Effect of the Death of a Sole Proprietor on Employees’ Contracts

The death of a sole proprietor does not, in itself, automatically terminate the employment contracts of employees engaged in the business.

This position was directly considered in Lucy Nyandia Mwangi v Mathenge and Muchemi Advocates [2013] eKLR, where the Employment and Labour Relations Court rejected the proposition that an employee's contract automatically lapses upon the death of the employer. The Court held that where the death of the employer results in the cessation of the business, the resultant loss of employment falls within the framework of redundancy.

The Court observed that where a business owner dies and the business consequently ceases to operate, the employee may lose employment through no fault of their own. Such termination therefore constitutes redundancy and must be dealt with in accordance with the applicable provisions of the Employment Act.

The same approach is consistent with the general principle that an employer cannot terminate an employment relationship without a lawful and valid basis and without following the prescribed procedure. In Kenfreight (E.A.) Limited v Benson K. Nguti [2016] eKLR, the Court of Appeal affirmed that termination of employment must comply with both the substantive and procedural requirements prescribed by the Employment Act.

Similarly, in Coca Cola East & Central Africa Limited v Maria Kagai Ligaga [2015] eKLR, the Court of Appeal emphasised that termination of employment must be founded upon a valid and fair reason and must be undertaken in accordance with a fair procedure.

Where the death of the sole proprietor results in the closure of the business or renders the employees' positions superfluous, the appropriate legal mechanism is therefore redundancy under Section 40 of the Employment Act, 2007. The personal representatives of the deceased employer, or any successor responsible for the business, should ensure compliance with the statutory requirements relating to redundancy.

In Thomas De La Rue (K) Ltd v David Opondo Omutelema [2013] eKLR, the Court of Appeal confirmed that the requirements under Section 40 of the Employment Act are mandatory where termination is undertaken on account of redundancy. Consequently, the employer must comply with the applicable notice requirements, selection criteria, payment of accrued leave, notice pay and severance pay.

Further, in Kenya Airways Limited v Aviation & Allied Workers Union Kenya & 3 Others [2014] eKLR, the Court of Appeal considered the nature and requirements of redundancy and affirmed the importance of compliance with the statutory procedure prescribed under Section 40 of the Employment Act.

Accordingly, the death of a sole proprietor should not be treated as an automatic termination of the employees' contracts. Where the proprietor's death results in the discontinuation of the business and consequently makes the employees' positions redundant, the employment relationship should be brought to an end through the lawful redundancy process.

The appropriate legal position may therefore be stated as follows:

The death of a sole proprietor does not, by itself, automatically terminate the contracts of employment of the proprietor's employees. Where the death results in the closure or cessation of the business and the employees' positions thereby become superfluous, the resulting termination constitutes redundancy and must be undertaken in accordance with Section 40 of the Employment Act, 2007.

Case Laws/Authorities:

1. Lucy Nyandia Mwangi v Mathenge and Muchemi Advocates [2013] eKLR.
2. Kenfreight (E.A.) Limited v Benson K. Nguti [2016] eKLR.
3. Coca Cola East & Central Africa Limited v Maria Kagai Ligaga [2015] eKLR.
4. Thomas De La Rue (K) Ltd v David Opondo Omutelema [2013] eKLR.
5. Kenya Airways Limited v Aviation & Allied Workers Union Kenya & 3 Others [2014] eKLR.

 Disclaimer: This article is intended for general information only and does not constitute legal advice. The circumstances of each case should be considered independently and professional legal advice obtained before taking action.