BY NEWTON ARORI
In the exercise of its powers and the discretion given to it, the Industrial Court is obliged to have regard not only or even primarily to the contractual or legal relationship between the parties to a labour dispute but also to the application of the principles of fairness ― The Labour Court of South Africa
Ordinarily, employers have the managerial prerogative in the renewal of a fixed term employment contract. In fact, an automatically renewable fixed term contract is a contradiction in terms, as it would subject the parties to an indeterminate employment contract. An employer is not even obliged to give reason for not renewing a fixed term contract. As Justice Rika of the Employment and Labour Relations Court has rightly observed, that would be like an employer being required to give a prospective employee reasons for rejecting their job application.
But while the employer retains discretion on renewal, that discretion is not unchallengeable. In the regional case of ‘United Nations Appeals Tribunal v The Secretary General of the United Nations’, the tribunal stated that the employer’s decision not to renew a fixed term contract may be challenged in instances where 1) there is legitimate expectation of renewal, 2) where the decision not to renew is based on improper motive, or 3) where there are countervailing circumstances.
Of these three instances, ‘legitimate expectation’ stands out in its notoriety as a source of employment disputes in our courts, and is therefore the focus of this article. We shall explore the circumstances where the employer’s decision not to renew a fixed term contract can be challenged based on the expectation of the employee.
First off, it is worth cautioning that ‘legitimate expectation’ is not a mere wish by the employee that their contract will be renewed. In the case of ‘Cleopatra Kama Mugyenyi v Aidspan’, the claimants sued seeking damages for non-renewal of their employment contracts. They alleged that they had legitimate expectation of renewal because the contract documents contained a renewal clause and the said contracts had been previously renewed. The case failed.
The court also dismissed the claim of an employee who expected her contract to be renewed because she had recently been promoted. This was in ‘Fatuma Abdi v Kenya School of Monetary Studies’.
In this scenario then, the operative word is ‘legitimate’. The employee must have a reasonable cause to anticipate that the employer will renew their employment contract. The South African Labour Court has stated, “the applicant as employee must prove that he had an expectation of renewal, and that the expectation was reasonable, in that apart from subjective say-so or perception, there is an objective basis for the creation of his expectation.” What then, according to our courts, makes an expectation ‘legitimate’?
The conduct of the employer
Where the employer’s actions lead the employee to believe that a fixed term contract will be renewed, the employer’s decision not to renew it can be challenged. In the case of ‘Ruth Gathoni Ngotho- Kariuki v Presbyterian Church of East Africa’, the Claimant was employed as a nursing officer at the PCEA Kikuyu Hospital on a three-year fixed term contract.
A clause in the employment contract stated, “Not less than three months before the date of expiration of this contract, the hospital board shall inform the officer as to whether or not it wishes to renew the contract.” This was not done, and the hospital board only informed Ruth of its decision not to renew her contract after it had expired. She sued her employer seeking damages for non-renewal.
The Employment and Labour Relations Court ruled in her favour. In his decision, Justice Byram Ongaya observed that by not informing Ruth of the non-renewal of her contract three months prior to expiry as stipulated in the employment contract, the board had led her to have legitimate expectation that her contract would be renewed. She was awarded Sh5.1 million in damages.
Note that even where the employment contract does not require that the employer give notice of non-renewal prior to expiry of the contract, a failure by the employer to do so may give rise to legitimate expectation. In ‘Johnstone Luvisia v Allpack Industries Limited’, the Claimant had not been notified of the non-renewal of his contract until after expiry. Justice Maureen Onyango awarded the claimant three months’ pay ‘to cater for the inconvenience of finding himself out of a job unexpectedly.’ The judge found the employer’s behaviour “untidy for failing to manage the claimant’s legitimate expectation”, even though the employment contract did not require the employer to give prior notice of non-renewal.
Likewise in ‘John Ogutu Ragama v Bandari Sacco Society Limited’, the Claimant was employed as Chief Executive Officer under a fixed term contract. After his second contract expired, Ragama applied for a third. Bandari Sacco’s board approved his application and subsequently offered him a third contract. Later, he was sent on compulsory leave and was informed the Sacco had decided not to renew his contract. This clearly was a malicious move. The court held that it was too late in the day for the Sacco to communicate its decision not to renew what had already been renewed. Nevertheless, the court observed that even in the absence of the third contract, Ragama would have had legitimate expectation of renewal, as he had gone on working after the expiry of his second contract.
Where a contract is renewable subject to certain conditions, the meeting of those conditions entitles an employee to legitimately expect their contract to be renewed.
In ‘Teresa Carlo Omondi v Transparency International’, the employment contract provided, “further extension of this contract shall be subject to satisfactory performance and the on-going requirement of your services.” The Claimant, who served as the Deputy Director General and Head of Programmes at Transparency International Kenya, was informed of the non-renewal of her contract and sent on leave prior to its expiry, yet she had performed exceptionally in her role ― mobilising resources, sustaining partnerships with several donor agencies and bringing on board new partners, including the World Bank.
She sued for, among other remedies, damages for non-renewal. The court ruled in her favour, with Justice Rika stating that “there was a promise for renewal subject to fulfilment of certain conditions. These conditions were met. The claimant performed satisfactorily. Her services were still required by the Organisation, as evidenced by the fact that her position was filled a week after her exit.” She was eventually awarded Sh3.9 million in damages.
All the cases we have discussed so far entail instances of the employer failing to renew a fixed term contract. However, the employee may also sue if the contract is renewed, but on terms less favourable than the ones expected. The recent case of ‘John Nduba v AMREF Health Africa’ is instructive in this regard. Here, like in Teresa’s case, the employment contract was renewable subject to satisfactory performance. John’s performance had been exemplary. Under the employer’s Human Resource policy manual, the contract period for regular staff was not less than 2 years. But when John’s contract expired, it was renewed for 3 months rather than the expected 2 years. He successfully brought an action against his employer and was awarded Sh15 million.
Legitimate expectation under Kenyan employment law is entirely based on case law since it has not been legislated. Consequently, there is a lack of clarity regarding the doctrine, judging from the number and quality of employment suits brought under it. To reduce the attendant confusion and avoid unnecessary litigation, our Employment Act ought to be amended to incorporate the concept of legitimate expectation.
The writer is an Advocate of the High Court of Kenya