Unfair sack? Why you can't be compensated before retirement

If your employer terminates your permanent job, you should not expect compensation for the expected remainder of your term of service, the Supreme Court has said.

While observing that permanent and pensionable does not mean that an employee has to work until retirement, the apex court has ruled that an employee's expectation that he or she will be compensated for future earnings and anticipatory salaries is not founded in law.

“Once employment is terminated, lawfully or unlawfully, including through retirement in the public interest, the employment relationship comes to an end. Any form of payment beyond that date, be it anticipatory salaries or allowances, would lack any basis under the law.

"Damages for wrongful or unlawful dismissal are confined to what is contractually or statutorily provided for, such as pay in lieu of notice, accrued benefits, and pension entitlements. In other words, the court cannot grant anticipatory salaries and allowances for a period during which the employee did not render any service to the employer,” ruled the Supreme Court.

The court said that employees should not relax after being sacked, waiting for the Employment  and Labour Relations Court (ELRC) to hand them a windfall that would cover their remaining years to retirement.

Chief Justice Martha Koome and Justices Smokin Wanjala, Njoki Ndung’u, Isaac Lenaola and William Ouko were of the view that unfair labour termination should be limited to notice pay, payment in place of notice, and contractual terminal benefits. 

“The principle of mitigation of loss further obligates employees to take reasonable steps to find alternative employment, rather than sit back and expect a windfall. Damages in contract law aim to place the injured party in the position they would have been had the contract been lawfully performed,” the bench headed by Justice Koome ruled.

“There cannot be a legitimate expectation merely on the basis that the term of service is permanent and pensionable. The law does not protect every expectation save only those which are legitimate. In addition, clear statutory provisions will override any contrary expectation, however founded.”

On the other hand, the court ruled that the new labour rights regime requires an employer to justify why they have retired an employee out of public interest. This majorly affects the government and its agencies.

According to the five judges, the old right of employers having a right to hire and fire is long gone. Instead, they said, they ought to show that they had subjected the affected employee to a fair due process

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They further said that where there is evidence of unlawful termination, in peculiar circumstances where the court also finds the termination is a nullity, it may award an employee the remaining salary and benefits.

The Supreme Court was settling a long-standing battle between ex-Telkom Kenya Limited employees Francis Waithaka, Sudi Abdalla and Andrew Muga against the telecommunication company.

The court found that it was strange for Telkom to place them on compulsory leave on allegations of laxity, as they had proved that they were awarded for their exemplary work. At the same time, the five judges also found that they were not given a chance to defend themselves as their requests to appear before the board were rejected.

However, Justices Koome, Wanjala, Njoki, Lenaola and Ouko said that the payment of one month’s lieu of notice and their terminal dues was enough, based on their contract.

In their case, Waithaka, Sudi and Muga argued that they anticipated that they would work till retirement. According to them, they were formally retired at the ages of  41, 43 and 50, respectively, in October 1991.

They argued that their retirement before getting to the then-mandatory age of 55 was illegal and unfair.

The case started in 1993 at the High Court. In his case, Waithaka argued that if he was to retire at 55, he expected to earn Sh 10.5 million, while he hoped to get Sh 23.7 million as special damages.

On the other hand, Sudi sought Sh 21 million as special damages while Muga argued for Sh 2.7 million.

The trio were initially employed by Telkom’s predecessor, Kenya Posts and Telecommunications Corporation.

In its reply, Telkom argued that they were aware that they could be retired on public interest

The telco further said that it was not required to follow any process before deciding whom to retire. It stated that since they were not sacked,  they were not entitled to salaries, allowances, or benefits accruing to employees in active service.

After hearing rival arguments, Justice Jonathan Havelock awarded the trio Sh 14.9 million, Sh 12.7 million and Sh 1.8 million after finding that they were not given a fair chance to argue against the retirement.

Aggrieved, Telkom moved to the Court of Appeal. It argued that Justice Havelock had failed to factor in that retirement on public interest grounds was a legal way to terminate their employment. It argued that the awards were unjust enrichment as their employment could be terminated either way before the retirement age.

On the other hand, the trio filed a counter appeal, seeking refund of the unlawfully deducted sums, payment of their proper monthly pensions and the withheld bonus, and progressive interest on all dues together with costs of the case.

The Court of Appeal Judges sided with Telkom. Justices Pauline Nyamweya, John Mativo and Mwaniki Gachoka found that they were rightfully retired and were accordingly compensated.

Waithaka, Sudi and Muga then moved to the Supreme Court. It upheld the Court of Appeal’s verdict.