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ELRCPartially AllowedCause No E199 of 2022· [2024] KEELRC 2345 (KLR)

Muthoni v Barium Capital Limited & another (Cause E199 of 2022) [2024] KEELRC 2345 (KLR)

Employment and Labour Relations Court
30 September 2024
5,643 words in judgment
View original judgmentRead on Kenya Law Watch case
AI-assisted case brief
·~23 min to read original · ~4 min brief

The bottom line

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Kenya's Employment Court ruled that skipping mandatory redundancy steps makes a retrenchment unfair termination, awarding an employee over Kshs.12.8 million.

What this practically means

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Executive summary

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The Claimant sued the 1st Respondent (Barium Capital Limited) and the 2nd Respondent (Centum) alleging unfair termination of her employment on account of purported redundancy. She was employed as managing director of the 1st Respondent, a wholly owned subsidiary of the 2nd Respondent, and her services were terminated by letter dated 20th July 2020 on grounds of redundancy, with a redundancy package of Kshs.10,903,410.52 computed but unpaid. She sought a declaration of unprocedural and unlawful termination, constitutional damages under Article 41, 12 months' compensation, redundancy dues, pro-rated bonus and costs. The 2nd Respondent maintained it was a distinct legal entity from the 1st Respondent and that the redundancy was lawful and fair. The court framed three issues: the identity of the employer, whether the redundancy was bonafide, and entitlement to reliefs. It found that although the Claimant contracted with the 1st Respondent, there was significant control by the 2nd Respondent, evidenced by payslips issued by the 2nd Respondent and contract terms tying the Claimant to the Centum Group, such that the two operated as a single economic entity. On the redundancy, the notification dated 15th June 2020 predated the 1st Respondent's board resolution of 19th June 2020; no notice to the Labour Officer was proved; and no explanation was given on selection, reasons or extent. The notice was held ineffectual, and the purported redundancy was converted into unfair termination under Section 45(2) of the Employment Act. The court declared the termination unfair, awarded the admitted redundancy dues of Kshs.10,903,410.52, compensation of 2 months' gross salary (Kshs.1,960,000), and costs. Claims for constitutional damages and bonus failed for want of evidence. Judgment was delivered virtually at Nairobi on 30th September 2024.

Key legal issues

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01

Who the Claimant's employer was

Holding

Both respondents operated as a single economic entity; the 2nd Respondent exercised significant control over the Claimant's employment.

Reasoning

The court found the Claimant signed an employment contract with the 1st Respondent, but the contract's Clause 6 expressly contemplated offering services to any Centum Group affiliate, payslips were issued by the 2nd Respondent, and the 2nd Respondent controlled finances, HR and payroll. Relying on the qualification of the Salomon rule for group accounting, the court found no clear operational dichotomy between the respondent companies.

p. 9
02

Whether the Claimant's redundancy was bonafide

Holding

The redundancy was not bonafide; the notice was ineffectual and the process lacked substantive justification and procedural fairness.

Reasoning

The notification of redundancy dated 15th June 2020 preceded the 1st Respondent's board resolution of 19th June 2020, indicating the process was orchestrated. No evidence proved notice to the Labour Officer under Section 40(1)(b), no prior notification or discussion with the Claimant occurred, and no explanation was given on selection, reasons or extent of the redundancy. The respondents did not controvert that the redundancy was a strategy orchestrated by the 2nd Respondent to close the 1st Respondent.

p. 12
03

Whether the Claimant is entitled to the reliefs sought

Holding

A declaration of unfair termination was granted, redundancy dues of Kshs.10,903,410.52 as admitted were awarded, and compensation of 2 months' gross salary was granted; constitutional damages and bonus claims failed for want of evidence.

Reasoning

Having found the termination unfair, the court made the declaration sought. The redundancy package of Kshs.10,903,410.52 was confirmed by email and awarded as admitted. Considering the Claimant's about 11 years at the Centum Group and the finding that the redundancy was not bonafide, the court deemed 2 months' gross salary fair compensation. The Article 41 damages and bonus claims were unsupported by evidence and were declined.

p. 12

Legal principles established

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  • The provisions of Section 40(1) of the Employment Act on redundancy are mandatory and an employer must comply with all the conditions therein before declaring an employee redundant.
  • Where a redundancy lacks substantive justification and procedural fairness, it constitutes unfair termination under Section 45(2) of the Employment Act.
  • Where companies in a group operate as a single economic unit with no clear operational dichotomy, they may be treated as one for purposes of employment liability.

Court orders

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  1. 1.Declaration that termination of the Claimant's employment on account of redundancy was unfair.
  2. 2.Redundancy dues awarded as admitted, Kshs.10,903,410.52.
  3. 3.Equivalent of 2 months' salary as compensation for unfair termination, Kshs.1,960,000.00.
  4. 4.Costs of the suit awarded to the Claimant.

Authorities

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Legislation

  • Employment Act, 2007Section 2 (definition of employer and redundancy)
  • Employment Act, 2007Section 40(1)(a), (b), (e), (f), (g)
  • Employment Act, 2007Section 45(2)(b)(ii), (c) and Section 45(2)
  • Constitution of KenyaArticle 41
  • Constitution of KenyaArticle 159(2)(d)
  • Constitution of KenyaArticle 48
  • Civil Procedure Act (Chapter 21, Laws of Kenya)Section 1B
  • Civil Procedure RulesOrder 21 Rule 1

Cases cited (15)

  • Samuel Wambugu Ndirangu vs 2NK Sacco Society Limited
    (2019) eKLR
  • Philip Ateng Oguk & 27 Others v Westmont Power (Kenya) Limited & another
    (2015)
  • Stephen Njoroge Kigochi v Martin Njoroge Wanyoike & Another
    (2014)
  • Kenya Airways Limited v Aviation & Allied Workers Union Kenya & 3 others
    (2014) eKLR / [2014] eKLR
  • Mbage v Hillcrest Investment Limited
    ELRC Cause 2007 of 2016 KEELRC 2096 (KLR)
  • Kaiga v Das
    (Employment and Labour Relations Claim 2 of 2023) [2023] KEELRC 2194 (KLR) (22 September 2023)
  • Walter Ogal Anuro vs Teachers Service Commission
    (2013) eKLR
  • Yamao vs Nestle Equitorial African Region Limited
    (Cause 328 of 2015) [2024] KEELRC 65 (KLR) (25 January 2024)
  • Kimemia v East African Breweries Limited & 2 others
    (Cause 212 of 2020) [2023] KEELRC 1837 (KLR) (27 July 2023)
  • Mosi v National Bank of Kenya Limited
    [2001] eKLR
  • Kenya Power & Lighting Company Limited vs Aggrey Lukorito Wasike
    [2017] eKLR
  • Salomon V Salomon & Co. Ltd
    (1897) AC. 22
  • Mary Nyawira Karimi v Pure Circles Limited
    Cause No. 403 of 2016
  • Thomas De La Rue Limited v David Opondo Omutelema
  • Barclays Bank of Kenya Ltd & Another v Gladys Muthoni & 20 others
Jurisdiction invoked
Original jurisdiction of the Employment and Labour Relations Court under the Employment Act, 2007 and Article 41 of the Constitution of Kenya

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, "Muthoni v Barium Capital Limited & another (Cause E199 of 2022) [2024] KEELRC 2345 (KLR)", Case Analysis (2024). Cause No E199 of 2022. Source: https://new.kenyalaw.org/akn/ke/judgment/keelrc/2024/2345/eng@2024-09-30

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