Great news for employees but a legal mine field to investors

On Tuesday last week, retrenched Kenya Airways workers did what only a few privileged employees get to do; walking up to the management and dictating how their letters of appointment should read.

They could afford to do that. After all, they had a court order that dictated it. And when the management dithered, they threatened to have it cited for contempt of court, which carries a jail term of six months. No one wants to go to jail, at least not in a day’s job.

“We are discussing with our lawyers the way forward as the general letter issued to the union does not reflect adherence to the court ruling. We plan to give the Kenya Airways management up to close of business tomorrow (Wednesday) after which we plan to move to court to file for contempt if the company will not have addressed our concerns,” the Aviation and Allied Workers Union leader, Ms Perpetua Mponjiwa, said.

By close of business on Friday, Kenya Airways had surrendered and the former workers were given reinstatement letters. (Read: KQ starts rehiring sacked staff)

“They picked the letters today (Friday). They will proceed on 30 days of paid leave as the company requested for time to re-organise itself,” said Ms Mponjiwa.

In the first letter, the workers were to proceed on paid leave until further notice. The open-ended proviso is what the workers had a problem with, saying it was ambiguous and showed lack of commitment by the management.

The staff had done a first in the country, waging a war against their boss and winning. The departure from other cases was that in this instance, they were to be reinstated, unlike the norm where courts order compensation.

“The wishes of the employees, as expressed by their trade union, is to be reinstated. Compensation and other players are made an alternative,” Mr Justice James Rika ruled when he directed the workers to report back to work last Tuesday at 8am.

The staff had been retrenched in September as the national carrier rolled out cost-cutting measures meant to save it Sh1 billion annually.

The ruling reverberated across all industries. With a chief executive heading one of the largest banks in the country firing an early morning tweet; “Courts have become experts in business trends and that employee interests supersede those of shareholders. Corporates be very afraid!”

By Wednesday evening, the Kenya Private Sector Alliance (Kepsa), the umbrella body representing the interests of various lobby groups in Kenya, and the Federation of Kenya Employers issued a statement calling for a media conference to protest at the ruling. The pair said the Kenya Airway’s ruling was the last straw that had broken the camel’s back. (Read: Investors protest KQ ruling in workers row)

“We wish to express our disappointment over the recent trends from the judgments delivered by the Industrial Court of Kenya and consider this an affront on the efforts to promote investment in the country,” the joint statement read.

They cited various cases where their members have been sentenced to imprisonment or ordered to pay hefty fines for alleged failure to reinstate employees whose contracts had been “legally and fairly terminated”.

“The judgments are starting to cause uncertainty and anxiety in the labour market/relations. We have noted that in most of the judgments, judges have ordered for maximum compensation payments of up to 12 months salary as damages, costs, and interest at court rates,” they added.

They complained about what they termed courts’ attempt to make their own laws and enforcing them on employees.

“Some of the orders are inconsistent and in conflict with the law and established industrial relations practice. There is a judgment, for instance, where a judge has ordered payment of house allowance at 30 per cent of the basic salary, contrary to clause 4 of the Regulation of Wages  (General) Order, which provides for 15 per cent of the basic salary and the guidelines issued to the court by the Minister for Finance.

“In another matter, a judge ordered for payment of service pay at the rate of 30 days for each completed year of service to a former casual employee, contrary to the provisions of the Employment Act, 2007. Further awards have been made for general damages in employment contracts, which relief is only applicable to other civil wrongs.

“In both cases, the employees’ terms of employment did not provide for what was ordered either in the letter of appointment or collective bargaining agreement,” they said before issuing a threat.

“This trend, if not checked, may see an outflux of investments to safer environments within the region. These decisions by the courts risk reversing all the gains that have been made in creating a conducive environment for doing business. It goes against all aspirations to make the country an attractive destination for capital.”

Economic analysts support them. “The ruling set a precedence that could be followed in the future regarding the conduct of retrenchment exercises. We are likely to see more worker unions taking to the courts to challenge the fundamental rights of employers to hire and fire staff,” said Nairobi-based analyst Robert Shaw.

The Central Organisation of Trade Unions (Cotu) said Christmas could not have come in a better form.

“The ruling is a warning to all employers that they should enter into negotiations with workers to ensure a smooth transition during retrenchment. Consultations on the terms of redundancy have not been happening, hence the crisis that is being witnessed,” said Cotu secretary general Francis Atwoli.

The court, Mr Atwoli added, said nothing new, only repeating what the union had been telling employers but which had gone unheeded. Amid the myriad reactions that have been expressed against the ruling, the future of labour relations remains blurred.

And this at a time when the country has ushered in a new Constitution that is heavily protective of individual rights, even though companies are faced with escalating operating costs, most of which are related to staff compensation, a pointer that fights between employers and employees could drag on into the unforeseeable future.

Apart from discouraging investment, as has been cited by lobby groups, analysts have warned that the ruling could generate interest among employers to engage more labour on short-term contracts to avoid confrontations that are likely to come with rendering permanent workers redundant.

“With the principle of the right of the employer to hire and fire employees being questioned, there is bound to be preference for hiring workers on short-term contracts,” said Mr Shaw.

In his ruling, Mr Justice Rika said that by retrenching the workers without following due process and consultation, Kenya Airways was faulting the Constitution.

“Business must be conducted in a manner that meets the demands of the Constitution. Article 10 carries the national values and principles of governance. It is a law that is addressed to all persons,” said the judge.

In its defence, Kenya Airways filed the Sh4.7 billion loss reported in six months to September 2012, saying that the retrenchment was necessary to reverse the poor run. (Read: KQ to use Sh4.7 billion loss as defence in staff lay-off case)

In the financial year ended March 30, 2012, Kenya Airways reported a Sh1.6 billion profit after tax, having dropped from Sh3.5 billion posted during the previous year.

The company’s turnover grew to Sh107 billion in 2012, up from Sh85 billion recorded in the previous year on account of increased passenger numbers which stood at 3.6 million in 2012 compared to 3.1 million in 2011.

But the gains were swept away by surging operating costs, partly blamed on an increase in the number of employees who totalled 4,834 in 2012, up from 4,355 in 2011. The company’s direct operating costs went up by 45.3 per cent in 2012, having climbed from Sh53 billion in 2011 to Sh77 billion in 2012.

The judge, however, noted that this could not hold. “KQ is faced with a cyclic economic downturn, not a downfall, and is expanding under project Mawingu. Not every cyclic financial report of loss should be read as a valid reason to justify retrenchment.”