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ELRCPartially AllowedNot stated in the judgment as provided· [2024] KEELRC 1329 (KLR)

Haile v CIM Credit Kenya Limited & another (Employment and Labour Relations Cause E6482 of 2020) [2024] KEELRC 1329 (KLR)

Employment and Labour Relations Court
30 May 2024
3,976 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 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

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Executive summary

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The claimant, formerly Senior Project Manager and later Managing Director of the 1st respondent, sued for unlawful and unfair termination following a mutual separation agreement executed on 15 June 2020 after a redundancy notice issued in May 2020 amid COVID-19-related business losses. He sought notice pay, damages for unfair dismissal, severance, refunded salary deductions, prorated bonus, leave pay, work permit fees and general damages for discrimination and defamation. The court framed three issues: validity of the redundancy, voluntariness of the separation agreement, and whether the agreement barred further claims. It found the redundancy genuine, the claimant himself having presented projected losses and proposed 25% pay cuts, with proper notice to the claimant and the Labour Office. The separation agreement was freely and voluntarily entered into, coercion requiring specific pleading and proof to an elevated standard. However, the agreement could not displace the contract's three-month notice clause or the section 40 statutory minimums; non-conforming clauses are void. The court also found the performance bonus contractual, not discretionary, the respondent having offered only a bare denial. Salary deductions were lawful since the claimant proposed the pay cut himself. Judgment was entered for the claimant for USD 88,794 (USD 127,478 less USD 38,684 paid), covering notice pay, severance, leave, June days worked and USD 70,000 bonus, with interest and costs; all other claims, including discrimination and defamation, were dismissed.

Key legal issues

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01

Validity of the redundancy

Holding

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.

Reasoning

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.

p. 6
02

Free and voluntary execution of the mutual separation agreement

Holding

The claimant signed the agreement freely and voluntarily, being legally advised, and failed to prove coercion to the elevated standard required.

Reasoning

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.

p. 8
03

Effect of the separation agreement on statutory and contractual entitlements

Holding

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.

Reasoning

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.

p. 8
04

Performance bonus entitlement

Holding

The bonus was contractual, not discretionary, and the claimant was awarded USD 70,000 prorated bonus for 2020-2021.

Reasoning

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.

p. 7
05

Lawfulness of the salary deductions

Holding

The 25% pay cut was lawful, having been proposed by the claimant himself, approved by the Board and implemented across the board.

Reasoning

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.

p. 6

Legal principles established

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  • 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

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  1. 1.Three months' salary in lieu of notice USD 30,252
  2. 2.Severance pay calculated at 15 days salary for three years completed service USD 15,126
  3. 3.Payment in lieu of 21 days unutilized leave USD 7,058.80
  4. 4.USD 5,042 for days worked in June
  5. 5.Prorated performance bonus for the year 2020 - 2021 USD 70,000
  6. 6.Net award of USD 88,794 after deducting USD 38,684 already paid
  7. 7.Interest at court rates (on USD) from date of service till payment in full
  8. 8.Costs of the suit
  9. 9.All other claims in the statement of claim dismissed

Authorities

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Legislation

  • Employment Act, 2007section 2
  • Employment Act, 2007section 40

Cases cited (5)

  • Emmanuel Wambua Muthesi and 6 others versus Khoje Shie Iture Asheri Education Board the Jafirey Academy
    [2020] eKLR
  • 748 Air Services Limited versus Theuri Munyi
    [2017] eKLR
  • Bricks & Tiles Limited & 5 others versus Arvid Shah and others
    [2019] eKLR
  • Economic International Limited versus Shandy Taikai Power Engineering Company Limited
    Civil case E527 of 2020 [2021]
  • Patel & another versus MSC & another (suing as the guardians of PSP)
    (Civil Appeal 182 of 2019) [2022] KECA 364 (KLR)
Jurisdiction invoked
Employment and Labour Relations Court jurisdiction under the Employment Act, 2007

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, "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.