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How to Handle Employee Terminations Legally in Kenya

Terminating an employee’s contract in Kenya is a sensitive process that requires strict adherence to the legal framework outlined in the Employment Act, 2007, and other relevant labor laws. Failure to follow proper procedures can lead to claims of unfair dismissal, resulting in costly litigation, reinstatement orders, or compensation for the affected employee. This article provides a comprehensive guide for employers on how to handle employee terminations legally, covering the lawful termination process, notice periods, severance pay, and strategies to avoid unfair dismissal claims under Kenyan labor law.

Legal Framework Governing Termination

The Employment Act, 2007, is the primary legislation governing employment relationships in Kenya, including termination and dismissal processes. The Act emphasizes that terminations must be both substantively and procedurally fair to avoid being deemed unlawful. Substantive fairness refers to having a valid reason for termination, while procedural fairness ensures that the correct process is followed. Key sections of the Act, such as Sections 35, 40, 41, 43, 45, 47, and 49, provide detailed guidelines on termination procedures, notice periods, severance pay, and remedies for unfair dismissal.

Additionally, Kenyan courts, including the Employment and Labour Relations Court, have established precedents that reinforce the importance of fairness in termination processes. Landmark cases such as Walter Ogal Anuro v. Teachers Service Commission [2013] eKLR and Kenfreight (EA) Limited v. Benson K. Nguti [2016] eKLR highlight the need for employers to justify terminations and adhere to due process.

To ensure a termination is lawful, employers must follow a structured process that complies with the Employment Act. Below is a step-by-step guide to the termination process:

1. Identify Valid Grounds for Termination

Under Section 45(2) of the Employment Act, termination must be based on a valid and fair reason related to the employee’s conduct, capacity, compatibility, or the employer’s operational requirements (e.g., redundancy). Valid grounds include:

Misconduct: Examples include theft, fraud, insubordination, or gross negligence. Summary dismissal may be justified for serious misconduct, but due process must still be followed.
Poor Performance: Termination for poor performance requires documented evidence, such as performance appraisals, and proof that the employee was given opportunities to improve.
Physical Incapacity: Termination due to an employee’s inability to perform duties because of health issues must be substantiated with medical evidence.
Redundancy: This occurs when a role is no longer needed due to operational changes, such as technological advancements or financial constraints. Redundancy procedures are outlined in Section 40 of the Employment Act.

Exceptions to the requirement for cause include the expiration of fixed-term contracts and the termination of probationary contracts, where employers are not obligated to provide a reason beyond the lapse of the contract period or probationary terms.

2. Issue a Written Notice of Termination

Section 35 of the Employment Act mandates that terminations be communicated in writing, clearly stating the reasons for termination. If the employee does not understand the notice, the employer must explain it orally in a language the employee understands. The notice must:

Specify the intention to terminate the contract.
Outline the reasons for termination.
Be acknowledged by the employee.

3. Observe the Required Notice Period

The notice period depends on the terms of the employment contract or the payment schedule of wages/salary. If the contract does not specify a notice period, the Employment Act provides the following minimum notice periods:

Daily Wage Contracts: Notice must be given by the close of the day without additional notice.
Weekly Wage Contracts: At least 7 days’ notice is required.
Monthly Wage Contracts: A minimum of 28 days’ notice is required.
Probationary Contracts: A minimum of 7 days’ notice or payment of 7 days’ wages in lieu of notice.

If an employer fails to provide the required notice, they must pay the employee compensation in lieu of notice, equivalent to the wages the employee would have earned during the notice period, based on the average daily earnings over the past 12 months.

4. Conduct a Fair Disciplinary Process

Before terminating an employee for misconduct, poor performance, or incapacity, employers must follow a fair disciplinary process as outlined in Section 41 of the Employment Act. This includes:

Issuing a Show-Cause Notice: The employer must provide a written notice detailing the allegations and inviting the employee to a disciplinary hearing. The notice should inform the employee that dismissal is being considered and that they may bring a representative (e.g., a fellow employee or union representative).
Providing Adequate Preparation Time: The employee must be given reasonable time to prepare their defense.
Holding a Fair Hearing: The employee is entitled to present their case, respond to allegations, and have a representative (e.g., a colleague or union member) present. The employer must consider all representations before making a decision.
Documenting the Process: Employers should keep records of the notice, hearing, and decision-making process to demonstrate procedural fairness.

Failure to follow this process may result in a termination being deemed a summary dismissal, which is considered unfair under Section 47 and 49 of the Employment Act.

5. Notify the Labour Officer

Within seven days of dismissal, the employer must submit a written report to the labor officer in the district where the employee worked. The report should include:

The circumstances leading to the dismissal.
The reasons for the dismissal.
The notice period provided or the amount of wages paid in lieu of notice.
Any wages or allowances earned by the employee since the dismissal date.

This notification is not a prerequisite for dismissal but serves as a record of compliance.

6. Issue a Certificate of Service

Upon termination, employers are required to provide the employee with a Certificate of Service, detailing the nature and duration of employment. Providing false information in this certificate is a criminal offense.

Severance Pay and Other Entitlements

Severance Pay

Severance pay is mandatory only in cases of redundancy, as outlined in Section 40(1)(f) of the Employment Act. It is calculated at a rate of not less than 15 days’ pay for each completed year of service. If the employment contract or a collective bargaining agreement (CBA) provides a higher severance package, the better terms apply.

For example, if an employee earning a monthly wage of KES 50,000 is made redundant after 5 years of service, the severance pay would be:

15 days’ pay per year = (50,000 ÷ 30) × 15 = Kshs. 25,000 per year.
For 5 years = 25,000 × 5 = Kshs. 125,000.

Other Entitlements

Upon termination, employees are entitled to:

Payment for Accrued Leave: Compensation for any unused leave days, calculated based on the employee’s daily wage.
Payment for Work Done: Wages for work performed before termination.
Service Pay: If the employee was not covered by a social security scheme (e.g., NSSF), they may be entitled to service pay, calculated similarly to severance pay.

Specific Procedures for Redundancy

Redundancy occurs when an employee’s role is no longer needed due to operational changes. Section 40 of the Employment Act outlines specific procedures for redundancy:

Notify the Employee and Labour Officer: At least 30 days’ advance notice must be given to the employee and the local labor officer, specifying the reasons for redundancy.
Fair Selection Process: Employers must use transparent and non-discriminatory criteria to select employees for redundancy (e.g., based on skills, experience, or seniority).
Consultation: Employers must consult with affected employees or their representatives (e.g., trade unions) before finalizing the redundancy.
Pay Severance and Other Dues: Severance pay (at least 15 days’ pay per year of service), payment in lieu of notice (if applicable), and other entitlements must be paid.

Failure to follow these procedures, as seen in cases like David Opondo Omutelema v. Thomas De La Rue (K) Ltd, can result in a court ruling the redundancy unfair, leading to compensation or reinstatement.

Avoiding Unfair Dismissal Claims

Unfair dismissal occurs when a termination lacks substantive justification or fails to follow procedural fairness. Under Section 47(5) of the Employment Act, an employee alleging unfair dismissal must present prima facie evidence of termination, after which the burden shifts to the employer to justify the termination. Common grounds for unfair dismissal claims include:

Lack of Valid Reason: Terminations without documented evidence of misconduct, poor performance, or operational necessity.
Procedural Flaws: Failure to issue a show-cause notice, hold a fair hearing, or provide adequate notice.
Discrimination: Termination based on gender, race, religion, age, disability, pregnancy, or union membership.
Retaliation: Dismissing an employee for exercising legal rights, such as whistleblowing or joining a trade union.

To avoid unfair dismissal claims, employers should:

Document Performance Issues: Maintain records of performance appraisals, warnings, and improvement plans, especially for terminations based on poor performance. Courts, as in Isdor Rachuonyo v. Brava Food Industries Limited, have ruled terminations unfair when employers fail to provide clear evidence of poor performance.
Follow Due Process: Adhere to the disciplinary procedures in Section 41, including issuing a show-cause notice and conducting a fair hearing.
Provide Clear Reasons: Ensure the termination notice specifies the reasons for dismissal, supported by evidence.
Avoid Discriminatory Practices: Base terminations on objective criteria, avoiding factors like gender, religion, or union membership.
Consult Legal Experts: Seek advice from employment law specialists to ensure compliance with the Employment Act and avoid procedural errors.
Issue Warnings When Appropriate: For poor performance or minor misconduct, provide verbal and written warnings before termination, giving the employee a chance to improve.

Remedies for Unfair Dismissal

If a termination is deemed unfair by a labor officer or the Employment and Labour Relations Court, employees may be entitled to the following remedies under Section 49 of the Employment Act:

Compensation: Up to 12 months’ gross salary, depending on the severity of the unfairness.
Reinstatement: The employee is restored to their previous position without loss of benefits.
Re-engagement: The employee is offered a comparable role at the same wage.
Payment of Due Entitlements: Includes accrued leave, wages for work done, and severance pay (if applicable).
Certificate of Service: A mandatory document outlining the employee’s service history.

Employees must file unfair dismissal claims within three years of receiving the termination notice, or the claim becomes time-barred.

Practical Tips for Employers

To ensure compliance and minimize legal risks, employers should:

Develop Clear Policies: Establish workplace policies on performance, conduct, and termination procedures, communicated to all employees.
Train HR Personnel: Ensure HR teams are well-versed in Kenyan labor laws and termination procedures.
Maintain Records: Keep detailed records of employment contracts, performance reviews, disciplinary actions, and termination processes.
Use Mutual Separation Agreements: For amicable terminations, draft written agreements outlining final dues, severance, and a release of claims to prevent future disputes.
Engage Trade Unions: If employees are unionized, involve union representatives in the termination process to ensure transparency and fairness.
Stay Updated on Legal Changes: Employment laws may evolve, so consult legal experts or resources like the Employment and Labour Relations Court for updates.

Conclusion

Handling employee terminations legally in Kenya requires a thorough understanding of the Employment Act, 2007, and a commitment to fairness. Employers must ensure terminations are substantiated with valid reasons, follow proper procedures, provide adequate notice, and pay all due entitlements, including severance pay in redundancy cases. By adhering to these requirements, documenting all steps, and seeking legal guidance when needed, employers can minimize the risk of unfair dismissal claims and maintain compliance with Kenyan labor laws. For employees, understanding their rights under the law empowers them to challenge unfair terminations and seek appropriate remedies. Both parties benefit from a transparent and lawful termination process, fostering a fair and balanced workplace environment.

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