REPUBLIC OF KENYA

IN THE EMPLOYMENT AND LABOUR RELATIONS

 COURT AT BUNGOMA

ELR CAUSE NO. 3 OF 2020

PETER ADAMS LUDAAVA .........................................CLAIMANT

VERSUS

BONITO HOTELS LIMITED...................................RESPONDENT

JUDGMENT

ISSUE

Whether the Claimant’s terms of contract amounted to a  consultancy or contract of service

1.  The Claimant by way of Memorandum of Claim dated 4^th February, 2020  and amended on the 28^th October, 2021  sought the following reliefs:-

A. a declaration  that the Respondents’ conduct and in particular  their  failure to officially  declare their position with regards to the Claimants employment status with them is unlawful.

B. An order that the Respondent do forthwith:-

i.       Unconditionally reinstate the claimant to his last position,

ii.      Pay the claimant :-

a.  Salary  that is outstanding as at 15.10.2018 which amounts to Kshs. 1,523,950/-

b.  November consultancy fees of Kshs. 200,000/-

c.  1-14^th December consultancy fee of Kshs. 100,000/-

d.  3 months paid leave of Kshs. 600,000/-

e.  Annual leave (worked for 4 years remains one month which amounts  to Kshs. 200,000/-

f.   Salaries since February when he stopped from working up to when he shall be reinstated currently standing as (Kshs. 200,000/- x 11 months) Kshs. 22,000,000/-

g.  Cash advanced to Bonito Hotels Ltd Kshs. 41,000/-

Total Kshs. 24,772,950/-

   iii     General Damages for the breach of contract

 iv. costs of this suit

v. interest in ii(a-h) above at commercial rates from date of suit till payment in full.

vi. any other relief the court may deem fit

2.  In addition to the claim the Claimant lodged list of witnesses dated 20^th January  2020, plaintiff’s  statement dated 4^th February, 2020, list of documents dated 4^th February  2020. The Claimant  further filed witness statements of Antony Muimi Muthui dated  4^th February, 2020.

3.  In response to the Claim  the Respondents entered appearance through the law firm of M/S  Lumumba  & Ayieko Advocates  on the 28^th February, 2020  and filed Response to the claim dated 7^th March, 2020, Respondents’ list of witnesses dated 7^th March, 2020, witness statement by Alfred Agengo dated 7th March  2020 and Respondents’   list of documents dated 7^th march 2020.

4.  The Respondents filed  proposed issued for determination dated 8^th  September 2021.

5.  On the 29^th October 2021 the  Claimant filed amended  Memorandum of claim dated  28^th October 2021  striking out the 1^st and 2^nd respondents  from the suit.

6.  The court heard the case on the 6^th December 2021  where the Claimant gave  evidence and called one witness and was cross -examined by  counsel  for the Respondent.  The Claimant’s  case was closed. On the same day the court heard the defence case with the Respondent  calling one witness who was cross examined by counsel for the Claimant.  The defence case was closed.

7.  The court gave directions on filing of written submissions. The Claimant’s written submissions dated 6^th January 2022 by Gabriel Fwaya Advocates were filed on the 11^th January 2022. The respondent’s written submissions by Lumumba & Ayieko  Advocates are dated 18^th December  2021  and filed in court on the 7^th January  2022.

8.  The  Claimant’s Case.

The Claimant by undated consultancy Agreement was engaged by the Respondent as consultant specialist hotelier for Bonito Hotels ltd and among the terms his primary duty was to run Tourist Hotel Bungoma  in the position of a General manager ( exhibit  1)  where he worked from 2014  to December  2018 when he told the court he was asked by the Respondent through its Chairman/ Director of Board  to proceed on leave.  He stated that since employment as a General Manager he has never been paid his salary consistently and /or  lumpsum.  That  as at October  2018  the Respondent owed him an outstanding salary of Kshs. 1,523.950/-.   The Claimant  also stated that he used to advance money to the Respondent during year  2017  general  elections  due  to cash follow issue running into 2018 of total sum kshs. 41,000/- which amount was never refunded.

9.  The Claimant stated that he never went on leave nor paid in liue.  That he was send on 3 months paid leave and not paid.  He reported back after lapse of 3 months on 13^th February, 2019  to find his office closed.  That  one Alfred Agengo  ordered him to leave the premises and later called him to say he will get in touch but did not do so. That he was not paid salary  since December  2018  to date and previous salary arrears.  That his Advocates wrote  a demand  letter which did not elicit response.

10.Respondent’s Case.

The Respondent denied it had  employed  the Claimant and stated he was a consultant and not employee of the Bonito Hotel Bungoma.  The Respondent stated that the claim  for salary   arrears was untenable in law as claimant were not an employee. The Respondent stated  that the dispute was purely commercial falling within the  purview  of Commercial courts.

Determination

10.         Issues  for determination .

The  Respondent filed proposed issues for determination dated  8^th September  2021  as follows:-

(i)      Whether the Claimant  was a consultant or employee of the Respondent .

(ii)     Whether there existed an employee employer relationship between the Claimant  and the Respondent.

(iii)    Whether the matter herein is purely commercial that falls within the purview of Commercial courts    and not employment court.

(iv)    Whether the Claimant is entitled to remedies sought under his memorandum of claim.

The Claimant did not file list of issues. The court having heard the parties and perused the pleadings and documents before court is of the opinion that the issues  placed  before the court for determination in the instant suit are as follows:-

(i)     Whether there existed an employer- employee relationship between the Claimant and Bonito Hotels  Limited  (The Respondent)

(ii)    Whether the Claimant was a consultant and not employee of Respondent

(iii)   Whether the  focus within the Purview of  Commercial Courts and not Employment court.

(iv)   Whether the Claimant is entitled to reliefs sought?

Whether there existed an employer- employee  relationship  between the Claimant and Respondent herein

11.         The Claimant  produced his contract ( exhibit  1 ) which was undated  and signed by the Respondent’s  Managing Director  Ken Musebe. The said contract  was also produced by the Respondent in list of documents. The contract is titled “ Consultancy Agreement” and states as follows :-

‘Mr.  Peter Adams  Ludaava

C/O Tourist  Hotel  Bungoma

P.O. Box  1838 -50200

Bungoma.

Dear  Mr. Ludaava

CONSULTANCY AGREEMENT

This  letter confirms  our agreement for you to perform the duties   of a consultant  specialist Hotelier for Bonito Hotels  LTD  on  the following  terms and conditions:-

1.  That   your primary duty is to run Tourist Hotel Bungoma in the position of the General Manager with effect from 1^st December 2014  . In addition, you will provide consultancy services for Bonito Hotels ltd who intend to expand into other hotel business in the Western region

2.  That you will assist Bonito Hotels ltd to complete the construction of Tourist  Hotel Bungoma.

3.  That  you will in addition assist in the planning and development of Busia  Teso Teachers Hotel.

4.  That it has been greed that you will be initially be paid consultancy fees of kshs.200,000 per month until the business stabilizes.  In addition you will be provided with a fully furnished Company house including the provision of electricity and water. The Company will arrange for cleaning services of the house and laundry.

5.  That the company will pay you a fuel allowance of kshs. 6,000/- per week for the use  of your car for company business which will be increased to Kshs.12,000 per week with effect from 1^st  August,  2015.

6.  That  you will be  provided with meals  and reasonable allowances for beverages.

7.  That  as General Manager you will be  entitled to a normal  day off every week  and a leave of 30 days in every  year.

8.  That  should there be need for the termination of this consultancy, either party is entitled  to give  3 months notice  for the termination of payment in lieu of such notice.

May we take this opportunity to wish you the best of luck in this venture.

Yours Sincerely

KEN MUSEBE

MANAGING DIRECTOR’

The said letter was admitted as evidence of the Claimant ( exhibit 1). The Claimant further produced letter dated 13^th February 2015  written to Bank of Africa by Directors of the Respondent introducing  the Claimant as the sole signatory of the Respondents  Account No.099008 10007 in Bungoma.  The letter states that “ Mr. Ludaava  is our General  Manager at BONITO HOTELS LTD and in order to Manage  payment  in Bungoma better, it has been resolved as per foregoing and we  hereby request you to update  this mandate in your system accordingly”. (Claimant’s exhibit no.3)

12.         The Claimant  produced   record indicating monies he states is owed by the Respondent  ( exhibit   No. 5) . The Claimant  produced letter dated 11^th December  2018  and titled “ proceed on leave”. By James Olubayi; signing as chairman of Directors.  The court notes  the said person is a director of the Respondent ( see exhibit  2) The said letter is  reproduced herein and states:-

‘11^th December 2018

Mr. Peter Ludaava

C/O  Tourist  Hotel Bungoma

Mumisa  Road

P.o. Box  1838 -50200

Bungoma.

Dear Mr. Ludaava,

Proceed on leave

The Board  of Directors of Bonito  Hotels Limited, the Managers of Tourist  Hotel Bungoma, at its last Directors Meeting resolved to let you go on leave for ninety ( 90)  calendar days.

The purpose of this letter is to inform you that your proceed on paid leave for the next ninety ( 90)  calendar days effective 14 December  2018  . You are directed to handover  the General Manager Management responsibilities to the Acting Deputy General manager Ms Rhoda  Simiyu and responsibilities relating to Finance and Operations to Mr. Alfred   Agengo. The Board  also directs that throughout the period of this leave you please allow Rhoda and Alfred to fully perform all the functions of the  GM  unhindered.

Thank you.

Yours sincerely

JAMES  OLUBAYI

CHAIRMAN

BOARD OF DIRECTORS.’’

 The  letter to proceed on leave implies that the Claimant  enjoyed the benefits of an employee and worked with other   employees   who could act in his absence.   

13.         The Respondent submits that even though it was  not provided for in the undated consultancy agreement, it was agreed that the consultancy period would run for two months with no provision for renewal and it will be terminated by performance.  The court places zero  weight on this particular submission as it has no value as no evidence was led at trial in support and further a contract is  based on its written terms.  The contract was written and produced in court as evidence.

14.         The Respondent submits there was never an employee employer relationship between the Claimant and the Respondent, it was purely a consultancy agreement which was to run for a specific period of time.  That the position of being a consultant was confirmed by  CW2  who stated he knew the  Claimant  as Consultant for Respondent.   The Respondent further submits that the Claimant  having testified he was a general Manager of Tourist Hotel Bungoma an entity which is no longer a party in these proceeds and Tourist Hotel Bungoma being a different entity, the Respondent herein is not the correct entity to respond to the allegation of Employment Relationship  that the Claimant   had run Tourist Hotel Bungoma. The Respondent further submits that the Claimant contended  that there existed some sort of relationship  between the Respondent  and Tourist  Hotel  Bungoma.  However, it submits there was no evidence of sort of relationship between that hotel and the Respondent. That the  CR 12  ( exhibit  2  by Claimant)  does not indicate Tourist  Hotel Bungoma is a shareholder in the Respondent.

15.         The court considered the foregoing submissions by the Respondent. The contract letter issued by Respondent (Claimant’s Exhibit 1) indicates that the Claimant’s primary duty is to run  Tourist  Hotel Bungoma  in the position of General Manager with effect from 1^st December 2014.  It is not the burden of the Claimant to proof the relationship between the Respondent and Tourist Hotel Bungoma.  He only had a contract with the Respondent who engaged him to also run that hotel as part of his terms under the contract.

16.         The court finds that Claimant by producing  the contract discharged his burden that he was also in addition engaged as general Manager of Tourist Hotel Bungoma by the Respondent . This was  buttressed by production of exhibit  6 being letter to proceed on leave  by a director of the Respondent who asked the Claimant to handover  the General Manager responsibilities to the acting General Manager Rhoda Simiyu and responsibilities relating to Finance  and operations to Mr. Alfred Agengo who testified for the Respondent.

17.         The Respondent submits that the burden of proving existence of employee employer  relationship  lies  on the claimant and relies on the decision of Martin Juma Kundu  -vs- KEMU  Salt Packers production Limited  ( 2016)  eKLR  where  the court held  that the onus of proving that he was employed under a contract of service lies with the Claimant.

18.         The Respondent submits that the Claimant was paid a fee and not salary and did not enjoy insurance health benefits and relies on the decision in N’DRI Therese Assie  - Lumumba -vs  Forum for Africa Women Educationists( 2020 ) eKLR   where court found  the Claimant was a consultant having considered her contract and correspondence between parties to find she was not entitled to claim of insurance.  

19.         The court has also considered  submissions  that were  no statutory deduction of NHIF, NSSF  (CW2)  testified to that effect, no was the Claimant placed on payroll.  The Respondent submits  there were no specific duties specified  in the Agreement for court to assess if he performed  roles integral to the business.

20.         The court finds that the duty of General Manager   is specific  in relations to running Tourist  Hotel Bungoma, that the act of Respondent  to appoint the Claimant as it is a sole signatory of Bank Account amounts to an integral role which  is unusual  to be allocated to a consultant.  The contract through   title “Consultancy Agreement” provides  for housing, cleaning services and laundry, fuel allowance of kshs. 6000/- per week for use of his car for company business, provision of meals and reasonable allowances   for beverages, that  as  a General  Manager  the Claimant  was entitled to a normal day off every week and a leave of 30 days in every year.  Finally, the Contract  provided should there be need of termination of the consultancy, either party is entitled to give  3 month’s notice for the termination or payment in lieu of such notice.  The contract did not have defined period of service. The requirement of payment in lieu of notice is a statutory requirement under the Employment Act, Section 35; leave is a statutory benefit of employees under Section 28 of the Employment Act.

21.         A contract of service is defined under the Employment Act to mean an agreement whether oral or in writing and whether expressed or implied, to empty to serve as an employee for a period of time.  Further the  Act defines employee  as a person employed for wages or salary and an employer is defined to  mean any person, Public  body, firm , corporation or company who or which  has  entered into a contract  service to employee any individual and includes the agent, company….”.

22.         In  a recent  case similar in the instant case against the Respondent, ELRC Bungoma No. 4 of 2019, Michael Otieno  Ouma -vs Bonito Hotels  Ltd TA  Tourist  Hotel Bungoma,  ( Reported  2022 eKLR) the court adopted with a approval  the test of whether the Claimant was employee or Consultant by applying decision by Kimondo J in Eldoret Aviation Ltd  -vs-  Kenya Revenue Authority ( through the Commissioner of Taxes)  2013  eKLR  Which was adopted with approval decision of Maureen Onyango J in Lolengode Venkatachala  Lalsi Mintayan  -vs  Intex Construction Ltd  ( 2020) eKLR  where Justice Kemondo held as follows:-  “ There are various  tests to be employed when there is doubt  whether a person is an employee one of those tests whether the person’s duties are an integral part of the employers business.  See  Beloff  -vs-  Preddram Ltd  (1973) Allier   2011.    The greater the direct control of the employee by the employer, the stronger the ground of holding it to be a contract of service.  See Simmons   -vs- Health Laundry Company  (1990) IKB  543  Okelly -Vs  Trust  House Forte ( 1983) eKLR  456 .  That  test is however not conclusive.  The passage cited by the Appellant in Halsbury Laws of England  vol 1,  26 4^th Edition Paragraph 3 is instructive. “ There is no single test  for determining  whether a person is an employee, the control test   can no longer be considered sufficient especially in the case of employment of highly showed  individuals  and is only one of the particular factors which may  assist court or tribunal  in deciding the point.

The question whether  the person was integrated into the enterprise or remained a part from and independent of  it  has suggested  as appropriate test but it is otherwise only one of the relevant factors for the  modern approach  is to balance all of the facts in decision on the overall classification of the individual  .  The particulars relevant in a particular case may include, in addition to control and integrate the method of payment, any obligation to work only for the employer, stipulation as to hours, overtime, holidays, etc.  arrangements for payment of income   tax and insurance  contributions how the contract was terminated, whether the individual may delegate work, who provided  tools and equipment and who ultimately bears the risk of loss and chance of profit. In some cases the nature of work itself  may be important.

23.         In the cited case of Michael Otieno Ouma, this court found  that the fact that the undated agreement is titled  Consultant Agreement, like the instant  case, does not make the Claimant an independent  Contract nor does the payment of a fee as opposed to salary .

The court upholds its  said decision  in  the instant case.  The court finds   that the decision in  N’DRI Therese  Assie   Lumumba  - Forum for Africa Women Educationists (2020) eKLR  was  distinguishable from  instant case as the Claimant in that case was not awarded any employee benefits    the housing, leave  and off days.

24.         The Claimant in the instant case performed role of General Manager and was integrated in the enterprise as an employee, for example, he was  appointed as a sole signatory of the company Bank Account  ( exhibit  3 by Claimant ), he was asked to proceed on leave for 3 months and handover roles of General  manager and Management responsibilities and finance and operations to existing employees.  These are the  roles in the company which are integral to the operations of an enterprise.  The Claimant’s case meets the test of employee in terms of integration and employee statutory benefits. 

The Court founds that the undated agreement (exhibit 1 by Claimant amounted to employment contract.  That on balance of probabilities there existed employee employer relationship between the Claimant and the Respondent.

25.         Whether the Claimant was a  Consultant and not employee of Respondent .

In view  of the finding under issue No. 1 above  the Claimant  was an employee of the Respondent .

26.         Whether the Claims  falls within the Purview of Commercial Court and not Employment Court.

The  court having found the Claimant was an employee of the Respondent and not consultant this case  falls under the jurisdiction of this court flowing from  Article 162  (2)  of the Constitution and  Section 4 and 12 of the Employment and Labour Relations Court Act No. 20 of 211 to hear and determine an employment disputes  .

27.         Whether the Claimant  is entitled to relief sought.

On the relief of declaration that the Respondents conduct and in particular their failure to officially declare their position with regards to the claimant Employment status with them was unlawful. 

The Respondent submits that this prayer confirms the Claimant was not employee but consultant. The court has already found that for the contents of the contract, correspondence and engagement the Claimant was an employee.  The Respondent submits the court cannot create a non – existent relationship . It is the role of the court to interpret  the contract and establish the intervention of the parties.  It was apparent to the court the contract intended to create an employer employee relationship  and this position was supported by conduct of the Respondent as per evidence  produced before court  ( Claimant’s  exhibits  2, 3  and 6 ).  The court declares the Respondent’s  failure to declare the employment status of  the Claimant opinion  end  of the 3 months’  leave to be unlawful and tantamount to constructive dismissal.

28.         On the order of reinstatement. The same is not available due to lapse of time and the breakdown of relationship between the parties.  The order is denied.

29.         On the claim for outstanding salary as at 15^th October  2018  amount to Kshs. 1,523,950/-. The Claimant led evidence he was to be paid Kshs. 200,000 per month as net salary, what is called fees under the contract.   On cross examination he said it was per the contract which indicates consultancy fees of kshs. 200,000/- per month until business stabilizes.    He told the court the amount was later increased to Kshs. 250,000/- . There was no evidence to that effect.  In cross examination the Claimant said his payment was  as per the computation ( exhibit 8 ).  The Respondent did not produce evidence to contradict the claim for the arrears sought.

30.         The Respondent submits that in absence of the Accountant who generated the computation to authenticate the document is  inadmissible. The Respondent did not produce evidence as employer on record of remuneration of the Claimant as provided for under Section 74 of the Employment Act, 2007 .  In absence of contrary evidence the court grants the claim of outstanding arrears of Kshs. 1,523,950/- as sought to the Claimant.

31.         On claim for November Constancy fee of kshs. 200,000/- the court having found Claimant was employee and there being no evidence of  the payment by Respondent grants  amount sought of kshs. 200,000/- being unpaid wages.

32.         On claim for payment of amount of kshs. 100,000/-. From 1^st to 14^th December, the Respondent submits the year was not stated.    The Claimant told the court he was not paid any money   after proceeding on leave on  in December  2018. The court finds  he was entitled to pay for the days worked in December 2018 before proceeding on leave and kshs. 93,333/- is granted for the 14 days.

33.         On claim for 3 months  paid leave of kshs. 600,000/- There was no evidence that the Claimant was paid for the 3 months  he was ordered to be on leave. The Claim is granted for Kshs. 600,000/- as prayed.

34.         On the Claim for annual leave for extra 1 month the same is denied  as   the Claimant went on leave for 3 months which caters for 3 years. The 4^th month sought is outside Section 90 of the  Employment Act Limiting  claims under the Employment Act  to 3 years.

35.         Claim f is for salaries since February  2019 when the Claimant  stopped working upto when he shall be reinstated currently stated to be standing at Kshs. 22,000,000/-.  The  court has already found the Claimant to be an employee.  Wages to employees  are paid for work done. The Claim is without merit as the Claimant did not work for the Respondent from the said date of February  2019.

36.         On  Claim for fuel   allowance  ( under agreement ) for October  2018  to 1^st  week of December  2018, amounting to Kshs. 108,000/- No evidence of payment was placed before the court by the Respondent.  The amount being contractual is allowed at kshs. 108,000/-.

37.         Cash advanced to Bonito Hotels Ltd ksh.41,000/-. The Claimant produced exhibit (5) being what he called loan to the Respondent advance for cash follow.  No evidence was led to the contrary.  The claim for kshs. 41,000/- is granted as prayed.

38.         The   Respondent submits that there is no evidence the Claimant worked continuously. The Claimant produced a contract engaging him effective 1^st December  2014  and letter to proceed on 3 months  leave by a director  of the Respondent dated 11^th December  2018.  The Respondent  did not produce evidence to show there was a breach or that he was a casual  worker fitting in the decision  it cites of Festo Ndolo Muguru -vs-  Board  of governors  St Georges  primary  School ( 2018)  eKLR.  Indeed  the contract provided  for notice period  of 3 months meaning the Claimant  was  not a casual worker. The Claimant prayed   for general damages for breach of contract. The court found there was constructive dismissal and this  it finds was without procedural fairness.   The Claimant is granted damages for 2 months equivalent of Kshs. 400,000/-.

CONCLUSION AND DISPOSTION

39.         The court holds that the Claimant was an employee of the Respondent and their relationship was that of  employee employer  Judgement is entered  form the Claimant as follows:-

(a) A declaration that the conduct of the Respondent in constructively dismissing the Claimant from employment was unlawful.

(b) The Respondent to pay the Claimant Kshs. 1,523,950/-   as salary arrears as at 15^th October, 2018.

(c) The Respondent to pay Claimant Salary arrears  of month of November 2018 amount to kshs. 200,000/-

(d) The Respondent to pay the Claimant Kshs. 93,333/- being  salary arrears for days worked  1^st to 14^th December  2018.

(e) The Respondent  to pay the Claimant kshs.600,000/- being unpaid salary while on leave for 3 months.

(f) The Respondent to pay Claimant Kshs. 108,000/- being unpaid fuel allowance for October  2018 to 1^st week December 2018.

(g) The Respondent to pay Claimant  Kshs. 41,000/-  advanced to Respondent’s business.

(h) The Respondent to pay Claimant Kshs. 400,000 for unprocedural termination of employment.

( All the above amounts  A- H subject to statutory declaration  of PAYE  only).

(i) The Respondent to issue the Claimant with certificate of service.

(j) The Respondent to bear costs of the suit.

(k) Interest is awarded on the award amount and cost at court rates from date of Judgement

DATED, SIGNED AND DELIVERED AT BUNGOMA THIS 24^TH DAY OF MARCH, 2022.

J.W KELI,

JUDGE.

IN THE PRESENCE OF:

Court Assistant : Brenda Wesonga

Claimant : Firm of Gabriel  Fwaya holding brief ro Ms  Masakhwe

Respondent ; Boaz Agutu Advocate.