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Court of AppealPartially AllowedCivil Appeal No 172 of 2013· [2017] KECA 417 (KLR)

Kenya Breweries Limited & 3 others v Symon Wairobi Gatuma [2017] KECA 417 (KLR)

Court of Appeal of Kenya
14 July 2017
WKW. KaranjaGKG. B. M. KariukiJMJ. Mohammed
4,409 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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Kenya's Court of Appeal ruled that related companies are separate employers, and a properly done redundancy with severance pay ends claims against them.

What this practically means

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Executive summary

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This was a first appeal against the award of Rika, J. of the Industrial Court, which had declared that the respondent, a machine technician employed by Kenya Breweries Limited in 1986, remained an employee of all four appellant companies until his 2009 termination, had suffered unlawful salary reduction, unlawful retention of house allowance differentials, and was entitled to a 20-year long service award, totalling Kshs 2,196,672. The Court of Appeal reversed. First, it reaffirmed the doctrine of separate corporate personality, holding the appellant companies to be distinct legal entities and rejecting the trial court's lifting of the corporate veil. Second, applying section 40(1) of the Employment Act and the Kenya Airways redundancy authority, it found that the 2003 de-linking of the malting unit was a valid commercial decision; the union (KUCFAW) was notified, the respondent received a redundancy notice and severance pay, and he accepted a fresh letter of employment from the 3rd appellant on stated terms, working on those terms for six years and accepting a second severance payment in 2009. The redundancy was therefore lawful and procedural, and the respondent acquiesced to the new terms. Third, the respondent was not employed for more than 20 years by the 1st or 3rd appellants and so was not entitled to the 20-year long service award. The appeal was allowed, the Industrial Court judgment and decree of 25th January 2012 set aside, and each party ordered to bear its own costs.

Key legal issues

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01

Separate corporate personality

Holding

The four appellant companies are separate legal entities; the Industrial Court erred in effectively lifting the veil and treating them as departments of the 2nd appellant

Reasoning

Relying on Halsbury's Laws, Salomon v Salomon and Kenyan authorities, the Court reaffirmed that a limited liability company acquires legal personality, property, rights and liabilities separate from its members upon incorporation, and that separate legal personality can only be departed from where statute or law provides for lifting or piercing the veil, such as where the company is used for fraud or criminal activities. No such factors were shown here.

p. 5
02

Lawfulness of the 2003 redundancy

Holding

The 2003 redundancy was valid and procedural; the union was notified, the respondent received a redundancy notice, was paid severance, and accepted a fresh employment offer from the 3rd appellant

Reasoning

The Court applied the statutory definition of redundancy and section 40(1) of the Employment Act, and the Kenya Airways and Aoraki authorities. It found evidence of notice to KUCFAW, a memorandum of 23rd April 2003 to the respondent, payment of severance, and acceptance of the letter of offer dated 25th April 2003. The de-linking was a valid commercial decision based on operational requirements, and the respondent worked on the agreed terms for six years.

p. 7
03

Entitlement to long service award

Holding

The respondent was not entitled to a 20-year long service award as he had not served either the 1st or 3rd appellant for more than 20 years

Reasoning

The trial court had awarded the 20-year long service award on the basis that employment commenced in 1986. The Court found that the respondent's employment with the 1st appellant ended with the 2003 redundancy, he was paid severance, and his subsequent employment was with the 3rd appellant, so continuous service exceeding 20 years was not established.

p. 8

Legal principles established

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  • Duly registered companies are separate legal entities with their own rights and liabilities, and the corporate veil may only be pierced where statute or law so provides, e.g. where the company is used as a vehicle for fraud
  • Redundancy under section 40 of the Employment Act is valid where there is a valid and fair reason based on operational requirements and a fair procedure, including notice to the union; compliance with section 40(1) renders the redundancy lawful
  • An employee who accepts redundancy severance payment and a fresh offer of employment on stated terms, and works on those terms for years, acquiesces to the new terms and cannot later claim the change was unlawful

Court orders

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  1. 1.Appeal allowed
  2. 2.Judgment and decree of the Industrial Court of 25th January, 2012 set aside
  3. 3.Each party to bear its own costs

Authorities

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Legislation

  • Employment Actsection 2
  • Employment Actsection 40(1)
  • Labour Relations Act (now repealed)section 2

Cases cited (6)

  • Selle and Another v Associated Motor Boat Company Limited and Others
    [1968] E A 123
  • Victor Mabachi & Another v Nutinn Batex Limited
    Nrb Civil Appeal No. 247 of 2005
  • Kolaba Enterprise Ltd. v. Shamsudin Hussein Varvani & Another
    (2014) eKLR
  • Salomon & Co. Ltd. v Salomon
    [1887] A.C. 22 H.L.
  • Kenya Airways Limited v Aviation & Allied Workers Union Kenya & 3 Others
    [2014] eKLR
  • Aoraki Corporations Limited V. Collin Keith Mc Gavin
    CA 2 of 1997 [1998] 2 NZLR 278
On appeal from
Industrial Court of Kenya, Nairobi
Industrial Cause No. 1011 of 2010
Jurisdiction invoked
First appeal to the Court of Appeal under the applicable appellate statutes (not expressly stated in the judgment)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (4)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Kenya Breweries Limited & 3 others v Symon Wairobi Gatuma [2017] KECA 417 (KLR)", Case Analysis (2017). Civil Appeal No 172 of 2013. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2017/417/eng@2017-07-14

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.