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ELRCPartially AllowedNot stated in judgment· [2020] KEELRC 589 (KLR)

Bernerd Ouma Babu v Whitespace Technologies Limited [2020] KEELRC 589 (KLR)

Employment and Labour Relations Court
30 July 2020
BOByram Ongaya
3,562 words in judgment
View original judgmentRead on Kenya Law Watch case
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The bottom line

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A Kenyan court ruled that a CEO's disciplinary hearing must follow the company's shareholders' agreement dispute process, and his salary continues during suspension.

What this practically means

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Executive summary

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The Employment and Labour Relations Court at Nairobi (Byram Ongaya, J) determined three interlocutory applications arising from the suspension and contemplated disciplinary proceedings against the claimant, who was employed as Operations Director in 2014 and as Chief Executive Officer for a five-year term under clause 6.6 of a shareholders' agreement dated 10.12.2018 with Pall Mall Holdings Limited. The claimant sought reinstatement, an injunction against disciplinary proceedings, a stay pending exhaustion of the clause 22 dispute resolution mechanism, and continued salary during suspension; the respondent sought setting aside of ex parte interim orders. The Court applied the settled principle that it interferes very sparingly with an employer's human resource functions, and only where the process breaches the Constitution, legislation, the parties' agreement, or is manifestly unfair. It found the allegations in the show cause letter - failure to account for Kshs. 8,867,743.85, conflict of interest and procedural breaches - raised questions of whether the claimant breached his fiduciary duties under clause 6.6, matters his intertwined roles as shareholder and CEO bring within clause 22.3 of the shareholders' agreement. The Court therefore held that the initiated disciplinary proceedings constitute a dispute subject to clause 22 and ordered them continued and determined under that clause's mediation and arbitration procedures, rather than halted. It further ordered the respondent to continue paying the claimant's monthly salary during suspension pending the suit or conclusion of the clause 22 process, whichever is earlier, and directed that costs of the three applications be in the cause. The claimant's plea for the proceedings to be scuttled was rejected.

Key legal issues

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01

Whether the Court should interfere with the employer's disciplinary process

Holding

The Court may intervene sparingly and, here, found a prima facie breach of clause 22 of the shareholders' agreement justifying intervention, but only to put things right, not to stop the disciplinary process

Reasoning

The Court applied the principles in Rebecca Ann Maina and Geoffrey Mworia that interference in employer human resource functions is exercised sparingly, only in compelling and exceptional cases where the process is fundamentally flawed, breaches the parties' agreement, or is manifestly unfair. It found the claimant established a prima facie breach of clause 22 because the allegations of breach of fiduciary duty engage the dispute resolution clause, but the disciplinary process itself should continue under that clause rather than be halted.

p. 4
02

Whether the disciplinary proceedings fall within clause 22 dispute resolution

Holding

Yes. The allegations raise questions of interpretation of clause 6.6 on fiduciary duties and the claimant's rights as shareholder and CEO, matters contemplated by clause 22.3

Reasoning

The Court reasoned that the show cause letter raises whether the claimant failed in proper performance of his fiduciary duties under clause 6.6 so his 5-year tenure should lapse prematurely. His roles as shareholder and CEO are intertwined, and the alleged misconduct engages clause 22.3.2 (actions contrary to the agreement and the Constitution) and clause 22.3.3 (respective rights of shareholders). Therefore the initiated disciplinary proceedings constitute a dispute subject to clause 22's mediation and arbitration regime.

p. 4
03

Whether the respondent should pay the claimant's salary during suspension

Holding

Yes, pending the suit or conclusion of the clause 22 process, whichever is earlier

Reasoning

The Court noted the parties had not agreed on non-payment during suspension, the respondent was willing to pay subject to expeditious determination, clause 22.1 preserves interim relief from a court of competent jurisdiction, and the claimant's 5-year tenure continues until the alleged breach is established. Suspension does not end the employment contract, so in absence of agreed suspension terms, salary payment continues.

p. 4

Legal principles established

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  • The Court will very sparingly interfere in the employer's entitlement to perform human resource functions such as disciplinary control, and only where the process contravenes the Constitution or legislation, breaches the agreement between the parties, or is manifestly unfair
  • Where a shareholders' agreement provides a dispute resolution mechanism covering disputes about an employee-CEO's fiduciary duties, disciplinary proceedings premised on those allegations are subject to that mechanism

Court orders

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  1. 1.That pending the hearing and determination of the suit and by reason of the allegations in the show cause letter, the initiated disciplinary proceedings amount to a dispute subject to clause 22 of the shareholders' agreement to be continued and determined in accordance with the procedures set out in the said clause
  2. 2.That pending the hearing and determination of the suit or pending conclusion of the dispute resolution process under clause 22 of the shareholders' agreement, whichever is earlier, the respondent to continue paying the claimant's monthly salary during the period of suspension
  3. 3.Costs of the three applications in the cause

Authorities

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Legislation

  • Constitution of Kenya, 2010Article 159(2); Article 159(2)(c); Article 159(2)(a) and (d); Article 41
  • Employment and Labour Relations Court (Procedure) Rules, 2016Rule 19; Rule 33(1)(a) and (b)
  • Civil Procedure RulesOrder 51 Rule 1; Order 46 Rule 3(2)
  • Arbitration ActSection 6
  • Arbitration Rules 1997Rules 2, 3 and 11
  • Employment ActPart IV

Cases cited (2)

  • Rebecca Ann Maina and 2 Others –Versus- Kenyatta University of Agriculture and Technology
    [2014]eKLR
  • Geoffrey Mworia-Versus- Water Resources Management Authority and 2 others
    [2015]eKLR
Jurisdiction invoked
Article 159(2) of the Constitution of Kenya, 2010 and the Employment and Labour Relations Court (Procedure) Rules, 2016

Key timeline

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Practical implications

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Frequently asked questions

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Cite this brief

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Cite this brief

Caselaw, "Bernerd Ouma Babu v Whitespace Technologies Limited [2020] KEELRC 589 (KLR)", Case Analysis (2020). Not stated in judgment. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2020/589/eng@2020-07-30

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