Contract Renewal, Is It Mandatory?

A Contract Renewal is an extension of the Term of a Contract, on or before the last day of the Term.

The Employment Act 2007 is silent on whether contract renewal is mandatory and because of this, the courts have been forced to intervene to decide whether the renewal of a fixed employment contract is mandatory or not.

To answer the question of whether contract renewal is mandatory in a fixed term employment contract, the courts have taken different positions on it. There is a section of judges that have agreed that renewal of contracts is automatic where notice of non–renewal has not been issued while other courts have disagreed with this position. To enable understand this quagmire we shall analyze the landmark case of Teresa Carlo Omondi v Transparency International- Kenya [2017] eKLR lodged in the Employment and Labour Relations Court, and later appealed to the Court of Appeal.

Analysis of Teresa Carlo Omondi v Transparency International- Kenya [2017] eKLR in the Employment and Labour Relations Court.

BRIEF HISTORY OF THE CASE

Teresa’s case

Teresa was employed as the Deputy Executive Director and Head of Programmes for a period of 2 years, commencing 1^st October 2010 and ending on 30^th September 2012, unless renewed. On 31^st July 2012, the Employer unexpectedly, and without assigning any reason terminated the Claimant’s contract, and dismissed the Claimant, by informing her, her contract would not be renewed. She wrote to the Employer asking for reasons for the decision. No reasons were given.

Teresa explained to the court that she believed her termination was unfair and unlawful on the following grounds:-

a) The Employer did not issue a 3 months’ notice, or pay the Claimant 3 months’ salary in lieu of notice, as stipulated in her contract of employment.

b) No reasons were given for the termination decision as required under clause 2 of her contract.

c) The Claimant was not given a reason or reasons for the non-renewal of her contract.

d) She was not given a hearing.

Employer’s case

The Employer filed its Statement of Response. It is accepted that Teresa was employed by the them as Deputy Executive Director and Head of Programmes, but did not terminate her contract, or dismiss her as alleged. They argued that her contract expired, and a decision was made not to renew. The decision not to renew was lawful and justified. She was notified on 31^st July 2012 that her contract would not be renewed. She enjoyed her benefits, until the last date of employment. The Employer also argued that renewal of the contract was at the discretion of the Employer.

Court’s Judgement of the case.

Rika J in his analysis of the case brought out the principle of Legitimate Expectation. In its simplest terms, legitimate expectation is defined as where a person induces another to have a reasonable expectation that some benefit will accrue to them at some point in the future. If the benefit does not materialize, the person who claims to have been induced can maintain a legal claim against the person who created the expectation and demand that it be fulfilled as a contractually binding promise.

For the above-mentioned principles to make sense, the contract of employment must in itself be renewable over and above the employer’s conduct and custom. The Court listed down the following elements to prove legitimate expectation in renewal of a contract:-

• The burden of proof, in legitimate expectation claims, is always on the Employee.
• It must be shown that the Employer, through regular practice, or through an express promise, leads the Employee to legitimately expect there would be renewal.
• The expectation becomes legally protected, and ought not to be ignored by the Employer, when managerial prerogative on the subject is exercised.
• Legitimate expectation is not the same thing as anticipation, desire or hope: It is a principle based on a right, grounded on the larger principles of reasonableness and fair dealing between Employers and Employees.
• The Employee must demonstrate some rational and objective reason, for her expectation. The representation underlying the expectation must be clear and unambiguous.
• The expectation must be induced by the decision maker (the employer). The decision maker must have the authority to renew.
• Repeated renewals, extended service beyond the period provided for in the fixed term contract, and promise of renewal, are some of the elements that would amount to objective reasons underlying the expectation of renewal of the contract.

Based on the above elements, the Judge made the following ruling in favour of Teresa;

1. the Claimant had reasonable and objective reasons to legitimately expect a renewal of her contract.
2. The Court agrees with the Claimant that her outgoing contract was terminated by the Respondent prematurely and unfairly.

From the above analysis, the court in its reasoning has stated that failure to issue a non–renewal notice or by such conduct by the employer creates a legitimate expectation, and if an employer does not issue a non-renewal notice and proceeds to terminate the employee then the employer’s conducts amounts to unfair termination pursuant to section 45 of the Employment Act 2007.

In a twist of events, Teresa’s employer appealed against the decision by Rika J. Since the enactment of the Employment law, employers have always felt that this law favours employees more than them.  Taking a look at the above interpretations of the court employers have been aggrieved by this position of the court. However, in 17th February 2023, the court of appeal gave relief to the employer by its decision in this case as seen below.

Analysis of the Transparency International-Kenya versus Teresa Carlo Omondi (2023) case in the Court of Appeal.

The Appellate Court  declared itself as follows;

1. There is no point of having a fixed-term contract if the contract will automatically renew itself, it beats the purpose.
2. On whether the expiry of a fixed-term contract amounts to a dismissal or termination, the court answered emphatically in the negative, stating that an automatically renewable fixed-term contract is a contradiction in terms since the contract has definite start and expiry dates.
3. As to whether an employee has a legitimate expectation of renewal, the court found that in the absence of evidence to that effect e.g. a letter promising renewal, the default position is that no such expectation exists in a fixed-term contract.
4. That renewal of a contract is at the discretion of the employer.
5. Lastly, the appellate court found that no such obligation to explain the reasons of non-renewal of a contract exists in the case of a fixed-term contract.

In conclusion

Even though the Court of Appeal has given its ruling that renewal of fixed employment contracts is not mandatory, the decision of the Court of Appeal is not cast in stone as it can still be challenged at the Supreme Court. As we continue to monitor the progress of this issue, it is important to highlight that as a cautionary measure, employers should inform in writing the employee where they intend not to renew their contract and employees, on the other hand, should not expect a renewal of their contract once the term of their contract expires as the employer has the right to renew or not.