compensation that can be awarded.

Subject to this limit, it is for the trial judge to exercise his discretion judiciously and determine the fair compensation payable based on the circumstances of the case and in particular the gravity of the violation of the employee’s rights by the employer. Like a maximum fine or imprisonment, the 12 months award is reserved for the most aggravated and abominable violation of rights.

Where a judge finds it appropriate to award the maximum compensation, he is required to give reasons to justify that decision. Since the ELRC did not give any reasons for awarding the maximum amount to Mr Mbugua, it was reduced to nine months salary.

The Court of Appeal has, in a long line of similar cases, remained consistent and not flinched while reducing awards from 12 months’ to an average of three to six months (or even one month where the violation was minor). These should be the guiding parameters for parties negotiating for out-of-court settlements.

The rationale for limiting damages for unfair termination to a reasonable level is based on the principle of freedom of contract.

Either party has the right to terminate the relationship subject only to complying with the laid down procedure. Awarding debilitating damages for minor procedural infractions contradicts this principle.

The overarching reason for Mr Mbugua’s termination was that the KQ Board had lost confidence in him. The Court of Appeal accepted that trust is indeed the bedrock of the employment relationship and once it has been lost, separation is not only justifiable but inevitable.

Therefore, where the employer has valid reasons for termination but falters on the procedure, the damages should be based on what the employee would have been entitled to if the contract had been properly terminated as opposed to if the contract had not been terminated.

The order for reinstatement was easily quashed in line with the well-established principle that in contracts of personal service, the proper remedy is monetary damages rather than reinstatement since courts are not in the business of enforcing a remarriage of unwilling partners.

Developing labour law jurisprudence in Kenya would greatly enhanced if each judge could write own judgment instead of all the three signing a single judgment written by one of them.

Maemais a senior partner at Iseme, Kamau & Maema Advocates. Email: [email protected].