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ELRCPartially AllowedCause No 697 of 2012· [2020] KEELRC 946 (KLR)

James Muchene Mbugua v Quorandum Limited [2020] KEELRC 946 (KLR)

Employment and Labour Relations Court
5 June 2020
1,345 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 failing to pay an employee's salary on time is such a serious breach that the employee can quit and still win compensation.

What this practically means

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Executive summary

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The Claimant, a driver employed by the Respondent from 28 March 2008, resigned by notice dated 28 December 2010 effective 31 December 2010, and later demanded accrued salaries and leave. He sued alleging constructive dismissal and breach of contract. An amendment of the memorandum of claim was permitted but never filed, so the Court considered only the initial claim. A settlement recorded in April 2018 was vacated on the parties' assertion of a mix-up, allowing the hearing to proceed on 17 and 21 January 2020. Adopting the issues raised in the Respondent's submissions, the Court applied the contract test for constructive dismissal from Western Excivating ECC Ltd v Sharp. It found that payment of salary when due is an essential and fundamental term of the employment contract, given statutory force by sections 17 and 18 of the Employment Act, 2007. The Respondent's witness admitted salary arrears of three months and restructuring, but no consultation with the Claimant over the non-payment was shown. The Court held the Respondent in fundamental breach creating a hostile work environment, warranting the Claimant to leave and assert constructive dismissal. The Claimant, who served about three years, was awarded compensation equivalent to three months' gross salary (Kshs 85,584/-), one month's salary in lieu of notice (Kshs 28,528/-), unpaid salaries of Kshs 75,000/- as sought, and Kshs 25,000/- for accrued 2010 leave, the Respondent having produced no leave records for 2010. The service pay claim failed because the Claimant was an NSSF contributor under section 35(5) and (6) of the Employment Act. Total award: Kshs 214,112/-, with costs to the Claimant.

Key legal issues

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01

Constructive dismissal

Holding

The Claimant was constructively dismissed because the Respondent's failure to pay salary for three months and intermittent payment amounted to fundamental breach creating a hostile work environment

Reasoning

The Court adopted the contract test in Western Excavating ECC Ltd v Sharp, examining the employer's conduct. Payment of salary when due is an essential term, now reinforced by sections 17 and 18 of the Employment Act, 2007. The Respondent's witness admitted salary arrears and restructuring, but gave no evidence of any consultation with the Claimant over the non-payment. The resignation letter itself gave no reason, but oral evidence established the financial hardship caused. The Court concluded the breach warranted the Claimant leaving and asserting constructive dismissal.

p. 2
02

Compensation for constructive dismissal

Holding

Compensation equivalent of 3 months' gross salary awarded based on length of service of about 3 years

Reasoning

Under section 49 of the Employment Act framework, the Court considered the length of service, roughly three years, in exercising discretion and awarded the equivalent of three months' gross salary, computed on the November 2009 gross salary of Kshs 28,528/-, totalling Kshs 85,584/-.

p. 2
03

Salary in lieu of notice

Holding

One month's basic salary awarded because the Claimant left due to the Respondent's conduct

Reasoning

Because the termination was attributable to the Respondent's breach, the Court found the Claimant entitled to one month's basic salary in lieu of notice, quantified at Kshs 28,528/-, consistent with the statutory notice entitlements under the Employment Act.

p. 2
04

Service pay

Holding

Claim refused as the Claimant was an NSSF contributor

Reasoning

Section 35(5) and (6) of the Employment Act, 2007 excludes an employee who is a member of the National Social Security Fund from the entitlement to service pay. Since the Claimant contributed to the NSSF, the service pay claim failed.

p. 2
05

Outstanding leave

Holding

Claimant entitled to the equivalent of a month's salary for accrued 2010 leave

Reasoning

Annual leave on full pay is a statutory right. The Respondent's leave records showed a balance of 7 days as of 27 January 2009, but no records for 2010 were produced. In the absence of records showing the 2010 leave was taken, the Court inferred the Claimant did not take his 2010 leave and awarded the equivalent of a month's salary in lieu.

p. 3

Legal principles established

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  • Failure to pay salary when it falls due is a fundamental breach going to the root of the employment contract, entitling the employee to treat himself as constructively dismissed
  • The contract test for constructive dismissal from Western Excavating ECC Ltd v Sharp applies: the employer's conduct must be a significant breach going to the root of the contract and the employee must leave soon after, else the contract is affirmed
  • An NSSF contributor is not eligible for service pay under section 35(5) and (6) of the Employment Act, 2007

Court orders

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  1. 1.Declaration that the Claimant was constructively dismissed and that the Respondent was in breach of contract
  2. 2.Award of compensation equivalent of 3 months' gross salary of Kshs 85,584/-
  3. 3.Award of salary in lieu of notice of Kshs 28,528/-
  4. 4.Award of unpaid salaries of Kshs 75,000/-
  5. 5.Award of outstanding leave of Kshs 25,000/-
  6. 6.Total award of Kshs 214,112/- to the Claimant
  7. 7.Claimant to have costs of the Cause

Authorities

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Legislation

  • Employment Act, 2007sections 17 and 18
  • Employment Act, 2007section 35(5) & (6)

Cases cited (2)

  • Western Excivating ECC Ltd v Sharp
    (1978) 2 WLR 344
  • Nyali Academic Services Ltd t/a the Mombasa Academy v Caroline Opondo
    (2019) eKLR
Jurisdiction invoked
Employment and Labour Relations Court jurisdiction over a labour dispute (Employment Act, 2007); specific enabling provision not cited in judgment

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, "James Muchene Mbugua v Quorandum Limited [2020] KEELRC 946 (KLR)", Case Analysis (2020). Cause No 697 of 2012. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2020/946/eng@2020-06-05

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