Ondari v NHIF [2025] KECA 687 (KLR): Valid Reasons for Termination of Employment
The Court of Appeal’s ruling in Ondari v National Hospital Insurance Fund [2025] KECA 687 (KLR) provides significant clarity on the legal standard for what constitutes a "valid reason" for termination under sections 43 and 45 of Kenya’s Employment Act, 2007. The decision reaffirms the delicate balance between an employer’s prerogative to make business decisions and the employee’s right to fair treatment, emphasizing a partly subjective test for assessing the validity of reasons for termination. This commentary explores the legal principles, judicial reasoning, practical implications for employers, and broader significance of the ruling.
The Employment Act, 2007, establishes a dual requirement for lawful termination: substantive justification (valid reasons for termination) and procedural fairness (due process). Section 43(1) places the burden on the employer to prove the reasons for termination, while section 43(2) defines these reasons as those the employer "genuinely believed to exist" at the time of termination, which caused the employer to dismiss the employee. Section 45 complements this by mandating that terminations must be both substantively and procedurally fair to avoid being deemed unfair.
The Ondari case specifically addresses the substantive justification requirement, tackling the question: What constitutes a valid reason for termination, and to what extent must courts scrutinize the truth of those reasons?
The appellant, a former General Manager of Finance and Control at the National Hospital Insurance Fund (NHIF), was terminated for gross misconduct. The allegations centered on his failure to act prudently, resulting in financial loss and irregularities in the accreditation of facilities and payments. NHIF followed a disciplinary process, including interdiction, issuing a show-cause notice, and providing the appellant an opportunity to respond. Despite his responses, NHIF found them unsatisfactory and proceeded with termination.
The appellant challenged the termination before the Employment and Labour Relations Court (ELRC), arguing that the reasons were invalid and the process unfair. The ELRC dismissed his claim, holding that courts are not tasked with auditing the truth of an employer’s reasons for termination. Instead, the court’s role is to ensure that the employer reasonably believed the reasons to exist and that a reasonable employer would have terminated the employee on those grounds. The appellant appealed to the Court of Appeal, contending that the ELRC erred by failing to interrogate the veracity of NHIF’s reasons, which he argued contradicted section 45.
The Court of Appeal dismissed the appeal and upheld the ELRC’s decision, providing a robust interpretation of what constitutes a "valid reason" under section 43.
The court’s reasoning can be distilled into the following key points:
1. Burden of Proof on the Employer (Section 43(1)):
The court reaffirmed that the employer bears the onus of proving the reasons for termination. This aligns with the statutory requirement under section 43(1), ensuring that terminations are not arbitrary or capricious.
2. Partly Subjective Test (Section 43(2)):
Citing Kenya Power & Lighting Co. Ltd v Aggrey Wasike [2017] eKLR and Kenya Revenue Authority v Reuwel Waithaka Gitahi & 2 Others [2019] eKLR, the court clarified that the test for a valid reason is partly subjective. The employer must demonstrate that, at the time of termination, they genuinely believed the reasons for dismissal existed and that those reasons prompted the decision. The court does not need to verify the objective truth of the allegations but must assess whether the employer’s belief was genuine and reasonable.
3. Judicial Restraint in Employer Decisions:
Drawing on Kenya Airways Limited v Aviation & Allied Workers Union Kenya & 3 Others [2014] eKLR, the court emphasized that where an employer genuinely believes valid grounds for termination exist and follows due process, courts should not substitute their judgment for that of the employer. This principle underscores judicial deference to an employer’s business decisions, provided they meet the threshold of reasonableness and good faith.
4. Application to the Case:
The court found that NHIF had conducted an investigation, interdicted the appellant, issued a show-cause notice, and provided him an opportunity to be heard. NHIF’s conclusion that the appellant’s responses were unsatisfactory was based on a genuine belief that his conduct constituted gross misconduct. The court held that it was not its role to re-evaluate the merits of NHIF’s reasons, as long as they were grounded in a reasonable and genuine belief. Consequently, the termination was upheld as lawful.
The Genuine Belief Standard
The Ondari decision solidifies the "genuine belief" standard as the cornerstone for assessing valid reasons for termination. This standard requires employers to demonstrate:
a. Genuine Belief:
The employer must honestly believe, based on the information available at the time, that the reasons for termination (e.g., misconduct, poor performance, or redundancy) exist.
b. Reasonableness:
The belief must be reasonable, meaning it is supported by some evidence or investigation, even if the facts are later proven incorrect.
c. Causation:
The reasons must be the actual basis for the termination decision.
This partly subjective test balances the employer’s managerial prerogative with the employee’s right to protection against unfair dismissal. It prevents courts from micromanaging employment decisions while ensuring that terminations are not baseless or malicious.
Implications for Employers and HR Professionals
The Ondari ruling offers critical guidance for employers and HR professionals in Kenya on how to ensure terminations comply with the Employment Act.
Key takeaways include:
A. Documenting the Genuine Belief:
Employers must maintain clear, contemporaneous records of the reasons for termination, including evidence of investigations, employee responses, and decision-making processes. In Ondari, NHIF’s documentation of the investigation and show-cause process was pivotal in demonstrating their genuine belief.
B. Conducting Thorough Investigations:
Before terminating an employee, employers should conduct a reasonable investigation to substantiate the grounds for dismissal. This does not require proving the allegations beyond doubt but ensures the employer’s belief is based on credible evidence.
C. Procedural Fairness:
While the article focuses on substantive justification, the Court of Appeal underscored the importance of procedural fairness. Employers must adhere to due process, including issuing notices, providing opportunities to respond, and conducting hearings where applicable.
D. Reasonableness in Decision-Making:
Employers should ensure that the reasons for termination are such that a reasonable employer in similar circumstances would act upon them. This involves aligning decisions with industry standards, internal policies, and the nature of the employee’s role.
E. Mitigating Legal Risks:
To withstand judicial scrutiny, employers should anticipate challenges to their reasons for termination. This involves training HR teams on the legal requirements under sections 43 and 45 and consulting legal experts when handling complex cases.
The Ondari decision reinforces a judicial trend in Kenya of respecting employer autonomy while safeguarding employee rights. By emphasizing the "genuine belief" standard, the Court of Appeal strikes a balance between preventing arbitrary dismissals and avoiding undue interference in legitimate business decisions. This approach aligns with international labour law principles, such as those under the International Labour Organization’s Convention No. 158, which Kenya has ratified, requiring valid reasons for termination.
The ruling also clarifies the limited role of courts in termination disputes. By declining to "audit the truth" of an employer’s reasons, the court ensures that judicial review focuses on the reasonableness of the employer’s belief rather than a re-litigation of the facts. This protects employers from excessive judicial overreach while holding them accountable for fair and transparent processes.
The Ondari decision builds on prior case law, such as:
i. Kenya Power & Lighting Co. Ltd v Aggrey Wasike [2017] eKLR, which established the partly subjective test for valid reasons.
ii. Kenya Revenue Authority v Reuwel Waithaka Gitahi & 2 Others [2019] eKLR, which reiterated that courts assess the employer’s belief, not the objective truth.
iii. Kenya Airways Limited v Aviation & Allied Workers Union Kenya & 3 Others [2014] eKLR, which emphasized judicial restraint in reviewing redundancy decisions.
These cases collectively affirm that courts prioritize the employer’s genuine and reasonable belief over a forensic examination of the facts, provided procedural fairness is observed.
Challenges and Considerations
While the Ondari ruling provides clarity, it raises questions about the extent to which employees can challenge the substantive fairness of terminations. The partly subjective test may disadvantage employees in cases where an employer’s belief, though genuine, is based on flawed or incomplete information. Employees may argue that courts should scrutinize the reasonableness of the employer’s investigation more rigorously to prevent unfair outcomes.
Additionally, the ruling places significant responsibility on employers to ensure their internal processes are robust. Failure to document investigations or provide due process could undermine the "genuine belief" defense, exposing employers to liability for unfair termination.
Recommendations for Employers
To align with the Ondari ruling and mitigate legal risks, employers should:
i. Develop Clear Policies:
Establish and communicate clear disciplinary and termination policies that align with the Employment Act.
ii. Train HR Teams:
Equip HR professionals with knowledge of the legal standards for termination, including the genuine belief and reasonableness tests.
iii. Document Processes:
Maintain detailed records of investigations, notices, hearings, and decisions to demonstrate compliance with sections 43 and 45.
iv. Seek Legal Advice:
Consult employment law experts for high-stakes terminations to ensure defensibility in court.
Conclusion
The Court of Appeal’s decision in Ondari v NHIF [2025] KECA 687 (KLR) is a landmark ruling that clarifies the standard for valid reasons for termination under Kenya’s Employment Act. By emphasizing the "genuine belief" test, the court upholds the employer’s right to make business decisions while ensuring accountability through procedural fairness and reasonable grounds.
For employers, the ruling underscores the importance of robust documentation, thorough investigations, and adherence to due process. For employees, it highlights the need to challenge terminations on procedural grounds or demonstrate that the employer’s belief was unreasonable or mala fide. This decision will likely serve as a guiding precedent for future termination disputes in Kenya, shaping the interplay between employer autonomy and employee protections.