The Employment and Labour Relations Court has upheld the dismissal of a hotel supervisor for serving as a director in a newly established company that was planning to venture into a business that would directly compete with his employer.
According to the court, this amounted to a conflict of interest since the business the employee and some colleagues sought to establish was a potential competitor to his employer’s operations.
Justice Stella Rutto noted that the employer, Lavington Hotel Limited trading as The Social House, had valid grounds to terminate the contract of David Okuku over allegations that he was setting up, or participating in, a company known as Lafinu Mint Blue Limited.
The company, trading as “The Code,” also operated in the restaurant business within the same Lavington area.
“It is evident that the claimant’s action of setting up a restaurant business, within the Lavington area, amounted to a significant conflict of interest on his part and consequently, breach of the respondent’s staff handbook, which was part and parcel of his contract of employment,” said Justice Rutto.
In dismissing Mr Okuku’s claim for compensation over alleged unfair termination, the court held that his private business interests were bound to clash with his duties as an employee.
“The claimant, by his own conduct, gave the respondent a valid and fair reason to terminate his employment,” said Justice Rutto.
Mr Okuku was employed in March 2018 as a maintenance supervisor and was dismissed in September 2022 over alleged misconduct. He challenged the termination in court, terming it unlawful and unfair, and sought Sh3.1 million in compensation covering unpaid salaries, maximum compensation for unfair termination, notice pay, service pay, accrued leave days, and damages for loss of employment.
However, the court ruled that the termination process was fair and procedurally correct, noting that the claimant declined to participate in disciplinary hearings.
“To this end, the court finds that in the circumstances, the respondent acted reasonably and gave the claimant an opportunity to be heard within the meaning of Section 41 of the Employment Act. Accordingly, the claimant’s termination from employment was procedurally fair,” said Justice Rutto.
The court also dismissed the claimant’s argument that his contract of employment and the hotel’s HR manual did not include a confidentiality or non-compete clause.
“Regardless of whether the claimant’s contract of employment had a non-compete clause, there was an implied obligation on his part to be loyal, honest, and act in the best interests of his employer,” said Justice Rutto. “Certainly, establishing a competing business within the same locality was not acting with loyalty, honesty, and in the best interests of the respondent. How would he have divided his attention and interests in his business and the respondent’s business at the same time?”
The hotel’s case was backed by testimony from three employees, who told the court that Mr Okuku had approached them in 2021 to participate in setting up the new business. They said he was working on the investment plan alongside two other employees.
The witnesses testified that they were informed that a lease had been secured and the team was in the process of fitting out the business, seeking capital of about Sh6 million.
By September 2021, they had made significant progress, including recruiting 25 to 30 staff and preparing a budget of Sh1 million a month. They had also negotiated rent terms, developed a food strategy, and drafted 10-year revenue and cash flow projections.
“It is therefore clear that the meetings convened by the claimant, together with some of his colleagues at the respondent’s premises, were not in the interests of the respondent company. Quite the contrary, the meetings were incompatible with the interests of the respondent,” said Justice Rutto.
The ruling reinforces the principle of implied employee loyalty, even in the absence of explicit non-compete clauses.
