Why Kenya’s employment law requires more changes

The Employment Act provides that poor performance is a valid ground for terminating an employment contract. It does not, however, mention the requirement for a performance improvement plan (PIP). PHOTO | FOTOSEARCH

The draft Employment Act (Amendment) Bill, 2019 published by the Kenya Law Reform Commission in April 2019 will, if passed into law, be a progressive piece of legislation. It should, however, address other issues that have remained vague or unregulated for long yet pose daily challenges to employers and employees alike.

Kenyan employment law makes no provision for retirement age in the private sector. The matter is normally regulated by company policy but where no policy exists, the matter can get fairly complicated. For instance, where the employer wishes to separate with an employee on grounds of age but the employee wishes to hang on, terminating the services of such an employee might be challenged on grounds of unfairness or discrimination.

On the other hand, when an employee who has reached a certain age applies for retirement, is the employer entitled to treat such an application as a resignation?

While the proposed law now requires employers to issue retiring employees with a certificate of retirement, it makes no provision for retirement itself. It should specifically provide that upon the attainment of a certain age an employee will be entitled to retire unless the contract of employment or the employer’s policies provide otherwise. It should also prescribe a minimum retirement package payable to a retiring employee based on the number of years worked.

Such a provision will not only provide certainty on the issue of retirement but will save employers millions of shillings paid annually in damages for unfair termination when they send home employees who are no longer productive due to advanced age.

While at it, the law should provide for the terms applicable to retirement on medical grounds. Currently it is unclear whether employees who have exhausted their sick leave but are still unable to resume work should be retired or allowed to go on an indefinite unpaid leave.

Without a provision to this effect, terminating the services of such an employee would constitute discrimination on grounds of ‘health status’ yet retaining them on the payroll imposes a huge financial obligation on the employer who may have to hire a replacement in the meantime.

The procedure for declaring a redundancy as set out in the Employment Act is far from clear. Indeed there has been conflicting interpretations of Section 40 of the Act by the Employment & Labour Relations Court and the Court of Appeal, owing to the inelegant way in which the provisions are drafted. This is a good opportunity to streamline this section and align it with the settled position articulated by the Court of Appeal in the case of Africa Nazarene University v David Mutevu & 103 others [2017] eKLR to avoid any further ambiguity. The law applicable to fixed term contracts and especially in relation to their renewal remains murky and is the source of no little litigation in Kenya. Since the law is silent, courts have held that these contracts expire automatically on their due date and the employee is not entitled to notice or reasons for termination.

This has, however, not barred employees from suing employers on the basis of the doctrine of legitimate expectation where the contract has in the past been renewed a number of times consecutively. In such cases, the courts have held that unless the employee has been notified otherwise by the employer prior to the expiry date, he is entitled to assume that the contract will be renewed.

In such case, the employer will be liable for unfair termination if he failed to notify the employee within a reasonable time that the contract will not be renewed. Since this doctrine is now part of Kenyan labour law yet its essential elements are unknown to most employers, it should be incorporated into the statute to foster certainty and avoid subjectivity and inconsistency in the determination of cases.

Courts have used different and confusing formulae in the computation of the daily rate for purposes of calculating terminal dues and leave entitlement. Whereas some judgments state that the applicable rate is obtained by dividing the gross monthly salary by 30 days, others have held that the dividing number is 26 (on grounds that by law, every employee is entitled to 1 day of rest per week). The latter formula is more generous to employees but more expensive for employers. The law should clarify the correct formula.

Reinstatement as a remedy for unfair termination should be deleted from our statute books for the simple reason that in contracts of personal service such a remedy does not serve the interests of either party. Kenyan courts have been consistent in holding that reinstatement is not an appropriate remedy for breach of an employment contract. The continued existence of this remedy in the law only serves the purpose of giving employees false hope and intimidating employers.

Currently the law provides that the maximum damages for unfair termination is 12 months’ salary. Yet, some sympathetic judges routinely award the maximum amount for very minor deviations by the employer from the recommended termination procedure even where there were compelling reasons for termination.

As the court of appeal has recently clarified in the case of Kenya Airways Limited v Alex Wainaina Mbugua [2019] eKLR, the maximum award should only be given in the most aggravated cases of violation of employees’ rights.

In addition, whenever a judge chooses to exercise the discretion of awarding the maximum amount, he is required justify such a decision by giving reasons. The law should be amended to either confirm this position or set a fixed amount of damages payable for unfair termination. This will bring much-needed certainty on the matter and facilitate out-of-court settlements without too much blackmail which at present is the common currency in such negotiations.

The Employment Act provides that poor performance is a valid ground for terminating an employment contract. It does not, however, mention the requirement for a performance improvement plan (PIP) or the fact that it is mandatory. On the other hand, courts have stated quite robustly that termination of employment on grounds of poor performance without a PIP is unfair. They have also developed very elaborate guidelines on how a valid PIP is to be conducted.

If following an appraisal the employer is of the opinion that the employee’s performance has been poor, the parties are required to agree on the specific areas of weakness that the employee needs to improve on, the assistance required from the employer in order for the employee to overcome the noted challenges and a reasonable duration of the PIP.

Most employers overlook this mandatory step since it is not mentioned anywhere in the law and yet failure to observe it invariably leads to hefty damages for unfair termination. The draft Bill should incorporate the principles and guidelines developed by the employment court on this little understood doctrine.

Finally, it is common in some developed countries for companies having a large workforce to have at least one director representing the interests of employees. Perhaps it is time to consider incorporating such a requirement in the law for companies with over 500 employees.

Maema is a Senior Partner in the law firm of Iseme, Kamau & Maema Advocates. [email protected]

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.