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ELRCPartially AllowedELRC Cause (Nairobi), memorandum of claim dated 30th July 2021· [2023] KEELRC 66 (KLR)

Gatoto v Muki Sacco Limited (Cause 45 of 2021) [2023] KEELRC 66 (KLR)

Employment and Labour Relations Court
24 January 2023
6,980 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~28 min to read original · ~4 min brief

The bottom line

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A Kenyan Sacco was ordered to pay over Kshs 1.5 million for sacking its IT manager after a cyber-attack, because it had no proof he caused the breach.

What this practically means

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Executive summary

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The Claimant, formerly the Respondent's IT Systems and Network Administrator and later Deputy Chief Executive Officer, sued for unfair termination following his summary dismissal on 11th February 2021 after a cyber-attack on the Respondent's mobile banking platform caused a loss of about Kshs 1.75 million. He was accused of negligence, including sharing the administrator password with a third-party provider and failing to secure the system. The Respondent counterclaimed for the fraud loss and an outstanding Sacco loan. The court framed four issues: valid reasons, due process, the counterclaim and remedies. On the evidence, RW1 admitted the service agreement permitted sharing the password with the provider Surestep and that the malicious Dwagent software was installed by a Surestep official; CW2 testified the breach originated at the provider's end and was undetectable from the Respondent's side. The court found no valid reason for the dismissal, hence unfair under section 45(2) of the Employment Act, although it found the Claimant was accorded a fair hearing under section 41. The counterclaim for the fraud loss failed because the loss was not attributable to the Claimant, the fraudsters were arrested and the insurer refunded the loss, but judgment was entered for the Respondent on the outstanding loan of Kshs 975,610.98 based on the Claimant's pay slip. The court awarded the withheld half salary during suspension (Kshs 243,200) and eight months' salary as compensation (Kshs 1,297,600), totaling Kshs 1,540,800, less the loan counterclaim and statutory deductions, with costs and interest to the Claimant. Notice pay, service pay and salary-to-retirement claims were refused. Judgment delivered by Hellen Wasilwa, J, on 24th January 2023.

Key legal issues

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01

Valid reason for termination

Holding

No valid reason existed; alleged negligence not established

Reasoning

The letter of dismissal alleged gross misconduct through negligence in sharing the administrator password and failing to secure the system. RW1 admitted the service agreement permitted giving the password to the provider and that the malicious software was installed by a Surestep official. CW2 testified the breach originated at the provider's end and was undetectable from the Respondent's side. The Claimant had also flagged system weaknesses with nothing done.

p. 12
02

Procedural fairness

Holding

Due process under section 41 was followed

Reasoning

The Claimant admitted being given adequate time to prepare, was heard by the Board which explained areas of fault and exoneration, was advised of his right to a witness, and had his appeal considered. The court therefore found procedural compliance notwithstanding the unfair substantive reason.

p. 12
03

Counterclaim for loss and loan

Holding

Loss claim fails; loan claim succeeds

Reasoning

The court found the Claimant not wholly responsible for the fraud, the culprits were arrested and charged, and the insurance refunded the loss, so the loss claim was not payable. On the loan, although the Claimant denied it and no evidence in chief was led, his pay slip (Exb. 24) showed an outstanding loan, justifying judgment for the Respondent on that head.

p. 13
04

Remedies

Holding

Withheld half salary during suspension and 8 months' compensation awarded

Reasoning

Having found the dismissal unfair, the court awarded the withheld half salary for the suspension period (28th November 2020 to 11th February 2021) and compensation equivalent to eight months' salary, reflecting the unfairness of a dismissal without valid reason, offset by the loan counterclaim.

p. 13

Legal principles established

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  • An employer must establish valid reasons existing at the time of termination for a dismissal to be upheld under section 43 of the Employment Act
  • A termination is unfair where the employer fails to prove a valid and fair reason and a fair procedure under section 45(2) of the Employment Act
  • Where an employee is summarily dismissed without valid reason, compensation under section 49 may be awarded even where procedure was fair

Court orders

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  1. 1.Declaration that the Claimant was dismissed unfairly and unjustifiably for lack of valid reason
  2. 2.Award of withheld half salary during suspension: ½ x 162,200 x 3 = 243,200
  3. 3.Compensation equivalent to 8 months' salary for unfair termination = 1,297,600
  4. 4.Total award 1,540,800 less counterclaim of 565,189.02 and less statutory deductions
  5. 5.Respondent to pay for Respondent in terms of counterclaim Kshs.975,610.98 for outstanding loan (set off against award)
  6. 6.Respondent to pay costs of the suit plus interest at court rates from date of judgment

Authorities

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Legislation

  • Employment Actsection 41
  • Employment Actsection 43
  • Employment Actsection 44(4)(c)
  • Employment Actsection 45
  • Employment Actsection 49
  • Constitution of Kenya 2010Article 47(1) and (2)
  • ELRC Act / Court Rulessection 12(3)(viii)

Cases cited (12)

  • Judicial Service Commission v Mbalu Mutava & Another
    [2015] eKLR
  • Ol Pejeta Ranching Limited v David Wanjau Muhoro
    [2017] eKLR
  • CFC Stanbic Bank Limited v Danson Mwashako
    [2015] eKLR
  • Wambua v Kenol Kobil Limited
    Cause 2331 of 2017
  • Caroline Chemutai Rotich v Chase Bank (Kenya) Limited
    [2015] eKLR
  • Walter Ogal Anuro v Teachers Service Commission
    (2013) eKLR
  • Janet Nyandiko versus Kenya Commercial Bank Limited
    [2017] eKLR
  • National Bank of Kenya v Anthony Njue John
    [2019] eKLR
  • Ruth Waithera Muthama v AIC Kijabe Hospital
    [2019] eKLR
  • Evans Kamadi Misango v Barclays Bank of Kenya Limited
    [2015] eKLR
  • Engineer Francis N. Gachuri v Energy Regulatory Commission
    [2013] eKLR (Industrial Cause No. 203 of 2011)
  • Abraham Nyambane Asiago v Barclays Bank of Kenya Limited
    [2013] eKLR
Jurisdiction invoked
Employment and Labour Relations Court jurisdiction under the Employment Act and section 12(3)(viii) of the ELRC Act (invoked by the Respondent on the counterclaim)

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, "Gatoto v Muki Sacco Limited (Cause 45 of 2021) [2023] KEELRC 66 (KLR)", Case Analysis (2023). ELRC Cause (Nairobi), memorandum of claim dated 30th July 2021. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2023/66/eng@2023-01-24

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