Termination notice clauses: getting it wrong

Phoebe Kwamboka Matoya vs. Simba & Simba Advocates [2019] eKLR

By Shadrack Muyesu

Facts

The Claimant was employed by the Respondent as a secretary starting September 3, 2001. On 10 September 2014, the Respondent’s Managing Partner wrote to the Claimant to inform her of the termination of her employment. The Respondent indicated in the letter that it was terminating the contract of employment in the exercise of its option under Clause Six of the contract and that the Claimant would be paid one month salary in lieu of notice. No other reason was given.

Issues

In Court, the Claimant testified that the termination of her contract was unfair because she was not issued with a show-cause notice or informed of any reasons for the termination of employment beforehand. The Claimant also asserted that she was not afforded an opportunity to be heard before the termination and that the real reason for the action was her state of health.

Rule of Law and analysis

Applying itself to the issues, the court reasoned that Section 35(1)(c) of the Employment Act, 2007 contemplates an employer issuing a written notice of termination of employment at least 28 days in advance if the employee is paid by the month (unless in a case of summary dismissal). The Respondent did not issue such notice.

Apart from the written notice of termination of employment, Section 41 of the Act imposes a burden on an employer to afford an employee an opportunity to make representations before termination of employment, if the decision is founded upon the grounds of misconduct, poor performance or physical incapacity on the part of the employee. If it is a case of summary dismissal, Section 41(2) of the Employment Act, 2007 obligates the employer to hold an oral hearing. The Respondent did not demonstrate that it afforded the Claimant any opportunity to be heard before the decision to terminate was taken.

The Respondent’s case on the question of procedural fairness was that it was exercising a contractual option to terminate and it cited the case of Rift Valley Textiles Ltd v Edward Onyango Obanda (1992) eKLR.

However, the court refused to be guided by this precedent citing that it had been overtaken by a subsequent decision of the Supreme Court and that it was therefore bad law. By dint of the decision in ‘Kenfreight (EA) Ltd v Benson K. Nguti (2019) eKLR’, the legal framework which permitted an employer to dismiss an employee for no reason, a bad reason, a good reason or for cause provided that notice, as agreed in contract, was given (or pay in lieu of notice) was no longer the part of the law of Kenya.

In any case, the Court stated, Section 45(1) & (2) of the Employment Act, 2007 as read with Section 43 of the Act made it incumbent for the employer to have valid and fair reasons before terminating an employment contract, and to prove the reasons in Court if there is a legal challenge.
From the foregoing, the Court found that the termination of the Claimant’s employment on account of a purported contractual power was not only invalid, but procedurally unfair and tainted.

Getting it wrong

Contracts commonly include express rights for termination, setting out clauses allowing parties to terminate in specified circumstances. The triggers for termination often include insolvency and a material breach of contract.

Unless limited or excluded under the relevant contract, in addition to express rights of termination, common law will give a contracting party the right to terminate a contract for the most serious breaches – (these are known as repudiatory breaches) and may, depending on the circumstances, give rise to an implied right to terminate on reasonable notice.

Either way, the terminating party needs to ensure it is justified in terminating the contract – this will depend on all the circumstances, including the wording of the contract and the events giving rise to an alleged right to terminate.

A party’s right to terminate is often not clear-cut. The biggest risk for a party terminating a contract is that they may not in fact have the right to terminate. Where this is the case, the terminating party may find themselves in breach of the contract, which could result in the other party having the right to terminate the contract and claim damages.

The terminating party may also serve a non-compliant notice to terminate, which could result in the purported termination being ineffective.
The terminating party needs to comply exactly with the contract’s notice requirements. For example, when serving a notice to terminate the notice clause will typically specify where and how to send a notice, and when it is deemed received.