Termination of a Contract, Benefits and Wages (Labour Law)

1.0 Key Areas

• Termination of a Contract
• Termination of a Contract and Benefits and Wages
• Termination of a Contract and Labour Laws in Kenya

2.0 Introduction

Termination of employment can be initiated by either of the parties to a contract of employment (Employment Act, section 35 (1)). Lawful termination of employment under common law includes:

• Termination of employment by agreement: When the employer and employee agree to bring a contract of employment to an end following an agreement. This may be in case of terminating a contract of apprenticeship; where the period of training expires then the contract will obviously come to an end.
• Automatic termination: A contract of employment may be terminated automatically in circumstances such as death or loss of business of the employer.
• Termination of employment by the employee/resignation: This happens when an employee due to material breach of the contract by the employer decides to resign from his/her employment.
• Termination of employment by an employer: An employer may also terminate the employment of an employee but there is a need to comply with the provisions of the law and contract relating to termination. 

3.0 On what grounds can a contract of employment be terminated by an employer?

A contract of employment may be terminated by an employer on the following grounds:

• By mutual agreement between the employer and the worker (Industrial Training Act, section 13 (1) (a)).
• By the employer when the employee dies before the expiration of the period of employment.
• By the employer, if the worker is found by a medical examination to be unfit for employment. Due to sickness or accident, the employee becomes unable to carry out his or her work (Employment Act, section 41(1)).
• By the employer based on the misconduct of employee (Employment Act, section 44 (3)) 

4.0 What should an employer do if he or she wants to terminate a contract of employment?

A contract of employment may be terminated at any time by an employer who must give the employee a period of notice of termination (e.g. at the close of day in case of a contract for daily wages, one month or more in case of monthly pay contracts). 

5.0 What form of notice should I give as an employer?

A termination notice shall be in writing. In case the employee does not understand the notice, the employer is responsible to ensure that the notice is explained orally to the worker in a language he/she understands (section 35 (2) (3)).  

• If the employee is employed on a daily wage contract, the notice is given at the close of any day without notice. 
• If the employee is employed on a weekly pay or two-week basis the notice period shall be one week or two weeks respectively, given in writing or payment of one week’s salary in place of notice.
• If the employee is employed every month the notice period shall be 28 days and in writing or payment of one month’s salary in lieu of notice.
• In the case where a contract of employment provides that the notice of termination be given for a greater period than one month, then there will be agreed in writing between employer and employee for a longer notice and the agreed notice period shall be of equal duration for both employer and the employee (section 35 (2)). 

6.0 Can an employer terminate an employee immediately without allowing them to work during the notice period? Does the law allow this?

In the event, the employer wants to terminate an employee without allowing her/him to serve the notice period the employer will be required to pay the employee the amount that an employee would have received if she/he had worked during the notice period. This is what is usually referred to as payment in lieu of notice (section 36) also (section 38). 

Section 36 provides for payment of equivalent salary in place of notice instead of serving the notice. The length of notice will depend on the interval at which the salary is paid.

7.0 What happens if an employee is terminated but they have outstanding leave they have not taken?

In the case of accrued leave upon termination the employer shall pay an employee on a pro-rata basis an amount in cash for the accrued annual leave to which that employee is entitled (section 40 (1) (e)) - provided that it is taken not later than six months after the end of leave cycle or twelve months after the end of leave cycle if (if the employee consented or extension is justified by operational requirements) (section 28(4)). 

8.0 Can an employer terminate a contract of employment without notice?

Yes. Either party to a contract of employment may terminate the contract without notice if that party pays the other party a sum equal to the amount of remuneration which would have accrued to the worker during the period of the notice (section 36).

9.0 Is a certificate of service and notice mandatory even when terminated on misconduct?

Yes. Both are mandatory regardless of the reason for termination unless the period of service of the employee to the employer has lasted less than four weeks (section 51). 

10.0 Four grounds that justify termination of the employment by the employer

• Misconduct.
• Physical incapacity.
• Poor performance.
• Employer’s operational requirements/retrenchment. 

An employer may also terminate an employee due to participation in an illegal strike. Therefore for an employer to terminate an employee he/she should have a genuine reason as specified in section 45 (2) and section 46. An employee cannot be fired because an employer does not like them - unless the grounds for this dislike are based on the above-mentioned factors.

11.0 What amounts to fair terms termination of employment?

For termination to be fair in the eyes of the law, it has to be both substantively and procedurally fair. The employer needs to have a valid and fair reason for termination. 

Apart from this valid reason of termination, the employer must follow fair procedures for termination as are provided under the Employment Act, section 45 (2) and section 46.). In any form of termination, the employer is required to prove the reasons for the termination otherwise it will be termed as unfair (section 45 (2)). The procedures for termination are different depending on the reason for termination but they all have a common item - the right of an employee to be heard before a termination decision is taken against an employee (section 41 (2)).

12.0 Am I to follow the procedure for termination even in cases where an employee is caught red-handed committing serious misconduct, for example, stealing?

Yes. Notwithstanding the serious misconduct of the employee, and the evidence available, the law requires that procedures outlined under the law be followed. Failure to follow the procedure will amount to summary dismissal, meaning an employee is terminated without being availed of an opportunity to defend herself/himself before a fair disciplinary committee. In labor laws, summary dismissal amounts to unfair termination with consequences specified in section 47 and 49 (1) & (3).

Can I terminate an employee who is facing a criminal charge before a court of law?

No one can terminate or take disciplinary action against an employee who is facing the same charges before a court of law unless the two charges are different or do not arise in the same cause of action. 

What are the likely consequences of unfair termination for an employer?

If the labor officer makes the decision that the summary dismissal or the termination of the contract of an employee is unjustified, he may recommend to the employer to pay the employee any or all of the following:

• The wages which the employee would have earned had the employee been given the period of notice to which he was entitled under this Act or his contract of service. 
• Where dismissal terminates the contract before the completion of any service upon which the employee’s wages became due, the proportion of the wage due for the period of time for which the employee has worked; and any other loss consequent upon the dismissal and arising between the date of dismissal and the date of expiry of the period of notice referred to in paragraph (a) which the employee would have been entitled to by virtue of the contract.
• The equivalent of several months’ wages or salary not exceeding twelve months based on the gross monthly wage or salary of the employee at the time of dismissal.
• Alternatively, the employer may have to reinstate the employee and treat the employee in all respects as if the employees' employment had not been terminated; or 
• Re-engage the employee in work comparable to that in which the employee was employed before his/her dismissal, or other reasonably suitable work, at the same wage.
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