Rights of an employee whose employer is placed under receivership

Joseph Mburu Kahiga & Anor v KENATCO Taxis Limited & Anor

Petition No. 39 of 2012

Industrial Court at Nairobi

M Mbaru, J

May 27, 2013

Reported by Teddy Musiga

Brief Facts

The matter commenced at the High Court Human Rights Division as Petition No. 150 of 2012 and was later transferred to the Industrial Court. It concerned the rights of employees whose employment upon their employer being placed under receivership were terminated without payment of their benefits. They alleged that the successive receivers failed to wind up or to declare profits to be able to pay the petitioners as former employees thus infringing on their fundamental rights and freedoms as workers. Accordingly, and upon transfer to the Industrial Court, they filed Industrial Cause No. 1524 of 2011 claiming for compensation and loss of terminal benefits by the Minister on account of Insolvency as provided under the Employment Act. The matter was heard before the establishment of the Industrial Court. (The judges of the Industrial court were gazzeted on July 12, 2012) But they later withdrew the matter after disagreeing with their advocates on record. Thereafter, they filed this petition at the Industrial Court seeking to be paid their retirement and all due payments and a declaration that the harassment and termination of the employees was unlawful inter alia.

Issues

1. What are the procedures to be followed under the Employment Act by employees whose services are terminated by an employer who is Insolvent?
2. Whether the Industrial Court has the jurisdiction to entertain matters that arose before the commencement of the Industrial Court Act, 2011
3. Whether the High Court Human Rights Division had jurisdiction to hear industrial causes before the establishment of the Industrial Court.
4. Whether Companies under receivership have the capacity to sue or be sued in their own name.
5. What rights exist to an employee whose employer has been placed under receivership? And whether they have remedies, If any?

Employment Law – Employment Relationship – filing of employment disputes at the Industrial Court – whether the industrial court has jurisdiction to hear matters that arose before its establishment – rights of an employee whose employer has been put under receivership – Employment Act, Section 67.

Held

1. The Industrial Court as constituted under the Industrial Court Act, 2011 was competent to interpret the Constitution and to enforce fundamental rights and freedoms in matters arising from disputes falling within the provisions of section 12 of the Industrial Court Act, 2011.
2. The petition was properly filed before the High Court Human Rights Division and the action to transfer the petition for hearing to the Industrial Court once operationalized was also proper.
3. As at the time of termination, the petitioner was no longer a “temporary” staff as by operation of the law he was an employee employed under permanent terms. Therefore, such a claim for violation of fair labour practices was proper within the rights of an employee under the Employment Act as well as the allegations of harassment of employees by the employer was unlawful under the ambit of the Employment Act.
4. Where a company (like the 1^st respondent herein) has been placed under receivership, such a company lacks the legal competence to institute suits or be sued on its own name and can only sue or be sued through the receiver or manager as that is the person/body in law that has taken over the affairs of that entity under receivership. However, if in the court’s opinion based on the proceeding before it finds that the claims directly touch on the property, assets, actions complained of subject of the receiver’s powers or where the receiver’s position would be prejudiced by the court decision then a court can direct that proceedings be made jointly with that other entity. The case herein was one such peculiar case with the claim interrelated and one could not exist without the other and therefore both parties as respondents were properly sued.
5. Section 67 and the whole part VIII of the Employment Act outlined conditions to be satisfied before instituting  proceedings by employees whose employers had come under receivership through insolvency as follows;

1. There had to be a valid claim;
2. There had to be insolvency of the employer;
3. An application had to be done to the Minister that an employer was insolvent and an employee had been terminated;
4. On the insolvency date, the employee was entitled to payment; and
5. Then the Minister had to pay from the Insolvency Fund.

6. After the respondents terminated the services of the petitioners for gross misconduct after a lock out, the petitioners reported to the Minister for Labour who placed it for reconciliatory but the same broke down or was abandoned and the petitioners filed Industrial Cause No. 1524 of 2011 which they later withdrew after disagreeing with their advocates.
7. By inviting the Minister to arbitrate, a large part of the preconditions of the Employment Act had been met. As such the parties assumed that insolvency had occurred and there was a valid claim. Accordingly, the employee was entitled to payment of wages and the Minister had to establish an Insolvency Fund from where such a claim was to be paid from.
8. The reasons for termination being gross misconduct after a lock –out were issues for determination by the Industrial Court as well as whether the termination was fair or unfair and whether the terminal dues and retirement benefits were paid were also specific claims that ought to have been outlined in a claim for the court or labour officer to establish from the circumstances of the termination as had been alleged to be unlawful. Section 90 of the Employment Act required that such claims had to be lodged within 3 years of the termination of services.
9. The claim herein as at the time of being referred to the Minister was within the outlined requirements of the Employment Act on Insolvency procedures. With the parties failing to agree before the Minister and by filling the same at Industrial Court, the Court was properly seized of the matter to arbitrate on the terminal benefits owing, the retirement benefits and the circumstances of the termination as being fair or unfair.
10. The act of the petitioners withdrawing from that claim and by filing this petition even where the court had jurisdiction amounted to a case of duplicity. The court had a duty to put into context other pending suits or claims against similar parties over the same subject matter or cause of action.
11. The Petitioner should have pursued their claim before the court as filed in Cause No. 1524 of 2011. By withdrawing that cause, they threw their rights away and could not redeem the damage by filing the present petition either by calling it a petition or a Plaint and not calling it a cause or a claim.

Petition dismissed.