Quote from Lawyer on June 5, 2025, 6:00 am

Employment contracts are governed primarily by the Employment Act, 2007, which outlines the legal framework for employer-employee relationships. These contracts establish the terms and conditions of employment, ensuring clarity and protection for both parties. Below is an overview of key aspects of employment contracts in Kenya.

Legal Framework Governing Employment Contracts

The primary legislation governing employment contracts in Kenya is the Employment Act, 2007, supplemented by:

• Labour Relations Act, 2007: Regulates collective bargaining and trade union activities.

• Occupational Safety and Health Act, 2007: Ensures workplace safety standards.

• Work Injury Benefits Act, 2007: Provides for compensation for workplace injuries.

• Constitution of Kenya, 2010: Guarantees fair labor practices under Article 41.

• Data Protection Act, 2019: Addresses confidentiality and data privacy in employment.

• Finance Act, 2023: Introduces new statutory contributions, such as updated NSSF rates.

Industry-specific regulations and collective bargaining agreements (CBAs) may also apply, particularly in unionized sectors.

Types of Employment Contracts

1. Oral Contracts: Valid for engagements lasting less than three months. They must include basic terms like wages, working hours, and job description, but are less formal and may lead to disputes due to lack of written evidence.

2. Written Contracts: Mandatory for engagements exceeding three months or for specific roles (e.g., domestic workers). They must detail:

   • Employee’s name, age, address, and job title.

   • Commencement date and duration (if fixed-term).

   • Salary, payment intervals, and benefits (e.g., allowances, overtime).

   • Working hours, leave entitlements, and termination procedures.

   • Place of work and employer details.

3. Fixed-Term Contracts: Specify an end date and are common for project-based or seasonal work. They automatically terminate upon expiry unless renewed.

4. Permanent Contracts: Ongoing until terminated by either party, subject to statutory notice periods.

5. Casual Employment: For work not exceeding three months, often paid daily or weekly. Casual workers are entitled to minimum wage and basic protections.

Key Legal Requirements

• Minimum Terms: The Employment Act mandates inclusion of minimum terms such as wages, leave (e.g., 21 days annual leave after one year), and notice periods (typically 28 days for monthly-paid employees).

• Probation Period: Cannot exceed six months, extendable to 12 months with employee consent. During probation, termination requires seven days’ notice.

• Non-Discrimination: Contracts must comply with anti-discrimination laws, ensuring no bias based on gender, race, or disability.

• Statutory Deductions: Employers must deduct and remit taxes (PAYE), National Social Security Fund (NSSF), and National Hospital Insurance Fund (NHIF) contributions.

• Termination: Must follow due process, including notice or pay in lieu, except in cases of gross misconduct. Unfair dismissal can lead to compensation claims up to 12 months’ salary.

Failure to provide a written contract or include mandatory terms can lead to legal disputes and penalties, as non-compliant terms are deemed unlawful (Section 10).

Components of a Compliant Employment Contract

A compliant employment contract must include clear, enforceable clauses to meet legal standards and protect both parties. Below are the essential components:

1. Parties to the Contract

• Identify the employer and employee with full names, addresses, and contact details.

• Specify the employer’s legal entity (e.g., company name, registration number).

2. Job Title and Description

• Clearly define the employee’s role, responsibilities, and reporting structure.

• Ensure the description is specific to avoid disputes over duties.

3. Place of Work

• Indicate the primary workplace or note if the role involves multiple locations or remote work.

• Include clauses for potential relocation, ensuring compliance with fair labor practices.

4. Remuneration

• Specify the salary (gross or net), payment frequency (e.g., monthly), and method (e.g., bank transfer).

• Detail allowances, bonuses, or commissions, if applicable.

• Ensure compliance with minimum wage regulations, which vary by sector and location, and statutory deductions (NSSF, NHIF, PAYE) as updated by the Finance Act, 2023.

5. Working Hours and Rest Days

• Define standard working hours (typically 45 hours per week for full-time employees).

• Specify rest days (at least one per week) and overtime policies (minimum 1.5 times the normal rate, per Section 10).

6. Leave Entitlements

• Outline annual leave (minimum 21 working days after 12 months, per Section 28).

• Include sick leave (7 days full pay, 7 days half pay, per Section 30), maternity leave (3 months full pay, per Section 29), and paternity leave (2 weeks, per Section 29).

• Address public holidays and compassionate leave, if offered.

7. Probation Period

• Define the probation period (up to 12 months, including extensions, per Section 42).

• Specify notice requirements during probation (7 days or pay in lieu).

8. Termination Clause

• Align with Sections 35, 40, and 44 of the Employment Act:

  • Notice Periods: Specify notice periods (e.g., 28 days for monthly salaried employees, payment in lieu allowed). Daily wage earners require no notice, while weekly contracts need one to two weeks’ notice.

  • Grounds for Termination: Include valid reasons such as misconduct, poor performance, redundancy, or incapacity. For summary dismissal (without notice), list grounds like gross misconduct (e.g., absenteeism, intoxication, criminal acts) under Section 44.

  • Procedural Fairness: Outline the termination process, including the right to a hearing and representation (Section 41), to ensure fairness and compliance.

9. Non-Compete Clause

• While not expressly regulated, non-compete clauses are enforceable if reasonable, balancing the employer’s interests with the employee’s right to earn a living.

• Reasonableness: Limit duration (e.g., 6–12 months), geographic scope, and restricted activities. Overly restrictive clauses may be struck down by courts.

• Industry-Specific: Common in niche sectors to protect trade secrets or client relationships.

• Legal Precedent: In Coca-Cola East & Central Africa Limited v Maria Kagai Ligaga [2015] eKLR, courts emphasized that non-compete clauses must be fair and not impede gainful employment.

10. Confidentiality

• Protect sensitive business information, ensuring employees do not disclose trade secrets during or after employment.

• Align with the Data Protection Act, 2019, for roles involving personal data.

11. Dispute Resolution

• Specify internal grievance procedures or alternative dispute resolution (ADR) methods like mediation to resolve conflicts efficiently.

• Reference escalation to labor officers or the Employment and Labour Relations Court, if needed.

12. Health and Safety

• Ensure compliance with the Occupational Safety and Health Act, 2007, including provisions for a safe workplace and necessary training.

13. Benefits and Statutory Deductions

• Detail contributions to:

  • National Social Security Fund (NSSF): Mandatory contributions per the NSSF Act, 2013, updated by the Finance Act, 2023.

  • National Hospital Insurance Fund (NHIF): Contributions based on salary brackets.

  • Pay-As-You-Earn (PAYE): Income tax deductions per Kenya Revenue Authority guidelines.

• Include optional benefits like medical insurance or pension schemes.

Importance of Legal Review

A legal review by an advocate is critical to ensure:

• Compliance: Contracts align with the Employment Act, Labour Relations Act, Data Protection Act, 2019, and other regulations, avoiding penalties or disputes.

• Clarity: Clear terms prevent misunderstandings, reducing litigation risks.

• Protection: Tailored clauses address specific risks, such as data privacy or industry-specific concerns.

• Adaptability: Legal experts incorporate updates from proposed reforms, like the Employment (Amendment) Bill, 2019, which may introduce rules on flexible working or enhanced data protection.

Practical Tips for Employers and Employees

For Employers:

• Engage a lawyer to draft or review contracts, especially for senior roles or industries with sensitive information.

• Regularly update contracts to reflect legal changes, such as new contribution requirements under the Finance Act, 2023.

• Provide signed copies of contracts to employees within two months (Section 9(3)) and retain records for at least three years after termination (Section 74).

• Incorporate CBAs for unionized employees and ensure compliance with industry-specific regulations.

For Employees:

• Review contracts before signing, ensuring terms like salary, leave, and termination are clear and fair.

• Seek legal advice if terms, such as non-compete clauses, seem restrictive or unclear.

• Verify that statutory deductions (NSSF, NHIF, PAYE) and leave entitlements comply with the law.

Common Pitfalls to Avoid

• Omitting Mandatory Terms: Failure to include required clauses (e.g., notice periods or leave entitlements) can render contracts unenforceable.

• Vague or Unfair Clauses: Ambiguous terms or overly restrictive non-compete clauses may be challenged in court.

• Non-Compliance with Statutory Deductions: Failing to remit NSSF, NHIF, or PAYE contributions can lead to penalties from the Kenya Revenue Authority.

• Ignoring CBA Requirements: Overlooking CBAs in unionized workplaces can result in disputes or legal action.

Enforcement and Dispute Resolution

Disputes arising from employment contracts can be addressed through:

• Internal Grievance Procedures: Encouraged as the first step for resolving issues.

• Labour Officers: The Ministry of Labour mediates disputes under the Employment Act.

• Employment and Labour Relations Court: Handles complex cases, such as unfair termination or contract breaches.

Clear dispute resolution mechanisms in contracts help minimize litigation risks.

Conclusion

Drafting compliant employment contracts requires careful adherence to the Employment Act, 2007, and other relevant laws. By including mandatory components, ensuring clarity, and seeking legal review, employers can foster trust, protect both parties, and minimize disputes. Employees should carefully review contracts and seek legal advice to ensure fairness. Regular updates to reflect legal changes or proposed reforms are essential for ongoing compliance.

Contact us today at +254 716 808 104 or info@lawguide.co.ke for expert assistance in drafting and reviewing employment contracts.