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ELRCPartially Allowed· [2021] KEELRC 2202 (KLR)

Alice Ndaani & 5 others v Mwalimu National Savings and Credit Co-operative Society Limited [2021] KEELRC 2202 (KLR)

Employment and Labour Relations Court
22 January 2021
OMOnesmus N. Makau
3,977 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~16 min to read original · ~4 min brief

The bottom line

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A Kenyan court ruled an employer's redundancy unlawful for skipping notice rules, targeting older staff, and seizing workers' terminal dues to repay loans.

What this practically means

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Executive summary

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Six former managerial employees of the Respondent were declared redundant in November 2014 following a restructuring and job evaluation exercise and sued seeking declarations that the termination and the offsetting of their terminal dues against SACCO loans were unconstitutional, unfair and discriminatory, together with terminal dues, leave pay, dividends, compensation of 12 months' salary each, salaries up to retirement age, general damages and costs. The Respondent maintained the redundancy complied with section 40(1) of the Employment Act, was justified by a consultant's restructuring report, and that offsetting loans was lawful under its internal rules. The court framed three issues: fairness of the redundancy, discrimination and unfair labour practices, and entitlement to reliefs. It found the statutory redundancy procedure was breached - no one month notice to the Claimants or Labour Officer, no fair selection, and 'first in last out' disregarded - rendering the terminations unfair and unlawful under sections 40 and 45 of the Employment Act. Age discrimination was established since only employees over 50 were laid off, but no discrimination was found vis-à-vis the CEO who exited through negotiated early retirement. Offsetting the SACCO loans from terminal dues, without any agreement or policy, violated the right to fair labour practices and freedom from servitude. The settlement agreements were held valid but confined to employment benefits and no bar to constitutional and statutory claims. The court entered judgment for each Claimant: 10 months' gross salary compensation, Kshs. 1,000,000 general damages, and net terminal dues, with interest and costs. Claims for leave, dividends, retirement-age salaries and renegotiation of loans were declined.

Key legal issues

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01

Whether the redundancy was procedurally fair under section 40(1) of the Employment Act

Holding

The redundancy was unfair and unlawful because the mandatory statutory procedure was not followed.

Reasoning

RW1 admitted no one month notice was served on the Claimants or the Labour Officer, the selection criteria was age-based, 'first in last out' was not followed and the Claimants were not involved in selection. The court held the abrupt process breached the mandatory statutory procedure, rendering the termination unfair within section 45 of the Employment Act.

p. 4
02

Whether the Claimants were discriminated against on account of age

Holding

Yes - only employees over 50 were laid off and no justification for ignoring 'first in last out' was proved.

Reasoning

RW1 admitted all laid-off employees were over 50 while younger employees were retained. The Respondent adduced no evidence that the retained employees possessed expertise the Claimants lacked, so the court found age discrimination by disregarding 'first in last out'. However, unequal treatment vis-à-vis the CEO was rejected since the CEO exited through negotiated early retirement.

p. 4
03

Whether offsetting SACCO loans from terminal dues violated fair labour practices and freedom from servitude

Holding

Yes - offsetting all terminal dues without agreement or policy violated Article 41 and constituted servitude.

Reasoning

There was no loan policy or contractual provision permitting premature recall or offsetting; loans were distinct obligations given to the Claimants as SACCO members. Recalling loans prematurely and using employment dues left employees empty-handed with loan burdens, violating fair labour practices and freedom from inhuman treatment and servitude under Article 41 of the Constitution.

p. 4
04

Effect of the signed full-and-final settlement agreements

Holding

Valid but limited to employment benefits; they did not discharge statutory and constitutional claims.

Reasoning

The court found the agreements were drawn by the Respondent and merely signed; the money was to be credited to staff accounts, not offset against loans, and the agreements did not waive other claims. However, no evidence of coercion was adduced, so the agreements were not declared void.

p. 5

Legal principles established

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  • For redundancy to be fair it must comply with section 40(1) of the Employment Act: one month's notice to the employee and Labour Office, a fair selection process including 'first in last out', and payment of leave, notice pay and severance.
  • Unless there is a clear agreement or policy, an employer must never offset outstanding loans of exiting employees from terminal dues; loans are recovered strictly under the loan agreement.
  • A discharge/settlement voucher is a binding contract but does not bar the court from inquiring into the fairness of a termination or discharging statutory and constitutional breaches.

Court orders

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  1. 1.Declaration that the termination of the Claimants was wrongful, unconstitutional and unfair
  2. 2.Declaration that offsetting the Claimants' SACCO loans from their terminal benefits was unconstitutional, illegal, unjustifiable and unfair as it amounted to subjecting the Claimants to servitude
  3. 3.Payment of net terminal dues set out in the settlement agreements to each Claimant
  4. 4.Compensation of 10 months' gross salary to each Claimant for unfair termination
  5. 5.General damages of Kshs. 1,000,000 to each Claimant for violation of the right to fair labour practices, freedom from discrimination and freedom from servitude
  6. 6.Interest on compensation and general damages at court rates from the date of judgment; interest on net terminal dues from the date of filing suit
  7. 7.Costs of the suit to the Claimants plus interest

Authorities

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Legislation

  • Employment Actsection 40(1)
  • Employment Actsection 45
  • Constitution of Kenya, 2010Article 41
  • ELRC Procedure RulesRule 28(3)

Cases cited (4)

  • Thomas De La Rue v David Opondo Omutelenia
    [2013] eKLR
  • Ol Pejeta Ranching Limited v. David Wanjau Muhoro
    [2017] eKL
  • Water Ogal Amuro v. Teachers Service Commission
    [2013] eKLR
  • Jane Kennedy Kiriro v. Equity Bank (K) Ltd
    [2019] eKLR
Jurisdiction invoked
Employment and Labour Relations Court jurisdiction under the Employment Act and Article 41 of the Constitution

Key timeline

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Practical implications

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Frequently asked questions

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Later judgments citing this (5)

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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, "Alice Ndaani & 5 others v Mwalimu National Savings and Credit Co-operative Society Limited [2021] KEELRC 2202 (KLR)", Case Analysis (2021). . Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2021/2202/eng@2021-01-22

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