Symon Wairobi Gatuma v Kenya Breweries Ltd & 3 others (Petition E023 of 2023) [2024] KESC 52 (KLR)
- Introduction
The Supreme Court was called upon yet again to solve a constitutional puzzle involving the rights of employees under Article 41 when it comes to changes in an organization’s structure. The employee in this case, Mr. Wairobi was aggrieved by an alleged reduction of his salary by the respondents during their corporate restructuring. He sought to have his right to fair labour practices under the constitution upheld by the court.
- Brief Summary of the Facts
Mr. Wairobi was employed by Kenya Breweries Limited in 1986 to offer services in the Malting Business as an Artisan grade F. Later on in 2003, Kenya Breweries Limited made a decision to delink its malting operations from its beer business and subsequently established a subsidiary company referred to as Kenya Malting Limited. The respondent companies were subsidiaries under East Africa Breweries which was the Parent Company.
Following the delinking, a decision was made by Kenya Breweries Limited to declare all positions in the malting unit redundant. A notice was issued by Kenya Breweries Limited to both the Mr. Wairobi and the trade union he was in (Kenya Union of Commercial, Food & Allied Workers (KUCFAW)) informing them of the intended redundancy of 86 employees. Following a meeting between Kenya Breweries Limited and the union, the union conceded to the redundancy and consequently, Mr. Wairobi was issued with a redundancy notice and accompanied with a redundancy package of Kshs. 2,083,852/-, which after statutory deductions totalled to Kshs. 1,109,363/.
Two days after Mr. Wairobi had been issued with the redundancy package, he received a letter of employment from Kenya Maltings Limited (the newly formed subsidiary) for a permanent position as a Technical Operator in its production department earning a gross salary of Kshs. 29,865/. This was a significant change in salary from his previous salary which was Kshs. 66,064.
- The Trial Court (previously referred to as the Industrial court now Employment and Labour Relations Court):
Mr. Wairobi first filed a suit at the Industrial Court seeking compensation at the total sum of Kshs. 2,196,672/-
Mr. Wairobi argued that the separation of Kenya Breweries Limited from Kenya Malting Limited was merely a sham, as in reality, the employer did not change. According to him, the basic terms of his employment remained the same. He also enjoyed and received medical cover, working uniform, food rations and entertainment provided and managed by both Kenya Breweries Limited and Kenya Malting Limited.
The Respondents on the other hand, argued that the decision to separate the Kenya Breweries Limited and Kenya Malting Limited, was a prudent commercial decision aimed at ensuring the survival and prosperity of both entities, in a changing commercial environment. The Respondents maintained that Kenya Malting Limited was not a sham created to infringe any employee’s rights.
With regard to the redundancy, Mr. Wairobi argued that there was no lawful and actual severance of employment between him and East African Breweries Limited and Kenya Breweries Limited. The respondents on their part argued that Mr. Wairobi was procedurally declared redundant, duly paid a fair redundancy package, and at his own free will, subsequently took up the employment offer made by the newly formed Kenya Malting Limited
The trial Court, upon considering the issues, determined that the respondents created façade companies to exploit labour, and avoid fair and adequate compensation to Mr. Wairobi. The Court further found that Mr. Wairobi, was an employee of all the four respondents, despite the delinking of the companies. The trial court pronounced itself as follows:
“In regulating labour, courts must be ready to disregard corporate separation between parent and subsidiary entities and allocate responsibility to the ultimate decision maker.”
The trial court subsequently awarded Mr. Wairobi a cumulative sum of Kshs. 2,196,672/- as compensation.
- The Court of Appeal
Having been aggrieved by the decision of the trial Court, the Respondents proceeded to the Court of Appeal.
The main issues highlighted by the Court of Appeal was whether the unilateral reduction of Mr. Wairobi’s salary while the basic terms of his employment remained the same, constituted unfair labour practice. The Appellate court also had to determine whether Mr. Wairobi’s employment was terminated due to redundancy, after delinking, and if he was entitled to a long service award.
The Court allowed the appeal and set aside the judgement of the Industrial court. The appellate court in issuing judgement, stated that separating Kenya Malting Limited and Kenya Breweries Limited was crucial for the survival of the two entities in an ever-changing commercial environment. The Court further stated that Kenya Breweries Limited did not reduce Mr. Wairobi’s Salary but rather, he was offered a contract by another entity, Kenya Malting Limited with fresh terms after severing ties with Kenya Breweries Limited.
The court further noted that Mr. Wairobi, having accepted the first redundancy severance payment from Kenya Breweries Limited, the new terms of employment from Kenya Malting Limited, and having worked for six years, could not later argue that the decision to declare him redundant was unilateral and not procedural. As per the court’s finding, the redundancy notice issued to Mr. Wairobi and his trade union, was valid, and procedurally compliant with section 40 (1) of the Employment Act. Lastly, the Court found that Mr. Wairobi was not entitled to long service award as he had not worked for East African Breweries Limited or Kenya Malting Limited for more than twenty years.
- The Supreme Court
Mr. Wairobi, dissatisfied by the decision of the court of appeal, proceeded to file an appeal at the Supreme Court. Mr. Wairobi’s argument was that there were certain issues that the court of appeal did not define as issues of general public importance and invited the Supreme Court to address them.
Mr. Wairobi maintained that the sole purpose of Kenya Breweries shifting his employment was to reduce, so unfairly, the salaries of some of the continuing employees. According to him, in as much as he was transferred to a subsidiary in reality, the holding company still had the employer status.
Mr. Wairobi was of the view that the four respondents operated as one economic unit and that the transfer of the business between the respondents contributed greatly to the reduction of Mr. Wairobi’s Salary. It was his further assertion that a place of employment cannot be deemed to be an employer, the court has to look at the entity, who owns, and controls the tools of trade, who takes the credit for profits, and bears the risks of losses, and who actually directs the order of employment, and the employee in his performance of duties. He urged the court to consider the business structure, rather than the legal structure, to determine if the legal structure claiming to be the employer corresponds with the enterprise decision making structure.
He further argued that, contrary to the court of appeal’s judgement that he willingly accepted the new terms from Kenya Malting Limited, there was no equality in the bargaining strength between him and Kenya Malting Limited. He lacked the representation of a union hence the negotiations did not proceed on an equal footing.
On the other hand, the Respondents maintained their earlier argument that they were separate legal entities with independent actions and decisions. They asserted that the corporate veil could only be lifted when a company engages in fraud, or it is formed to shield its owners from liability arising from illegal activities. They further averred that the subsidiaries were formed with a genuine intention of ensuring that the respondent Companies survive in an ever-changing commercial environment.
In as much as the Supreme Court acknowledged the rights of an employee under Article 41 of the Constitution of Kenya, they noted, that the facts in Mr. Wairobi’s case were peculiar. The determination of the three issues was pegged by far, on a determination on whether the respondents were to be treated as separate legal entities or a single entity.
It was the finding of the Supreme Court, that Kenya Breweries Limited and Kenya Malting Limited were different entities with distinct roles, and therefore, different employers.
The court noted that, Mr. Wairobi was paid his severance pay by Kenya Breweries limited. The subsequent employment of Mr. Wairobi by Kenya Maltings, was therefore a fresh contract and not subject to the terms and conditions of the initial contract with Kenya Breweries ltd.
The Supreme Court, further agreed with the court of appeal’s finding, that there was no indication of ill- motive, or fraud, on the part of the Respondents during the delinking exercise, the changes were for an economical and organizational reasons.
The Supreme Court determined that a redundancy notice was validly and procedurally issued in compliance with the Employment Act. The right to fair labour practice was therefore not infringed because the terms being complained of, were terms of a new contract which he accepted, from a distinct legal entity.
The Supreme Court therefore dismissed the appeal and upheld the Court of Appeal’s decision.
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DISCLAIMER
This article is for informational purposes only and should not be construed as legal advice.
