Haile v CIM Credit Kenya Limited & another (Employment and Labour Relations Cause E6482 of 2020) [2024] KEELRC 1329 (KLR)
The bottom line
#A Kenyan court ruled that a signed mutual separation agreement cannot strip an employee of statutory redundancy entitlements, awarding the ex-MD over USD 88,000.
What this practically means
#Executive summary
#Key legal issues
#Validity of the redundancy
The respondent had a valid, genuine operational reason to abolish the Managing Director position, aggravated by COVID-19, and complied with section 40 notification requirements.
The claimant himself presented projected losses of Kshs 227,849,788 to the Board and proposed 25% pay cuts. RW1 gave credible evidence that abolishing the MD role and consolidating leadership under the Group CEO was prudent. A one-month redundancy notice was issued to the claimant and copied to the Nairobi Labour Office, satisfying section 40.
Free and voluntary execution of the mutual separation agreement
The claimant signed the agreement freely and voluntarily, being legally advised, and failed to prove coercion to the elevated standard required.
The claimant was advised by a lawyer, negotiated terms including a liability clause, and had already received a redundancy notice. Allegations of undue influence, coercion and fraud must be specifically pleaded and proved with cogent evidence to a standard slightly below beyond reasonable doubt, which the claimant did not discharge.
Effect of the separation agreement on statutory and contractual entitlements
The agreement did not extinguish the claimant's entitlement to contractual notice and minimum section 40 benefits; the separation was a redundancy and the package fell short of the statutory minimum.
The agreement did not substitute the true reason for separation, which was redundancy. Terms agreed thereafter had to conform with the contract's three-month notice clause and section 40 minimums. The USD 38,684 package (about 3.5 months' pay) fell below the minimum of notice pay, severance and leave entitlements, so the shortfall was awarded.
Performance bonus entitlement
The bonus was contractual, not discretionary, and the claimant was awarded USD 70,000 prorated bonus for 2020-2021.
Clauses 2(e) and 3(b), (c) and (d) of the appointment letter provided for bonus payment upon premature termination. The respondent offered only a bare denial that bonuses were discretionary and led no evidence or counter-computation; the court accepted the claimant's computation.
Lawfulness of the salary deductions
The 25% pay cut was lawful, having been proposed by the claimant himself, approved by the Board and implemented across the board.
Citing Emmanuel Wambua Muthesi, an employee may accept or reject a pay cut, but here the claimant proposed the cut and implemented it on his team; exempting him would be discriminatory. He did not object in writing until after separation. The court relied also on 748 Air Services Limited v Theuri Munyi.
Legal principles established
#- A mutual separation agreement cannot oust the minimum statutory entitlements under section 40 of the Employment Act; non-conforming clauses are void.
- A redundancy notice must issue to the employee and the Labour office, and valid reason must be shown under sections 2 and 40 of the Employment Act.
- Undue influence, coercion or fraud vitiating an agreement must be specifically pleaded and proved to a standard higher than the ordinary balance of probabilities.
- An employee may not be exempted from an across-the-board pay cut he himself proposed without the employer being discriminatory.
Court orders
#- 1.Three months' salary in lieu of notice USD 30,252
- 2.Severance pay calculated at 15 days salary for three years completed service USD 15,126
- 3.Payment in lieu of 21 days unutilized leave USD 7,058.80
- 4.USD 5,042 for days worked in June
- 5.Prorated performance bonus for the year 2020 - 2021 USD 70,000
- 6.Net award of USD 88,794 after deducting USD 38,684 already paid
- 7.Interest at court rates (on USD) from date of service till payment in full
- 8.Costs of the suit
- 9.All other claims in the statement of claim dismissed
- Jurisdiction invoked
- Employment and Labour Relations Court jurisdiction under the Employment Act, 2007
Key timeline
#Practical implications
#Frequently asked questions
#Cite this brief
#Cite this brief
Caselaw, "Haile v CIM Credit Kenya Limited & another (Employment and Labour Relations Cause E6482 of 2020) [2024] KEELRC 1329 (KLR)", Case Analysis (2024). Not stated in the judgment as provided. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2024/1329/eng@2024-05-30
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.