The existence of a termination-by-notice clause in an employment contract does not shield an employer from statutory scrutiny under the Employment Act, the Court of Appeal has ruled.
The appellate court said employers must still justify termination and follow fair procedures, even where contracts permit termination by notice.
“It is incumbent upon the employer to clearly state the reasons for the termination, notwithstanding the existence of a termination clause,” the court observed.
The ruling arose from a dispute between Middle East Bank Kenya Limited and its former head of operations and information technology, Hellen Waseka.
Ms Waseka was hired on a four-year fixed-term contract starting in November 2009, with responsibility for bank operations, IT systems and regulatory compliance.
In February 2012, she was summoned to a meeting with the bank’s managing director. She later told the court that she was verbally dismissed without a hearing and accused of failing to disclose anomalies to external auditors.
Four days later, the bank issued a termination letter giving three months’ notice. It subsequently summarily dismissed her, alleging absconding duty and unauthorised access to bank premises, claims Ms Waseka disputed.
She filed a case at the Employment and Labour Relations Court, arguing that the termination was both procedurally and substantively unfair.
The bank denied dismissing her at the meeting with the managing director, saying it had only communicated an intention to terminate her contract.
The trial court ruled in her favour, awarding her more than Sh12 million, including compensation for the unexpired contract period.
The bank appealed, arguing that the contract allowed termination by notice and that the damages awarded were excessive and unlawful.
The Court of Appeal partially allowed the appeal, drawing a clear distinction between contractual rights and statutory obligations.
“The law does not countenance either unfair termination or wrongful dismissal,” the judges said, adding that termination clauses do not override the Employment Act.
The court found that Ms Waseka’s employment was terminated on February 28, 2012, when the notice letter was issued, and not during the earlier meeting.
However, it ruled that the termination was unfair because the bank failed to give valid reasons in the termination letter and did not conduct a hearing as required under Section 41 of the Employment Act.
The judges noted that allegations of poor performance were undermined by evidence showing Ms Waseka received performance bonuses in 2010 and 2011.
“If the respondent had indeed been underperforming, it is unlikely that she would have received such financial rewards,” the court observed.
On remedies, the appellate court faulted the trial judge for awarding salary for the unexpired contract term despite the existence of a valid termination clause.
It ruled that such compensation applies only where no termination clause exists, and reduced the award to three months’ salary as compensation for unfair termination.
The judges stressed that judicial discretion must be exercised judiciously and with clear justification.
The ruling reinforces that while employers may rely on notice clauses, they remain bound by statutory fairness requirements under Kenyan labour law.
