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Court of AppealPartially AllowedCivil Appeal 60 & 61 of 2015 (Consolidated)· [2022] KECA 778 (KLR)

Rift Valley Water Services Board & 3 others v Asanyo & 2 others

Court of Appeal
10 June 2022
DMD. K. MusingaAMA. K. MurgorKLK. I. Laibuta
3,090 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 a company director without a contract of service is not an employee, so employment courts cannot hear their disputes.

What this practically means

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Executive summary

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This consolidated appeal arose from a petition filed by Geoffrey Asanyo in the Industrial Court at Nakuru after he was excluded from the reconstituted board of Nakuru Water and Sanitation Services Company following the transition of water services to the devolved County Government of Nakuru. The Industrial Court (Byram Ongaya, J) dismissed the appellants' preliminary objection, holding that the 1st respondent was an employee both as an appointed director and as a public officer, and subsequently entered judgment in his favour with declarations that the board reconstitution process was unconstitutional. The Court of Appeal allowed both appeals. It held that the 1st respondent was not an employee of the 2nd respondent within the meaning of section 2 of the Employment Act: he was appointed to represent the business community under the company's Memorandum and Articles of Association for a fixed term, was not employed for wages or salary, and had no contract of service. Applying McMillan v Guest and Parsons, the court affirmed that a director is an office-holder, not an employee without more. Consequently, the Employment Act did not govern the relationship, and the Industrial Court had no jurisdiction to entertain the petition or the ancillary constitutional claims. The court set aside both the ruling of 30th April 2014 and the judgment and decree of 30th May 2014, allowed the consolidated appeals, and ordered the 1st respondent to bear the costs of the appeals.

Key legal issues

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01

Whether the 1st respondent was an employee of the 2nd respondent

Holding

He was not; he was a director appointed under the Memorandum and Articles of Association, governed by the Companies Act, with no contract of service.

Reasoning

Section 2 of the Employment Act defines an employee as a person employed for wages or salary, including an apprentice or indentured learner. The 1st respondent was appointed to represent the business community for a fixed term, extended by resolution, and received no wages or salary under a contract of service. His functions were governed by the Companies Act and the company's Memorandum and Articles, not the Employment Act.

02

Whether directors are employees of the company

Holding

No; a director is an office-holder who is not, without more, an employee, following McMillan v Guest and Parsons.

Reasoning

The court adopted the English authorities holding that a company director is an office-holder, not an employee without more. Only where a director is engaged under a contract of service as a full-time employee can employee status be presumed. The letter extending the 1st respondent's term merely set out common law duties of a director and did not constitute a contract of service.

p. 6
03

Whether the Industrial Court had jurisdiction over the petition

Holding

It did not; jurisdiction founded on employment and labour relations fails because there was no employment relationship.

Reasoning

The Industrial Court's jurisdiction under Article 162(2)(a) and section 12 of the Industrial Court Act extends to employment and labour relations matters and ancillary constitutional claims. Since the 1st respondent was not an employee, the petition did not disclose an employment dispute, and the constitutional claims were not ancillary to any such matter. The preliminary objection should have succeeded.

p. 6

Legal principles established

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  • A company director appointed under a company's Memorandum and Articles of Association is an office-holder, not an employee, absent a contract of service; the Employment Act does not apply to that relationship.
  • The Employment Act does not apply to directors appointed to a water services provider's board under its Memorandum and Articles, so the Industrial Court has no jurisdiction over claims relating to such appointment.

Court orders

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  1. 1.the appellants' appeal in Civil Appeal No. 60 of 2015 and in Civil Appeal No. 61 of 2015 (consolidated) are hereby allowed
  2. 2.the Ruling and Order of the Nakuru Industrial Court (Byram Ongaya, J.) delivered on 30th April 2014 in Industrial Court Petition No. 4 of 2014 are hereby set aside
  3. 3.the judgment and decree of Nakuru Industrial Court (Byram Ongaya, J) delivered on 30th May 2014 in Industrial Petition No. 4 of 2014 are hereby set aside
  4. 4.the 1st respondent do bear the costs of the appeals as consolidated

Authorities

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Legislation

  • Constitution of Kenya, 2010Article 6; Article 6(1); Article 10; Article 41; Article 47; Article 73; Article 162(2)(a); First Schedule; Fourth Schedule
  • Water Act, 2016sections 11, 12, 70, 77, 79(1)
  • Employment Act, Revised 2021 (2007)sections 2, 3, 5
  • Industrial Court Act, 2011section 12
  • County Government Act, 2012
  • Companies Act (Cap. 486) (repealed)section 22
  • Public Officer Ethics Act, 2003
  • Local Government Act (Cap. 265) (repealed)

Cases cited (2)

  • McMillan v Guest
    [1942] AC p.561

    A company director is an office-holder who is not, without more, an employee of the company.

  • Parsons v Albert J. Parsons and Sons Ltd
    [1979] ICR p.271

    Employee status of a director cannot be presumed absent a contract of service.

On appeal from
Industrial Court of Kenya at Nakuru
Industrial Cause Petition No. 4 of 2014
Jurisdiction invoked
Appellate jurisdiction of the Court of Appeal over appeals from the Industrial Court (as then constituted); the judgment does not cite a specific appellate provision.

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (10)

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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, "Rift Valley Water Services Board & 3 others v Asanyo & 2 others", Case Analysis (2022). Civil Appeal 60 & 61 of 2015 (Consolidated). Source: https://new.kenyalaw.org/akn/ke/judgment/keca/2022/778/eng@2022-06-10

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