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ELRCPartially AllowedCause No 487 of 2018· [2021] KEELRC 743 (KLR)

Kollengode Venkatachala Lakshminarayan v KSC International Limited (On Behalf of the Liquidator) [2021] KEELRC 743 (KLR)

Employment and Labour Relations Court
15 October 2021
OMOnesmus N. Makau
2,132 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 a company's receivership justified redundancies, but skipping the mandatory one-month redundancy notice made the dismissal unlawful, costing the employer millions.

What this practically means

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Executive summary

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The claimant, employed by the respondent on 24 November 2008 as Group Financial Controller, was laid off on 9 April 2015 on account of redundancy while the company was under receivership. He sued three years later seeking declarations of unfair and unlawful dismissal and infringement of various constitutional provisions, plus notice pay, compensation, service pay, bonus, salary for April 2015, damages for constitutional violations, a certificate of service and costs. The respondent, having failed to file a defence in time, contended that the appointment of receivers discharged the employment contract and that the claimant had not proved his salary or bonus entitlement. The court framed four issues: validity of the reason, fairness of the procedure, constitutional violations, and reliefs. It held that financial constraints leading to receivership constituted a valid reason under section 45(2)(b) of the Employment Act, but that the mandatory procedure in section 40 was not followed: no one-month notice was given to the claimant or the Labour Officer, no consultations were held, and accrued leave, notice pay and severance were not paid before the effective date. The termination was declared unfair and unlawful. The constitutional claim was declined for failing the Anarita Karimi Njeru competence threshold. The claimant was awarded Kshs. 4,745,000 comprising notice pay, six months' compensation and nine days' salary, subject to statutory deductions, plus costs, interest, and a certificate of service. Service pay, bonus and constitutional damages were refused.

Key legal issues

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01

Validity of the reason for termination

Holding

The respondent had a valid reason for the termination - financial constraints leading to receivership

Reasoning

The termination letter showed the company was experiencing cash flow problems and its projects had stalled, necessitating rationalisation of operations. The creditors had appointed Receivers and Managers. Under section 45(2)(b) of the Employment Act, operational requirements of the employer are a valid and fair reason for terminating services, so the justification limb was satisfied.

p. 2
02

Fairness of the redundancy procedure

Holding

The termination was procedurally unfair for non-compliance with section 40 of the Employment Act

Reasoning

Section 40(1) prescribes a mandatory procedure: one month's written notice to the employee and the area Labour Officer, fair selection criteria, payment of accrued leave, one month's salary in lieu of notice and severance pay of at least 15 days per completed year. No notice was served, no consultations were held to avert or mitigate the redundancy, payments were not made before the effective date, and no certificate of service was issued.

p. 3
03

Alleged violation of constitutional rights

Holding

The constitutional claim was not entertained as it failed the competence threshold

Reasoning

Applying the Anarita Karimi Njeru standard, a party alleging constitutional infringement must set out with reasonable precision the complaint, the provision said to be infringed, and the manner of infringement. The claimant's pleading did not meet this threshold, so the court declined to adjudicate the constitutional violations.

p. 3
04

Reliefs payable on unfair redundancy

Holding

Claimant awarded one month's notice pay, six months' compensation and salary for nine days worked, but denied service pay and bonus

Reasoning

Flowing from the finding of unfair termination, the court awarded notice pay for the layoff without prior notice and six months' salary as compensation considering eight years of service and absence of misconduct. The award was based on the pleaded gross salary of Kshs. 650,000. Service pay was barred by NSSF contribution under section 35(6); bonus failed for want of proof.

p. 3

Legal principles established

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  • For a termination to be fair it must be grounded on a valid and fair reason and a fair procedure must be followed
  • Operational requirements of the employer constitute a valid and fair reason for termination under section 45(2)(b) of the Employment Act
  • Failure to serve the one-month notice of redundancy under section 40(1) of the Employment Act renders the redundancy procedurally unfair
  • A party seeking redress for constitutional violations must set out with reasonable precision the provision infringed and the manner of infringement

Court orders

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  1. 1.Declaration that the termination of the claimant's employment on account of redundancy was unfair and unlawful
  2. 2.Judgment for the claimant against the respondent in the sum of Kshs. 4,745,000 (notice Kshs. 650,000; compensation Kshs. 3,900,000; salary for 9 days Kshs. 195,000)
  3. 3.Award payable subject to statutory deductions, in addition to costs and interest at court rates from the date of judgment
  4. 4.Certificate of service to be issued to the claimant under section 51 of the Employment Act

Authorities

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Legislation

  • Employment Actsections 2, 35, 35(6), 36, 40(1), 40(1)(a) and (b), 41, 45(2)(b), 51
  • Constitution of KenyaArticles 25, 27, 28, 32, 35, 36, 39, 41, 47, 48, 50
  • Companies Act (Cap 486)referenced in the termination letter regarding claims
  • ELRC Procedure RulesRule 28(3)
  • ILO Convention No. 158 – Termination of Employment Convention, 1982referenced

Cases cited (3)

  • Kenya Plantation & Agricultural Workers Union v Karuturi Limited (In Receivership) & another
    [2016] eKLR
  • Kenya Airways Limited v. Aviation & Allied Workers Kenya & 3 Others
    [2014] eKLR
  • Anarita Karimi Njeru –v- Republic
    [1979] eKLR
Jurisdiction invoked
Employment and Labour Relations Court jurisdiction under the Employment Act (ELRC Procedure Rules referenced for online delivery)

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, "Kollengode Venkatachala Lakshminarayan v KSC International Limited (On Behalf of the Liquidator) [2021] KEELRC 743 (KLR)", Case Analysis (2021). Cause No 487 of 2018. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2021/743/eng@2021-10-15

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