REWARD MANAGEMENT

HRM 235
COURSE FACILITATOR : MR.KAROKI

Meaning of Reward Management

Michael Armstrong (2003:13) defines Reward Management as being

concerned with the formulation and implementation of strategies and

policies that aim to reward people fairly, equitably and consistently in

accordance with their value to the organization. It deals with the design,

implementation and maintenance of reward practices that are geared to the

improvement of organizational, team and individual performance.

Analysis of definition

1. Is about rewarding people i.e. giving them their net contribution in the
employment relationship.

2. Has to be expected through particular strategies and policies

(systematic).

3. Is about fairness and equity.

4. Has to be executed consistently

5. It recognizes that employees create value for the organization and

hence have to be rewarded accordingly

6. Its overall intention is to motivate and retain individuals and improve

organizational performance.
 The context of reward management
The employment relationship

Tangibles (money, cars, fees)

Intangibles (, recognition, growth)

Balance
Employer Employee

Tangibles (output, sales, tones)

Intangibles (loyalty, commitment)

Reward management forms the employment relationship. Thus if an HR

Manager is to succeed in successfully managing the employment relationship

he/she will have to do well in Reward Management otherwise there will be an

imbalance in the employment relationship such as strikes and lockouts e.g.

Telone.

Characteristics of a good Reward Management system

The IPMZ (2000) observes that a sound and profitable Reward Management

system should have the following characteristics:

1. Simplicity- a good Reward Management system must be easily

understood by everyone in the organization. Thus people must

understand why they are getting what they are getting from the

employment relationship.

2. Fairness and equitability- every component of the system must be

justifiable and consistently applied. This element is arguably the

most challenging to implement and is the cause of most Reward

Management related problems such as strike, turnover, dissatisfaction

etc.

3. Perceived fairness and equitability – Sometimes having a fair and

equitable reward management system is not enough. It must be

understood as being fair and equitable. This could be achieved through

effective communication and training. A survey of most reward

management problems indicated that there are a result of perceived

inequity and unfairness rather than actual inequity and fairness.

 4. Participatory – A reward management system that is simply dictated

to by management is not bound to work. An effective one should

ideally be negotiated and agreed between management and employees.

NB. Key consideration should be on the drafting of a reward management

strategy.

Reward Management vs. Compensation Management

While these two terms are sometimes used interchangeably, the term

compensation (more commonly used by the Americans) has been generally

discarded because it gives connotations of ‘reward’ as being only about

Money and other tangibles. Armstrong (2003) suggests that organizations do

it just because it has to be done. However reward management is preferred

as it encompasses all aspects of reward and co notates an activity which

management voluntarily engages in for strategic purposes.

The Total Reward Model

(Armstrong 2003:21)

Financial Base Pay Total Non Recognitio Total

Rewards Remuneration Financial n Reward
Variable Rewards
Pay Autonomy

Share Status
Ownership
Growth
Other
Allowance Quality of
Work life
The concept of total reward recognizes that in an employment relationship

there is more that employees want and value than just money. Thus a

prudent reward strategy bent on attracting, retaining, motivating and

satisfying employees and making a strategic contribution should adopt the

total reward model (Is money the most important element of reward?)

Reward Management strategy

A reward strategy just like any other strategy in the organization must seek

to address an organization’s bottom line. Its purpose must therefore be to

support the corporate strategy and address organizational needs. Thus a

typical reward strategy should house a linear appearance as follows:

Business
Goals

Business
Strategy
 HR
Strategy

Reward
Strategy

Some Generic Reward Strategies

Base Pay Reward strategy

Traditionally companies have always adopted the base pay strategy that as

the reward management strategy. This strategy a company pays the legal

minimum wages and salaries. However it became apparent that this strategy

was not adequate in new work cultures and in terms of attracting, retaining

and motivating top performers for strategic purposes (still very commonly

used for lower level employees). The following then became the new options:

Knowledge and skills based strategy

Because of the proven co-relation between skill/knowledge and on the job

performance, organizations have sought to encourage continuous skills

development by tying it to rewards. In this strategy an organization simply

varies its pay structure according to one’s level of knowledge and skill (job

evaluation systems). For this strategy to bear fruit an organization must

first define which skills it values and will pay for and must have a supportive

training and development strategy. In practice this strategy will be based on

base pay with an equal base pay and a variation based on skills and

knowledge. While this strategy may be costly in the short-term, in the

organization run it is beneficial, as the organization will begin to benefit

from a knowledge HR base through increased productivity and quality of

products. Thus this strategy is a good example of how a reward strategy can

address an organisation’s bottom line.

Performance Based (Variable pay) based structure

This strategy is arguable the most strategic from organizational point of

view as it strikes a balance between what the employee gives into an

employment relationship and what he gets out of it. It recognizes and is

based on the philosophy of reward management – that employees should be

rewarded only for the value they create. This strategy seeks to

scientifically align one’s reward to the value he/she would have created. In

this strategy a company will reward employees in the same grade variably

depending on each employee’s performance. Obviously for this strategy to

work the organization must have a sound performance management system.

The sole reason why this prudent strategy has often failed and created

many HR problems especially in Zimbabwe is because some HR managers

attempt to introduce it without a sound performance management system.

At the end of the performance management cycle an organization ties the

results to rewards to come up with a performance based reward strategy as

follows:

A B C D E
a

+50% +30% +15% +5% base

of base pay of base pay of base pay of base pay pay

In practice this strategy is usually rooted on base pay – with variation being

from he base pay itself. This strategy has become the most preferred

because of its direct linkages with an organisation’s bottom line.

Incentive Based Pay Structure

The incentive based pay strategy is similar in terms of philosophy to the

performance based strategy in that it also links reward to certain

performance measures but being different in that it focuses on group

performance rather than individual performance. The starting point in this

strategy is to define group performance targets such as productivity sales

volumes or profitability. An achievement n each of these categories will be

accompanied by commensurate rewards such as productivity bonus or profit

sharing for management. At individual level the most common form of this
strategy is piece-rate pay where an employee is paid purely for what he/she

produces without a base pay e.g. sales reps. Like the performance based

reward strategy this strategy addresses on organisation’s bottom line as it

is based on organizational performance and is commonly used for managerial

employees.

Reward Management policies

Because consistency and fairness are critical elements of reward

management with a capacity to make or break a reward management system,

a clear reward policy outlining the following is a must.

1. The job evaluation and differential method

2. An organizational pay stance

Some Generic Pay Stances/Reward policy

Market Stance/Market Rate policy

Here the organization simply pays according to prevailing Market rates. Such

an organization will be found engaging in salary surveys to determine

market freely.

Below Market policy

Here an organization will be paying below prevailing market trends. However

this policy will have to be supported by other non-pay rewards if it is to

make any business sense.

Above Market policy

Here the organization first surveys the market and sets its pay structures

slightly above the going market rate. This policy pays dividends in terms of

attracting and retaining good talent.

Differential Pay policy

Here an organizational pay policy is to vary levels of pay depending on

individual or team performance.

The Flexibility policy

Here the organization’s reward policy is not to adopt any particular strategy

or stance but to remain flexible and adapt to any current company and

employee needs.

Factors that affect an organization’s Reward policy and Strategy

1. Affordability – what an organization can afford to pay. The argument

here is that an organization cannot borrow to reward employees but

should reward from the value created by the employees themselves.

However in any case an organization has to afford to pay above legal

minimums.
2. Legislation- legislation sets the minimum base pay (minimum fixed pay

rate), which becomes the starting point in calculating for all of an

organisation’s policies.
 3. Trade Unions/workers committees – depending on the power of a

union, pay levels are determined through collective bargaining. The

most powerful ones will strike higher levels.

4. External job value – the market value of the job e.g. what is the

market value of an Hr Manager or CA?

5. Internal job value – the value or perceived value of a job compared to

the other jobs which the organization will determine the reward for

that job e.g. Hr manager compared to Finance manager.

6. Value of the person – employees holding similar jobs can be paid

differently depending on the value to the organization performance.

7. The economy – (labour supply/demand). A depressed economy (Zim)

increases the supply of labour, which in turn reduces its price and

hence affects reward policy strategy.

The Legal and Institutional Framework for Reward

Management in Zimbabwe

Legal

Until the 1930’s liberalization policy under ESAP the sovereignty through

the minister used to set minimum wages for all industries. Currently the

new Amendment Act also gives the Minister power to set minimum

wages for certain industries even though this has been left to be done

under special circumstances.

Institutional
Base pays in Zimbabwe particularly for lower level employees are set at

institutional levels The NEC’’s set minimum wages for the whole

industry. These minimum wages are then usually topped up by

negotiating through works councils at plant or organizational level.

Minimum wages agreed at NEC level have a legal effect – similar to

statutory instruments o a ministerial order and hence organizations

cannot pay below these minimums.

Salaries and Wages Administration

 Data input for salaries and wages

 Data processing

 Taxation (various tax bands)

 Statutory and non statutory deductions and payments

 Legal processing for salaries and wages

 The payroll and payroll packages

 The overall process

The Significance of effective Reward management to HR and overall

Business Management

HR

A wide range of HRM strategies can be successfully implemented with the

aid of appropriate Reward Management strategies.

 Retention strategy- through a total reward strategy that would

discourage turnover.

 Talent attraction (recruitment)- through an above market strategy.

 Performance management- as an incentive for those who meet

performance targets.

 IR- most IR related problems are ‘reward centered’ and hence an

effective IR strategy must also encompass a reward strategy.

 Training and Development- a T&D strategy can work much more

efficiently with a supportive skills based reward strategy.

To Business

 If an enterprise is as good as the people ho work in it then Reward

management becomes central in that it can determine the goodness of

the people who work in the form of motivation and commitment. They

show to the organization (unsatisfactory rewards = low commitment).

This explains why the organizations with well to do Reward systems

(Econet/Trust) enjoy better results in terms of productivity and general

performance then those with poor ones such as the civil service.

Characteristics of a profitable Reward Management strategy

(Armstrong 2003:614)

 Supports the achievement of overall business strategy

 Is integrated with other HRM strategies

 Is strategic in nature in the sense that it looks at supporting overall

organizational effectiveness and efficiency

 Adopts a ‘total’ reward approach which recognizes that there are a

number of ways of rewarding people- being both financial and non

financial
 Is based on a philosophy of rewarding people differently for the value

they create i.e. the return on human capital investment

 Seeks to achieve a perfect balance in the employment relationship and a

generally positive employment relationship.

Skills practice

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Saturday, 16 June 2018

LABOUR LAWS IN KENYA

R. M. M
This section gives you details on Kenya labour law.Below are some topics and a
comprehensive introduction to the Kenya labor laws
Rights and duties of workers
Prohibition of forced labour
Employee rights and obligations
Sexual harrassment of employees
Implied terms of a contract of employment
Statutory requirements of a contract of employment
Essentials of a contract of employment
Contract of service
Kenya Labour law: An introduction
What is Labour Law?
Labour law is a body of legislation under the Kenya employment act that defines your
rights and obligations as workers and employers in the workplace. The Kenya Labour law
(also spelled as "labor" law or called "employment law") mediates the relationship
between workers (employees), employers, trade unions and the government. Collective
labour law relates to the tripartite relationship between employee, employer and union.
Second, individual labour law concerns employees' rights at work and through the
contract for work. The labour movement has been instrumental in the enacting of laws
protecting labour rights in the 19th and 20th centuries. Labour rights have been integral
to the social and economic development since the Industrial Revolution. Employment
standards are social norms (in some cases also technical standards) for the minimum
socially acceptable conditions under which employees or contractors will work.
At Community level, labour law covers two main areas:
Working conditions, including working time, part-time and fixed-term work, and posting
of workers
Information and consultation of workers, including in the event of collective
redundancies and transfers of undertakings.
History of Kenya labour law
Kenya Labour laws arose due to the demand for workers to have better conditions, the
right to organize, or, alternatively, the right to work without joining a labour union, and
the simultaneous demands of employers to restrict the powers of workers' many
organizations and to keep labour costs low. Employers' costs can increase due to workers
organizing to achieve higher wages, or by laws imposing costly requirements, such as
health and safety or restrictions on their free choice of whom to hire. Workers'
organizations, such as trade unions, can also transcend purely industrial disputes, and
gain political power. The state of labour law at any one time is therefore both the product
of, and a component of, struggles between different interests in society.
The sources of Kenya labour law
The sources of labour law in kenya are found in statutes(Acts of Parliament), the
constitution of kenya 2010, the common law and international treaties, principles and
conventions.
the Acts of Parliament include the Kenya Employment Act, the Labour relations Act that
regulates the relationship between trade unions and employers or employees and
employers or employers' organisation, the Labour Institutions Act that creates the
National Labour Board, the Commission of Inquiry, the Wages Councils (both the general
and the agricultural wages council), the Directorate of Labour Administration and
Inspection and the Employment Agencies under the Director of employments ambit.
the Constitution in its article 40 provides for the right to associate, article 41 right of
workers, employers, trade unions and employers organisation and as well in its
subsection 5 the right to collective bargaining. in its article 36 freedom of association,
article 37 right to assembly, picketing and demonstration.
the common law principles also apply such as the tort of vicarious liability where the
employer is responsible for the acts of an employee, civil actions in industrial accidents
and also imposes a duty of the employer and employee such as confidentiality on the
employee and the issue of compensation of part of the employer for injury or unfair
termination of contract.
the Constitution in its article 2(5)(6)provides for the adoption of internationally generally
accepted principles and the ratified treaties to for part of Kenyan law. these will include
conventions of the international labour organization such as the minimum age
convention, Equal Remuneration Convention etc. Customary law however does not
apply.

The constitution of Kenya and labour laws

The KenyanConstitution contains several provisions of relevance to employment and
labour law:
the right to equality;
protection of dignity;
protection against servitude, forced labour and discrimination;
the right to pursue a livelihood; and
protection for children against exploitative labour practices and work that is hazardous to
their wellbeing.
It is important to interpret all labour legislation in light of the Constitution.
The Constitution deals specifically with labour relations, providing that everyone has the
right to fair labour practices,and specifically the right
to form and join a trade union;
to participate in the activities and programmes of a trade union; and
to strike
Every employer, meanwhile, has the right
to form and join an employers’ organisation; and
to participate in the activities and programmes of an employers’ organisation.
Every trade union and every employers’ organisation has the right
to determine its own administration, programmes and activities;
to organise; and
to form and join a federation
Finally, every trade union, employers’ organisation and employer has the right to engage
in collective bargaining.

Employment Act
The Kenya labour laws of 2007(Employment Act, Labour Institutions Act, Labour
Relations Act, Occupational Safety and Health Act and Work Injury Benefits Act)
replaced the Kenya Employment Act and Regulation of Wages and Conditions of
Employment Act. lt establishes minimum terms and conditions of employment. Unlike
the repealed Act, the new one defines a number of common terms – probationary
contract, migrant workers, worst forms of child labour, dependant, forced or compulsory
labour and HIV.
lt also provides for prohibition against forced labour, discrimination in employment on
the basis of race, colour, sex, language, religion, political or other opinion, nationality,
ethnic or social origin, mental or HIV status and sexual harassment.
lt deals with payment, disposal and recovery of wages, allowances and deductions of an
employee. The major changes are that the employer cannot deduct employees wages
exceeding two thirds. The previous law provided for deductions up to 50 per cent.
Further, all employees are entitled to itemised payslips or salary statements. The law also
provides for basic conditions of a contract of service – hours of work and annual,
maternity and sick leave, housing, water, food and
medical attention. In the new provision, an employee is entitled to three months’
maternity leave. However, the employee shall not forfeit annual leave. The law
introduces a 14-day paternity leave.
The legislation deals with termination and dismissal. For the first time, the law provides
for payment of service pay for every year worked to an employee whose contract has
been terminated. Further, the legislation provides that the Labour minister may require an
employer to insure his employees against redundancy through an employment insurance
scheme.
The employers are also required to justify termination of employment. The law
introduces the concept of unfair dismissals. lt also regulates the engagement of children
in employment. lt prohibits employment of children in any activity that constitutes child
labour. It also sets the minimum age and conditions of employment of a child.
Employers are required to keep records and make them available for inspection. They are
also required to notily the Director of Employment of vacancies, termination and
abolition of offices. The law also outlines requirements for a foreign contract and sets out
complaint procedures and jurisdiction in cases of disputes between the employee and
employer.

Labour Institutions Act

The law establishes institutions and organisations for the administration and management
of labour relations the national Labour Board, the industrial Court, Committee of Inquiry,
Labour Administration and Inspection, the Wages Council and Employment Agencies.
The law, however, does not apply to the Armed Forces, Kenya Police, Prisons Service,
Administration Police and the National Youth Service.
National Labour Board
The members are appointed by the Minister for Labour and drawn from the most
representative federation of trade unions and employers, independent members and
Government officials. The boards role is to advise the minister on employment and
labour, legislation, trade unionism and codes ofgood conduct.
It also advises on ILO issues, international or regional associations, systems of labour
inspection and the administration of labour Acts, public employment service,
productivity, appointment of wages councils and members of the Industrial
court.
Other issues include setting compensation benelits, manpower development, registration,
suspension and cancellation of registration of trade unions and employers organisations.

Kenya Labour Laws: Minimum Employment Rights and Benefits under the Employment
Act.
Hours of work – An employee is entitled to at least one rest day in every period of seven
days.
Maternity Leave Provisions
Maternity Leave is for 3 months with full pay. Annual leave not forfeited on account of
an employee having taken her maternity leave

Sick Leave in Kenya

Sick Leave in Kenya only available after 2 months of employment.
The minimum period of entitlement is seven days with full pay and seven days with half-
pay for every twelve months, subject to production of a certificate of incapacity to work
duly signed by qualified medical practitioner.

Paternity Leave in Kenya

Paternity leave in Kenya is two weeks with full pay. Paternity leave is only applicable to
a man whose recognised wife delivers a baby. What this means is that paternity leave is
not open to any man, but only those who are married and whose wives are recognised by
the employers. "A male employer shall be entitled to two weeks paternity leave with full
pay."

Annual Leave in Kenya

Annual leave in Kenya is 21 days with full pay. Annual leave is exclusive of public
holidays, weekly rest days or any leave days stated by law (paragraph 9 of the Regulation
of Wages (General) Order, subsidiary to the Regulations of Wages and Conditions of
Employment Act).

Public Holidays in Kenya

Public holidays and weekly rest days (one per week) on full pay in addition to leave days.
Where employees work on public holidays they are entitled to payment at double their
wage rate in addition to their normal wage.
Public holidays in Kenya are;
New Year’s Day - January 01
Good Friday - April
Easter Monday - April
Labour Day - May 01
Madaraka Day - June 01
Mashujaa Day (Heroes Day) - October 10
Kenyatta Day - October 20
Jamhuri Day (Independence Day Kenya) - December 12
Christmas Day - December 25,
Boxing Day - December 26
The Evolution of Labor Law in Kenya
The genesis of labor law and practice can be traced to the 19th century when need arose
for the colonial government to pass legislation to ensure adequate supply of cheap labor
to service the emerging enterprises in agriculture, industry and in the service sector.
Terms and conditions of employment were regulated by statutes and the common law.
The law of contract in Kenya was originally based on the Contract Act, 1872, of India,
which applied on contracts made or entered into before 1st of January 1961. The Indian
Contract Act applied to the three countries Kenya, Tanzania and Uganda . Since then the
Kenyan law of contract has been based on the English common law of contract, under the
Kenyan Law of Contract Act (Cap. 23), section 2 (1).
With industrialization, towards the middle of the 20th century, an organized trade union
movement was well established.
The first wage earners’ associations in Kenya can be traced back to the early 1940s and
soon after the Second World War.
The first trade union regulation was made in the introduction of Ordinance No. 35 of
1939 that required all crafts organizations to apply for registration which they could be
granted or denied depending on whether they had legitimate dealings consistent with
government policy. The Ordinance also permitted any group of seven people to form a
trade union and operate as one upon registration. Cancellation of registration under the
Ordinance was not subject to appeal or open to question in a court of law (Aluchio 1998,
3).
In 1948, in order to gain complete hold on the wage earners organizations the government
brought in a Trade Union Labor Officer, to be attached to the Labor Department with the
duty to foster "responsible" unionism (Ananaba 1979, 3). In 1952 a more detailed piece
of legislation was enacted for Trade Unions but again with significant omissions. It
lacked necessary provisions for effective operation of trade unions. It did not legalize
peaceful picketing or provide immunity against damages as a result of strikes. On the
other hand, the government encouraged creation of staff associations and works
committees since they fitted in its interests to confining workers’ organization to
economic imperative alone and also lacked strike powers.
This rigid control of trade unions was maintained by the colonial government until the
end. This notwithstanding, the movement was able to grow both in numerical strength
and power. At independence the total number of following was about 155,000, 52 trade
unions, with four centers formed and registered, namely, East African Trade Union
Congress (EATUC), Kenya Federation of Registered Trade Unions (KFRTU), Kenya
Federation of Labor (KFL) and Kenya Africa Workers Congress (KAWC).
Industrial confrontation arose not merely from traditional trade union activities, but also
from the movement’s political role in the struggle for freedom from colonial domination,
particularly after individual political leaders had been arrested and placed in detention.
On the threshold of independence however, both employers and trade unions, felt that it
was vital for the infant nation to make economic process that capital and labor should
work together in harmony: the incidence of strikes and lockouts had to be drastically
reduced.
As a result, in October 1962, a landmark was established with the signing of the
Industrial Relations Charter by the government of Kenya, the Federation of Kenya
Employers and the Kenya Federation of Labor, the forerunner of COTU (K), the Central
Organization Of Trade Unions (Kenya).
The Industrial Relations Charter spelt out the agreed responsibilities of management and
unions and their respective obligations in the field of industrial relations, it defined a
model recognition agreement as a guide to parties involved, and it set up a joint Dispute
Commission.
The Industrial Relations Charter has been revised twice since then, but remained the basis
for social dialogue and labor relations in Kenya throughout the years. Currently the
“Charter” is under review again; the parties have already produced a draft Charter in
2001 that might be signed in the context of the overall Labor Law review.
With the set up of an Industrial Court in 1964, one additional basic cornerstone was laid
for the development of amicable conflict resolution in Kenya.
The Labor Law Reform Agenda In May 2001 a Taskforce to review the Labor Laws was
appointed by the Attorney General (Gazette Notice No. 3204), within an International
Labor Organization project. The terms of reference for the Taskforce were:
To examine and review all the labor laws including the Employment Act (Cap.226); the
Regulation of Wages and Conditions of Employment Act (Cap. 229); the Trade Unions
Act (Cap. 233), the Trade Disputes Act (Cap. 234), the Workmen’s Compensation Act
(Cap. 236), the Factories Act (Cap. 514) and make recommendations for appropriate
legislation to replace or amend any of the labor law statutes; To make recommendations
on proposals for reform or amendment of labor laws to ensure that they are consistent
with the Conventions and Recommendations of the International Labor Organization to
which Kenya is a party; and To make recommendations on such other matters related to
or incidental to the foregoing. Major points of concern were:
Extension of the application of protective labor regulation into the informal sector;
Harmonization of the Kenyan labor legislation within the East African Community;
Merging and redrafting the different Acts in order to produce a user-friendly and
comprehensive labor legislation for benefit the people; The elimination of remaining
colonial heritage in employment relations and contracts; The introduction of an Industrial
Court of Appeal to overcome contradicting jurisdiction between the High Court and the
Industrial Court; Review registration procedures and trade union monopoly based on the
Trade Unions Act (Cap. 233) in view of the ratification of the ILO Freedom of
Association and Protection of the Right to Organize Convention, 1948 (No. 87); Review
regulations on casual employees; Setting up of an administration system which promotes
involvement and democratic participation of the social partners (role of the Labor
Advisory Board, possible involvement of civil society concerned in specific fields, etc.);
Review possible limitations of excessive powers and influence of the Minister for Labor
in industrial relations; Creation of an efficient labor administration system (inspection
pp.) which is capable of effectively enforcing the laws; Review the election procedures
for trade union officials, and implement a system of directly elected workers’
representatives; The establishment of an affordable, not contribution based, workers
social insurance scheme, complementing the National Social Security Fund; Promote
equity and equality in employment by incorporating anti-discriminatory (gender,
HIV/AIDS) provisions into the Employment Act (Cap. 226), and as well as provisions
against discriminating sexual harassment. The tripartite Taskforce, comprising of
members from the government, the trade unions (COTU) and the employers organization
(FKE), officially handed over five new texts to the Attorney General in April 2004. The
five drafts, when they reach their final version, will replace the existing legislation on
Labor Law. These drafts relate to the following matters:
Draft on the Labor Relations Act: an act to deal with the registration, regulation,
management and democratization of trade unions and employers organizations or
federations, to promote sound labor relations through the protection and promotion of
freedom of association, the encouragement of effective collective bargaining and
promotion of orderly and expeditious dispute settlement, conducive to social justice and
economic development and related matters. Draft on the Labor Institutions Act: an act for
the establishment of Labor Institutions, to provide for their functions, powers and duties.
This text introduces a system of labor courts with exclusive jurisdiction on labor matters.
The act establishes Subordinate Labor Courts, as well as a National Labor Court. The
latter is a superior court having the same authority, inherent powers and standing in
relation to matters under its jurisdiction, as the High Court. Appeals on decisions from
Subordinate Labor Courts lie in the National Labor Court. Second appeals lie in the Court
of Appeal. This text also creates a National Labor Board, whose main duty is to advise
the Minister on labor legislation and matters. Draft on the Employment Act: an act to
declare and define the fundamental rights of employees, to provide basic conditions of
employment of employees and to regulate employment of children. This act contains
provisions on freedom from discrimination and from sexual harassment. Provisions on
freedom from forced labor expressly domesticate ILO Forced Labor Convention, 1930
(No. 29) and the Abolition of Forced Labor Convention, 1957 (No. 105), both ratified by
Kenya in 1964. Draft on the Occupational Health and Safety Act: an act to provide for the
safety, health and welfare of persons employed, and all persons lawfully present at
workplaces and related matters. Draft on the Work Injury Benefits Act: an act to provide
for compensation to employees for injuries suffered and occupational diseases contracted
in the course of employment, for insurance of employees and related matters. These texts
do now have to follow the path towards adoption, which will hopefully be completed by
the end of 2004. Other sources of labor regulationEmployment relations in Kenya are
regulated by a number of sources: constitutional rights, as mentioned above; statutory
rights, as set out in statutes and regulations; rights set by collective agreements and
extension orders of collective agreements; and individual labor contracts.
These legal sources are interpreted by the Industrial Court, and in some cases by the
ordinary courts (see above). A particularly important role to play has the tripartite
Industrial Relations Charter that laid the foundation for an industrial relations system
already prior to Kenya’s independence in 1963. International standards, especially ILO
Conventions ratified by Kenya are used by the government and courts as guidelines, even
though they are not binding.
Acts of Parliament in the realm of civil and criminal law, which have provisions that may
have impact on individual and collective labor relations include the Contract Act, Local
Government Act, Public Service Commission Act, the Children Act, laws concerning the
Armed Forces, and legislation dealing with the establishment of parastatals.
The following Acts of Parliament form the labor legislation framework for the country:
Employment Act (Cap. 226); Regulation of Wages and Conditions of Employment Act
(Cap. 229), - Industrial Training Act (Cap. 237), - Workmen’s Compensation Act (Cap.
236), - Shop Hours Act (Cap. 231), - Mombasa Shop Hours Act (Cap. 232), - Factories
Act (Cap. 514), - Trade Unions Act (Cap. 233),- Trade Disputes Act (Cap. 234);
Companies Act (Cap. 486); Bankruptcy Act (Cap. 53); Merchant Shipping Act (Cap.
389); Export Processing Zone’s Act (Cap. 547); Immigration Act (Cap. 172); Pension Act
(Cap. 189); Retirement Benefits Act (No. 3 of 1997); National Social Security Fund Act
(Cap. 258); National Hospital Insurance Act (Cap. 255); Provident Fund Act (Cap. 191);
Public Health Act (Cap. 242). In individual labor cases British common law is applicable
up to now. The Judiciary Act (Cap. 16) of 1967, section 3(1) states: “The jurisdiction of
the High Court and of all subordinate courts shall be exercised in conformity with:
a) The Constitution; b) subject thereto, all other written laws; including the Acts of the
Parliament of the United Kingdom (…);
c) subject thereto and so far as the same do not extend or apply, the substance of the
common law, the doctrines of equity and the statutes of general application in force in
England on the12th August 1897, and the procedure and practice observed in courts of
justice in England at that date:
Provided that the said common law, doctrines of equity and statutes of general application
shall apply so far only as the circumstances of Kenya and its inhabitants permit and
subject to such qualifications as those circumstances may render necessary.”

EMPLOYEE RIGHTS AND OBLIGATIONS

To obey reasonable orders. An employee is under Kenya law required to obey lawful and
reasonable orders from his employer. Failure to do so is a ground for dismissal. In
Konig v Kanjee Naranjee Properties Limited [1968] EA 233, Law JA noted that, ‘a
master is entitled to dismiss his servant summarily for willful disobedience of his
master’s lawful and reasonable orders, which is his duty to obey.’
In Karimi v KCB & Another, (2005) eKLR, the plaintiff declined to take up a transfer
ordered by his employer and was dismissed. Kasango J held that this was a clear
disobedience of his master’s lawful and reasonable orders and action taken by the
employer to terminate the contract was appropriate. See also Njeru v Agip (K) Ltd [1986]
KLR 480 where a failure to obey lawful instructions on how to work was held
appropriate ground for dismissal

Where obedience of that lawful and reasonable order places the employee at grave risk to
his person, dismissal for such a failure to obey would be inappropriate, see Ottoman Bank
v Chakarian [1930] AC 277

RIGHTS AND OBLIGATIONS IN CONTRACTS OF EMPLOYMENT

Employees under Kenya law enjoy implied and statutory rights and owe implied and
statutory obligations to their employers

Employers likewise have implied and statutory rights and owe obligations to employees

Employees rights are the employer’s obligations and vice versa

Duty of Obedience

In Pepper v Webb [1969] 1 WLR 514, a gardener used some expletives with words
indicating lack of intention to obey the employer’s instructions. The refusal was held to
be a breach of contract.

Obedience is required only for a lawful order; if it is not lawful, he need not obey it.

Orders that are reasonable have to be obeyed. Unreasonable orders need not be obeyed.
To determine the reasonability of an order, principles of good human relations may be
taken into account.
Duty of Care and Competence

To exercise reasonable care and competence in performance of his duties. Failure to

exercise care and competence may lead to dismissal under Kenya law for incompetence.

“ When a skilled laborer, artisan or artist is employed, there is, on his part, an implied
warranty that he is of skill reasonably competent to the task he undertakes, - spondes
peritiam artis. Thus if an apothecary, a watch-maker, or an attorney be employed for
reward, theye ach impliedly undertake to possess and exercise reasonable skill in theier
several arts,” See Harmer v Cornelius (1858) 5 CBNS 236 at 246

It is an implied term of the contract of employment that an employee will exercise skill
and care in the performance of his duties, and a breach of that term entitles the employer
to claim damages in respect of the negligent performance of the work.

In Lister v Romford Ice [1957] AC 555 an employee of a company negligently injured a

fellow employee in the course of their work. The injured employee sued the company
and was awarded damages. The company’s insurers sued the employee under the right of
subrogation in the company name. The court held that there was a breach of this duty
and the company was entitled to indemnification from the employee for breach of this
contractual duty

Duty of Trust and Confidence

An employment relationship is based on trust and confidence. An employee is required

not to act in a way to destroy the trust and confidence inherent in the relationship

Thus, an employee must not disclose confidential information about the employer’s
business to an unauthorised person.
STATUTORY REQUIREMENTS OF A CONTRACT OF EMPLOYMENT
All contracts of service must satisfy the requirements of the Employment Act, 2007.
They must be written.

S. 9(1)(a) of the Employment Act requires that a contract of service for a period or a
number of working days which amount in the aggregate to the equivalent of three months
or more; or (b) which provides for the performance of any specified work which could
not reasonably be to be completed within a period or a number of working days
amounting in the aggregate to the equivalent of three months shall be in writing.

The employer is responsible to ensure that the contract is written, and contains the
particulars of employment and ensure that the employee consents in the manner provided
under the Act.

Written contract must contain (s.10) particulars of employment to be given within 2

months of service

Particulars required under Kenya law are:

• The name, age, permanent address and sex of the employee

• The name of the employer

• Job description of the employment

• The date of commencement

• The form and duration of the contract

• The place of work

• The hours of work

• The remuneration and details of other benefits

• Intervals of payment of remuneration

• Date on which the employee’s period of continuous employment began

Others required are:

• Any terms of conditions on leave, incapacity to work and pension and pension schemes

• Length of notice for termination

• The period of employment

• Details on place of work

• Any collective agreements which directly affect the terms and conditions of
employment

Employer is required to keep records on particulars for 5 years after termination

Under s. 12, statement on the disciplinary rules applicable to the employee required, and
must specify the person whom employee may apply incase of dissatisfaction in decision
of the disciplinary body or any grievance

ESSENTIALS OF A CONTRACT OF EMPLOYMENT

Statute envisages oral or written, express or implied contracts of service, see s. 2 of the
Employment Act
Essentially it is a contract, governed by the general rules of contract under common law,
hence subject to ordinary rules of construction for contracts.
Law of contract however may be inappropriate for employment cases. Contracts are
normally a single transaction documents – limited to a specific transaction. Employment
cases concern a continued relationship for a long period of time with elements of trust
and confidence.

Employment contracts thus are formed in the same manner as ordinary contracts.

Like other contracts under Kenya law, there must be an offer and an acceptance. The offer
and acceptance may be subject to conditions

Wishart v National Association of Citizens’ Advice Bureaux Ltd, [1990] IRLR 393,
claimant offered a job ‘subject to receipt of satisfatory references.’ References received
were not satisfactory hence the offer was withdrawn. It was held that this was a
conditional offer of employment and the defendants had an obligation to consider the
references in good faith. The question of being ‘satisfactory’ was subjective.

There must be an intention to create legal relations, consideration and absence of vitiating
elements e.g. mistake, illegality, misrepresentation.

If the terms of the contract are designed to avoid payment of income tax, the contract is
illegal. See Mohammed Ghias Quereshi & Another Versus Paramount Bank Limited High
Court Civil Suit No. 1557 of 1997 (Nairobi)

EXPRESS TERMS OF A CONTRACT OF EMPLOYMENT

Express terms are contained in the contract of employment entered into by the parties.
These may include wages, salaries, commissions, bonuses, hours of work, nature of the
duties, holidays, overtime, sick pay, pension schemes, insurance etc.

Variation – of the express terms of contract of employment require mutual consent.

Express terms, like express terms of a contract cannot be unilaterally varied
Promotion to another level without change of any express terms of the contract does not
mean a revision of the express terms of the contract of employment, See Chase v
Barclays Bank [1990] KLR 595

Express terms are found in the individual contract of employment, statute and a collective
bargaining agreement applicable to the employee. S. 28(1) sets out the minimum time
allowable for annual leave in any contract of employment at not less than 21 working
days; 29(1) sets maternity leave at 3 months, etc.

Breach of a contractual term may result in dismissal – s. 44 (3) empowers the employer
to dismiss an employee “summarily when the employee has by his conduct indicated that
he has fundamentally breached his obligations arising under the contract of service.”
Fundamental breach is a factual assessment, with recourse to a Labour Officer allowed
under s. 47(1) for complaint within 3 months

CONTRACT OF SERVICE
There must be a contract, either express or implied.

Why do we need a definition? Tort law doctrine of respondeat superior holds employer
liable for the torts of an employee; while taxation statutes require employers to deduct
certain taxes from wages/salaries to employees

Various tests formulated to establish existence of a contract of service under Kenya law

Control test

To what extent is a person under the direction and control of the other person with regard
to the manner in which the work is done?
Formulated in Performing Right Society, Limited v. Mitchell and Booker (Palais de
Danse), Limited [1924] 1 KB 762, where McCardie J opined at p.767 that, “It seems,
however, reasonably clear that the final test, if there be a final test, and certainly the test
to be generally applied, lies in the nature and degree of detailed control over the person
alleged to be a servant .”

Ready Mix Concrete vs Minister of Pensions [1968] 2 QB 497, ‘control includes the
power of deciding the thing to be done, the means to be employed in doing it, the time
when and the place where it shall be done’ at 515.

Works best in contemporary employment situations.

E.g. CPC Industrial Products (K) Limited versus Samuel Kirwa Kosgei High Court Civil
Appeal 7 of 2003 (Eldoret) “the place of work was the premises of the appellant; the
work was assigned by an employee of the appellant, Mr. Wendo; and the supervision of
the work was also done by the same employee of the appellant.”

See the definition of an employee under the Income Tax Act, Cap 470 – “… employer has
the power of selection and dismissal of the employee, pays his wages or salary and
exercises general or specific control”

Issues – what about professionals? Doctors, lawyers etc?

Integration Test

Formulated due to the pitfalls in the control test where the employee possesses skill that
the employer does not have.

Stevenson, Jordan and Harrison Ltd v MacDonald and Evans [1952] 1 TLR 101 “Under a
contract of service, a man is employed as part of the business and his work is done as an
integral part of the business.” Denning L.J.
Useful for those instances of specialised employees e.g. doctors and nurses in hospitals
where control test is inappropriate, e.g. in Cassidy v Ministry of Health (1951) 2KB 598,
a resident surgeon in a hospital was held to be an employee, so that the hospital was
liable for his negligence.

Multi Factor Test

No single factor is dispositive in defining employment status of a person

As the needs and practices at the workplace change, so too must the tests to be used in
defining employment status.

Ready Mix Concrete (South East) Ltd v Minister of Pensions and National Insurance laid
out three conditions necessary for a contract of service to exist.

• Provision of own work and skill in a performance of service for an employer

• Element of control exercisable by the employer

• Other terms of the contract are not inconsistent with the existence of a contract of
employment

Multi Factor Test

1. The power of selection, the payment of wages, income tax, holidays and leave, power
to suspend and dismiss

2. Mutuality of obligation and control and an irreducible level of personal service.

3. Factors such as
• Contractual provisions

• Degree of control exercised by the employer

• Obligation of the employer to provide work

• Obligation of the employee to do the work

• The duty of personal service

• Provision of tools, equipment, instruments

• Taxation arrangements

• Opportunity to work for other employers

• Welfare provisions

• Degree of financial risk assumed etc

Economic Reality or Entrepreneural Test

Analysis from a self-employed perspective – Is he in a business of his own?

Who bears the risk – the economic risk of being in business

Market Investigations vs Minister of Social Security [1969] 2 QB 173 – A company

employed women on a part time basis to do market research. They could work as they
chose, but according to a set pattern. Held to be employees
All relevant factors must be considered, none of the factors used are dispositive
- June 16, 2018
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Life never denies you an opportunity neither does it give you chances openly. You
can accomplish much in the state of neutrality because you won’t be wasting time
fighting yourself; and neutrality personally has no judgment, so if you start
judgment on yourself or others, you’ve left neutrality and gone into negativity.
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