The Employment and Labour Relations Court has delivered a ruling that clarifies the legal limits of compensation in employment disputes.
In its ruling, the court emphasized that employment contracts—regardless of how they are described—remain terminable and cannot guarantee earnings up to retirement.
The decision arose from a case between A.I.C Litein Hospital and a former employee, where an accounts clerk challenged his dismissal over alleged irregularities in transport reimbursements during a pediatric clinic exercise.
While the court upheld a finding of unfair termination, it found that the evidentiary basis for the allegations was insufficiently established, thereby limiting the scope of the compensation awarded.
Lady Justice Anna Ngibuini Mwaure, sitting in Kericho, reaffirmed that even where dismissal is found to be unfair, damages must remain within statutory limits under the Employment Act, particularly sections 43, 45, and 49, which govern proof of termination, fairness, and remedies.
A central issue in the case was whether an employee on a “permanent and pensionable” contract could claim compensation extending to retirement age after termination.
The court held that there is no legal basis for awarding damages that extend up to an employee’s retirement age.
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It further stated that the fact that an employment contract is described as “permanent and pensionable” does not preclude its termination, and that once termination occurs, compensation is strictly limited to losses arising from procedural or substantive unfairness of the dismissal, not speculative future earnings.
The court also underscored that employment relationships are not permanent under the law and can be terminated in accordance with due process, provided that statutory safeguards, such as a fair hearing under Section 41 of the Employment Act, are observed.
“Regarding compensation up to retirement, the Court was persuaded by the case of Elizabeth Wakanyi Kibe v Telkom Kenya Ltd (supra), which cited Engineer Francis N. Gachuri v Energy Regulatory Commission [2013] eKLR, which emphasized that damages cannot extend to retirement age since employment contracts, even when described as ‘permanent and pensionable,’ are terminable,” the court ruled.
“Remedies are limited to compensation for unfair or unlawful termination, not speculative future earnings. Accordingly, the court set aside the award for retirement compensation and granted none.”
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In its reasoning, the court emphasized that compensation in employment disputes is remedial, not punitive, meaning it is intended to compensate for actual loss suffered rather than to punish the employer or to project future income up to retirement.
The dispute stemmed from allegations that transport reimbursements were paid to 70 participants instead of 34 during a medical outreach exercise.
However, the court noted that the evidence presented was contradictory, with inconsistencies in witness testimony, and failed to clearly establish responsibility on the part of the employee.
At the same time, the the court observed that key evidence material, including participant lists and audit documentation, was not produced in sufficient detailt detail to conclusively support the allegations of financial mismanagement.
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Reliefs Awarded
As for reliefs, the court revised the awards as follows:
- The claimant was awarded one month’s salary in lieu of notice, amounting to Ksh. 63,144.90.
- The court reduced the 12-month compensation award to 7 months in line with Section 49 of the Employment Act, considering the length of service, resulting in Kshs.442,014.30.
- A claim for basic salary allegedly worked for 70 months was rejected entirely, with the court finding no legal or evidential basis to support it.
- Leave pay was limited strictly to accrued but untaken leave for 2023, assessed at Kshs.63,144.90.
- The house allowance was adjusted to comply with Section 31 of the Employment Act and restricted to the 2023 entitlement of Kshs. 9,471.60.
- The medical allowance claim was dismissed for want of proof under Sections 107, 108 and 109 of the Evidence Act.
- The court awarded the respondent Ksh577,775.07 and upheld the costs. Interest will be at 14% per annum from the date of this judgment till full payment.
