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Court of AppealPartially AllowedCivil Appeal No. 123 of 2018· [2020] KECA 293 (KLR)

Overdrive Consultants (K) Ltd v Mazhar Sumra [2020] KECA 293 (KLR)

Court of Appeal
9 October 2020
William OukoW. OukoMartha Karambu KoomeM.K. KoomeDMD.K. Musinga
3,192 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 confirmed oral employment contracts are valid and reduced unfair termination compensation from Kshs. 600,000 to Kshs. 300,000.

What this practically means

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Executive summary

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This was the appellant's first appeal against the judgment of the Employment and Labour Relations Court at Mombasa (O.N. Makau, J.), which had found that the respondent's termination was substantively justified for insubordination but procedurally unfair for breach of section 41 of the Employment Act, and had awarded him Kshs. 1,115,384.65 plus costs and interest. The appeal was argued on two condensed grounds: that the procedure for termination was properly followed, and that the trial judge erred in treating the appellant and Overdrive Consultants Limited as one and the same entity and in awarding excessive compensation. The Court of Appeal, in a single judgment of the court delivered by Ouko, Koome and Musinga, JJ.A., held that although the appellant was not in existence when the 26th November 2014 written contract was signed with Overdrive 1, the appellant was nonetheless the respondent's employer from December 2014 on the basis of its pleadings, the uncontradicted testimony of its director, its payment of salary, and its issuance of the termination letter; the absence of a written contract did not invalidate the employment since section 8 of the Employment Act recognises oral contracts. The court affirmed that termination must satisfy both substantive justification and procedural fairness, and, the respondent never having been heard, the termination was unfair under section 45(2)(c). On damages, the court held the 6 months' compensation excessive given the short service, absence of actual loss and the respondent's conduct, and substituted Kshs. 300,000 for the Kshs. 600,000 award. The appeal succeeded only to that narrow extent; half the costs of the appeal were awarded to the appellant.

Key legal issues

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01

Identity of the employer between Overdrive Consultants Limited (Overdrive 1) and Overdrive Consultants (K) Limited

Holding

Despite the absence of a written contract with the appellant, the appellant was the respondent's employer from December 2014, established by conduct, admission, and payment of salary; the learned Judge erred in anchoring the relationship on the 26th November 2014 contract.

Reasoning

The court applied Salomon v Salomon on separate legal personality, noting the appellant was incorporated on 2nd December 2014, after the contract was signed. However, the appellant's pleadings admitted the respondent was offered employment and joined it, its director orally admitted employment from December 2014 to May 2016, it paid the negotiated salary, and it issued the termination letter. Section 8 of the Employment Act recognises oral contracts, so the lack of a written contract did not impair the employment relationship.

p. 3
02

Whether the termination was substantively and procedurally fair

Holding

Substantively justified (insubordination proved) but procedurally unfair because the respondent was never invited to explain himself as required by section 41 of the Employment Act, rendering the termination unfair under section 45(2)(c).

Reasoning

The court reiterated that fairness requires both a valid reason and a fair procedure. Although insubordination was proved on a balance of probability, it was common ground that the respondent was never invited to respond to the allegations. Citing Kenfreight v Nguti, the court held the employer was duty-bound to explain the reasons in the presence of another employee or union official and consider representations before terminating.

p. 4
03

Whether the award of 6 months' salary (Kshs. 600,000) as compensation for unfair termination was excessive

Holding

Yes; the award was excessive and reduced to 3 months' salary (Kshs. 300,000), the court considering the short length of service, absence of actual loss, the respondent's conduct, and the mitigating factors the trial judge had considered.

Reasoning

Applying the section 49 factors from Ol Pejeta Ranching v Muhoro, the court held the judge ought also to have considered the length of service (about 17 months of a 3-year contract), the absence of actual loss since the respondent had found another job, and his rudeness to superiors. In the circumstances, compensation of 6 months was an erroneous estimate and was halved.

p. 4

Legal principles established

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  • For a termination of employment to be fair, there must be both substantive justification and procedural fairness; an employer who fails to hear the employee under section 41 of the Employment Act effects an unfair termination under section 45(2)(c).
  • An employment relationship can be established by oral as well as written contracts; absence of a written contract does not impair the legal validity of the employment.
  • An appellate court will interfere with the trial judge's assessment of damages only where an irrelevant factor was considered, a relevant one left out, or the amount is so inordinately low or high that it must be an erroneous estimate.
  • On a first appeal, the court's duty is to analyse and re-assess the evidence and reach its own independent conclusions, being slow to disturb findings of fact unless based on no evidence.

Court orders

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  1. 1.Appeal allowed to the narrow extent of the compensation award
  2. 2.Award of Kshs. 600,000 for unfair termination set aside and substituted with an award of Kshs. 300,000
  3. 3.Half of the costs of the appeal awarded to the appellant

Authorities

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Legislation

  • Employment Actsection 41(2)
  • Employment Actsection 45(2)
  • Employment Actsection 45(2)(c)
  • Employment Actsection 49
  • Employment Actsection 8
  • Employment Actsection 44(3) or (4)

Cases cited (6)

  • Selle vs. Associated Motor Boat Co.
    (1968) EA 123
  • Ephantus Mwangi vs. Duncan Mwangi Wambugu
    (1982-88) 1 KAR 278
  • Salomon vs. Salomon & Co. Ltd.
    [1897] AC 22
  • Kenfreight (E.A.) Limited vs. Benson K. Nguti
    [2016] eKLR
  • Peter M. Kariuki vs. Attorney General
    [2014] eKLR
  • Ol Pejeta Ranching Limited vs. David Wanjau Muhoro
    [2017] eKLR
On appeal from
Employment and Labour Relations Court at Mombasa
ELRC No. 738 of 2016
Jurisdiction invoked
First appeal to the Court of Appeal under the Court of Appeal's appellate jurisdiction (employment dispute decided by the ELRC)

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (9)

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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, "Overdrive Consultants (K) Ltd v Mazhar Sumra [2020] KECA 293 (KLR)", Case Analysis (2020). Civil Appeal No. 123 of 2018. Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2020/293/eng@2020-10-09

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