https://new.kenyalaw.org/akn/ke/judgment/keelrc/2026/1394

REPUBLIC OF KENYA IN THE EMPLOYMENT AND LABOUR RELATIONS COURT AT NAIROBI ELRC APPEAL NO. E349 OF 2025 FALCON SIGNS LIMITED………………………….……..………………………APPELLANT VERSUS BETH MUTHONI…………………...…..….……………………………….……RESPONDENT *(Being an Appeal from the* *Judgment and Decree of the Hon. T.M. Orlando (PM) delivered at Nairobi on the 24th day of September, 2025 in MCELRC No. E880 of 2024)* CORAM Before Lady Justice Jemimah Keli C/A Otieno JUDGMENT 1. The Appellant herein, being dissatisfied with the Judgment and Decree of the Hon. T.M. Orlando (PM) delivered at Nairobi on the 24th day of September, 2025 in MCELRC No. E880 of 2024 between the parties filed a memorandum of appeal dated the 15th of October, 2025 seeking the following orders:- 2. Allow this Appeal and set aside the judgment and decree of the Honourable Magistrate delivered on 24th September 2025 in MCELRC/E880/2024. 3. Substitute the finding of unlawful termination with a finding that the termination was lawful and fair in the circumstances. 4. Set aside the award of Kshs. 250,530.00 as damages for unlawful Termination. 5. Set aside the award of costs and interest made in favour of the Respondent. 6. Dismiss the Respondent’s claim in its entirety as unproven. 7. Award costs of this appeal and of the trial court to the Appellant. 8. Grant such other or further reliefs as the Court may deem just and appropriate. GROUNDS OF THE APPEAL 1. The Honourable Trial Magistrate erred in law and fact in finding that the termination of the Respondent’s employment was unlawful and unfair, despite clear and uncontroverted evidence that: - a) The Respondent was given notice of termination; b) The reason for termination was poor performance; c) The Respondent was paid all her dues, including the notice period. 1. The Honourable Trial Magistrate failed to appreciate the totality of the evidence and instead based the finding of unlawful termination solely on the absence of a disciplinary hearing or performance appraisal, without considering the operational context of the employer’s business. 2. The Honourable Trial Magistrate erred in shifting the entire burden of proof to the Appellant, contrary to Section 47(5) of the Employment Act, despite the Respondent failing to discharge her initial burden of demonstrating unfair dismissal. 3. The Court misapplied the principles in Section 41 and 45 of the Employment Act, by rigidly interpreting them without balancing the same with Section 43, which allows for termination based on reasonable grounds. 4. The Honourable Trial Magistrate erred in law in awarding five (5) months’ salary as damages without any legal or factual basis, and without considering: - a) The Respondent's notice pay was settled; b) There was no evidence of financial or emotional distress; c) The Respondent had not mitigated her loss post-termination. 1. The award of five months’ salary was excessive, arbitrary and punitive, especially in view of the minimal role played by the Appellant in the termination, which was procedural and based on documented performance concerns. 2. The Honourable Trial Magistrate erred in law and principle in awarding costs and interest to the Respondent despite the Claimant having only partially succeeded, and despite significant portions of her monetary claims (e.g., service pay, Kshs. 1,052,226.00) having been dismissed. 3. The Court failed to exercise its discretion judiciously under Section 27 of the Civil Procedure Act, by awarding costs as a matter of course without considering the partial success of the Respondent and the conduct of both parties. BACKGROUND TO THE APPEAL 1. The Respondent filed a claim against the Appellant vide a statement of claim dated the 24th of May 2024 seeking the following orders:- 2. 12 months’ salary for unlawful and unfair termination Kshs. 601,272 3. Unpaid service pay at the rate of 1 month’s salary for each Complete year Kshs. 450,954 4. Issuance of a certificate of service that complies with Section 51 of the Employment Act 2007 Sub-total Kshs.1,052,226 1. Costs of the suit 2. Interest on the above until payment in full 3. Such further or other relief as the court may deem (Pages 6-8 of the ROA dated 6th December 2025). 1. In support of her claim, the Respondent submitted her list of witnesses dated 24th May 2024; her witness statement of the same date; and her list of documents of the same date, with the bundle of documents attached (pages 10-24 of ROA). 2. The claim was contested by the Appellant, who appeared and filed a response dated 28th June 2024 (pages 25-28 of ROA). They also submitted a list of documents of the same date, with the bundle of documents attached; a list of witnesses of the same date; and witness statements of HEENA MAGDANI dated 14th November 2024 (pages 29-60). 3. The Claimant/Respondent’s case was heard on 11th March 2025, with the Claimant giving evidence as PW1. She relied on her filed witness statement as her main evidence and submitted her documents as exhibits. She was cross-examined by counsel for the Respondent/Appellant, Mr. Macharia (pages 80-84 of ROA). 4. The Respondent/Appellant’s case was equally heard on the same day, with the Appellant calling one witness ATIENO MAGDALINE to testify on its behalf as DW1. She relied on her filed witness statement as the Appellant’s evidence in chief, and produced the Appellant’s documents as exhibits. She was cross-examined by counsel for the Claimant/Respondent Ms. Kogai (pages 84-86 of ROA). 5. The parties took directions on the filing of written submissions after the hearing, and complied. 6. The Trial Magistrate Court delivered its judgment on the 24th of September 2025, partially allowing the Claimant’s claim in respect of 5 months’ salary as compensation for unfair termination, plus costs of the suit and interest (Judgment at pages 88-90 of ROA). DETERMINATION 1. The appeal was canvassed by way of written submissions. Both parties filed. Issues for determination 1. The appellant identified the following issues for determination in the appeal- 2. Whether the termination was substantively fair under Section 43 of the Employment Act. 3. Whether the Trial Court erred in finding the termination procedurally unfair. 4. Whether the award of five (5) months' salary was excessive and lacked a legal basis. 5. Whether the Respondent was entitled to costs despite the dismissal of a significant portion of her claim. 6. Conversely, the respondent addressed the following issues- 7. Whether the Learned Trial Magistrate erred in law and fact in holding that the Respondent was unlawfully and unfairly terminated from employment? 8. Whether the Learned Trial Magistrate erred in law in awarding five (5) months salary to the Respondent as damages for unlawful and unfair termination? 9. Whether the Learned Trial Magistrate was justified in awarding costs of the suit and interest thereof to the Respondent? 10. The court found consensus among the 2 parties on the issues for determination to be – 11. Whether the Learned Trial Magistrate erred in law and fact in holding that the Respondent was unlawfully and unfairly terminated from employment? 12. Whether the award of five (5) months' salary was excessive and lacked a legal basis. 13. Whether the Respondent was entitled to costs despite the dismissal of a significant portion of her claim. Whether the termination was substantively fair under Section 43 of the Employment Act. 1. The Appellant submitted as follows- that it discharged its burden under Section 43 of the Employment Act by proving that the reason for termination was poor performance. The Trial Court was presented with evidence that the Respondent’s output did not meet the required operational standards. That "reasonableness" of a reason for termination should be viewed through the lens of the employer’s business needs. That the court should not substitute its own business judgment for that of the employer, provided the reason is genuine.(The court did not find the decision cited). That the Trial Court erred by disregarding the documented performance concerns and focusing solely on the absence of a formal appraisal report. The Trial Court further erred by failing to recognize that the Respondent’s terminal entitlements were fully liquidated, leaving no outstanding claim for services rendered. Evidence on record, which remained uncontroverted, confirms that the Appellant paid out all the Respondent’s accrued leave days and covered the entire duration of the notice period. This comprehensive settlement demonstrates the Appellant’s commitment to its statutory obligations under the Employment Act. We submit that where an employer has ensured the employee is paid for all earned leave and the full duration of notice, the basis for awarding hefty damages is significantly diminished, as the economic transition of the employee has already been substantively cushioned by the employer. 2. Conversely, the respondent submitted as follows -A substantive reason is a fair and valid reason for the dismissal of an employee. A fair and valid reason is the reason the employer genuinely believed existed at the time of termination, and which caused the employer to terminate the services of the employee. That the Respondent worked for the Appellant for nine years nine months as a PA to the Technical Director, Mr. Chetan Magdani. For the entire time the Respondent worked for the Appellant, she performed her work with the expected faithfulness, diligence and professionalism, hence fulfilling all the demands of her job. The Respondent would not have worked for that long period of over nine years if she was not a diligent worker. In the entire period of her employment, she did not receive any feedback on poor performance, no warning letter and no show cause letter due to poor performance was ever issued to her. The Respondent was issued with a notice of termination letter dated 10th September 2021 stating that due to poor performance towards her duties, she is given one month termination notice. That for poor performance to be a reason for termination, the employer must have a policy to measure good performance as against poor performance, an valuation must be carried out to measure the performance, if the employee is found to be a poor performer then she must be given an opportunity to address the poor performance by being put on a Performance Improvement Plan (PIP). If after the PIP, the employee is still performing poorly then the process of termination is initiated by being issued with a show cause letter, response received, disciplinary hearing held, determination issued. None of this took place in the present case. A three-judge bench of the court of appeal in the case of National Bank of Kenya vs. Samuel Nguru Mutonya (2019) KECA 404 KLR stating with approval the holding in the case of Jane Samba Mukala v Ol Tukai Lodge Limited Industrial Cause Number 823 of 2010; (2010) LLR 255 (ICK) (September, 2013) observed as follows; “Where poor performance is shown to be reason for termination, the employer is placed at a high level of proof as outlined in section 8 of the Employment Act, 2007. The employer must show that in arriving at the decision of noting the poor performance of an employee, they had put in place an employment policy or practice on how to measure good performance as against poor performance. a. It is imperative on the part of the employer to show what measures were in place to enable them assess the performance of each employee and further, what measures they have taken to address poor performance once the policy or evaluation system has been put in place. It will not suffice to just say that one has been terminated for poor performance as the effort leading to this decision must be established. b. Beyond having such an evaluation measure, and before termination on the ground of poor performance, an employee must be called and explanation on their poor performance shared where they would in essence be allowed to defend themselves or given an opportunity to address their weaknesses. c. In the event a decision is made to terminate an employee on the reasons for poor performance, the employee must be called again and in the presence of an employee of their choice, the reasons for termination shared with the employee.” 3. The trial court found there was no proof of the reason for the termination of poor performance as the respondent was not heard before the termination. 4. This being a first appellate court, it was held in Selle v Associated Motor Boat Co. [1968] EA 123 that:- “The appellate court is not bound necessarily to accept the findings of fact by the court below. An appeal to the Court of Appeal from a trial by the High Court is by way of a retrial and the principles upon which the Court of Appeal acts are that the court must reconsider the evidence, evaluate it itself and draw its own conclusions though it should always bear in mind that it has neither seen nor heard the witnesses and should make due allowance in this respect. In particular the court is not bound necessarily to follow the trial Judge’s findings of fact if it appears either that he has clearly failed on some point to take account of particular circumstances or probabilities materially to estimate the evidence or if the impression based on the demeanor of a witness is inconsistent with the evidence in the case generally.” 5. Section 47(5) of the Employment Act provides for the manner of proving of employment claims as follows-‘(5)For any complaint of unfair termination of employment or wrongful dismissal the burden of proving that an unfair termination of employment or wrongful dismissal has occurred shall rest on the employee, while the burden of justifying the grounds for the termination of employment or wrongful dismissal shall rest on the employer.’ The Court found the respondent pleaded and proved on a balance of probability that his services were terminated on the grounds of an allegation of poor performance and a lack of procedural fairness. The burden then shifted to the appellant to justify the reason of poor performance. ### The proof of the reason for the termination is stated in section 43 of the Employment Act to wit- ‘43. Proof of reason for termination (1)In any claim arising out of termination of a contract, the employer shall be required to prove the reason or reasons for the termination, and where the employer fails to do so, the termination shall be deemed to have been unfair within the meaning of section [45](https://new.kenyalaw.org/akn/ke/act/2007/11/eng%402024-04-26#part_VI__sec_45).(2)The reason or reasons for termination of a contract are the matters that the employer at the time of termination of the contract genuinely believed to exist, and which caused the employer to terminate the services of the employee.’’ 27. The threshold of fairness of termination of employment is according to the provisions of section 45 (2) of the Employment Act to wit:- ‘45(2) A termination of employment by an employer is unfair if the employer fails to prove— (a) that the reason for the termination is valid (b) that the reason for the termination is a fair reason— (i) related to the employees conduct, capacity or compatibility; or (ii) based on the operational requirements of the employer; and (c) that the employment was terminated in accordance with fair procedure.’’ 1. The court perused the evidence before the trial court by both parties. The court only found the letter of termination dated 10th September 2021 as regards the termination process which stated-‘This letter has been written to you that due to poor performance towards duties, you are hereby given a one month notice period for your termination.’ The burden to prove the existence of the reason for poor performance was on the appellant as the employer. During the hearing before the trial court, the appellant’s witness, Atieno Magdaline, confirmed that the respondent was not issued with notice to show cause. Atieno said the respondent had been given a verbal warning in 2019 of disrespect but had no evidence of any warnings. The witness in re-examination said the respondent was rude and never met performance(see pages 85-86 of ROA). In Jane Samba Mukala v Ol Tukai Lodge Limited [2013] eKLR the court observed as follows;- “a. Where poor performance is shown to be reason for termination, the employer is placed at a high level of proof as outlined in section 8 of the Employment Act, 2007. The employer must show that in arriving at the decision of noting the poor performance of an employee, they had put in place an employment policy or practice on how to measure good performance as against poor performance. b. It is imperative on the part of the employer to show what measures were in place to enable them assess the performance of each employee and further, what measures they have taken to address poor performance once the policy or evaluation system has been put in place. It will not suffice to just say that one has been terminated for poor performance as the effort leading to this decision must be established. c. Beyond having such an evaluation measure, and before termination on the ground of poor performance, an employee must be called and explanation on their poor performance shared where they would in essence be allowed to defend themselves or given an opportunity to address their weaknesses. d. In the event a decision is made to terminate an employee on the reasons for poor performance, the employee must be called again and in the presence of an employee of their choice, the reasons for termination shared with the employee.”(Decision cited with approval by the Court of Appeal in National Bank of Kenya v Samuel Nguru Mutonya [2019] eKLR (Judges, RN Nambuye, GK Oenga, S ole Kanta JJAs). I upheld the decision to apply in the instant appeal. 1. The court agreed with the trial court that the respondent was never given an opportunity to be heard on the alleged reason of poor performance. The appellant ought to have issued the respondent with a notice to show cause regarding the alleged poor performance and complied with section 41 of the Employment Act, in order to afford the respondent a fair opportunity to defend herself. The appellant submitted that the Trial Court adopted a "strict liability" approach to Section 41 and contended that the Court of Appeal in Kenfreight (E.A) Limited v Benson K. Nguti [2016] eKLR clarified that procedural fairness is not a "straitjacket." In small-to medium operational contexts, a conversation regarding performance followed by a notice period satisfies the spirit of the law. I do find that the Court of Appeal in the cited Kenfreight case upheld compliance with section 41 of the Employment Act as summarized by the Supreme Court in Kenfreight (EA) Limited v Nguti [2019] KESC 79 (KLR) as follows- ‘12.On the issue whether the notice of termination was proper, the Judges found that the appellant had complied with the terms of the contract of service by paying to the respondent Kes 676,362, being the respondent’s one-month salary in lieu of notice. On the issue whether the termination was unfair, the Judges found that it is considered unfair to terminate a contract of service if the employer fails to demonstrate that the reason for the termination is valid and fair; that the reason related to the employee’s conduct, capacity, compatibility or is based on the operational requirements of the employer. That the employer must also prove that the termination was in accordance with fair procedure and that the burden on the employee is only limited to asserting that an unfair termination has occurred. In a nut shell, the Court upheld the trial court’s decision that the termination was unfair. The court also found that the treatment of the respondent leading to the termination as well as the termination itself was discriminatory.’ The Court holds that the compliance with section 41 of the Employment Act is not optional for all employers. A ground of termination hinged on poor performance cannot be treated casually, as alluded by the appellant by way of a casual conversation and notice of termination. The employee must be given notice to show cause and an opportunity to respond, as well as be afforded a genuine chance to improve performance. The court holds that the termination of the employment of the respondent by the appellant fell short of the fairness threshold as related to capability and capacity as stated in section 45(2) of the Employment Act. The court upholds the trial court's finding of unfairness of the termination. Whether the award of five (5) months' salary was excessive and lacked a legal basis. 1. The appellant submitted that as follows- The award of five (5) months’ salary is arbitrary and punitive. Under Section 49(1)(c) of the Employment Act, the court must consider several factors, including the employee's contribution to the termination and the effort to mitigate loss. There was no evidence led by the Respondent to show financial distress or efforts to seek alternative employment post-termination. That the court in decided cases have emphasized that damages for unfair termination are compensatory, not a windfall. Awarding five months' salary where notice was already paid amounts to double enrichment. We further submit that the Trial Court erred by failing to appreciate that damages for unfair termination are intended to put the employee in the position they would have been in had the unfairness not occurred, rather than to punish the employer. In this case, the Appellant acted in good faith by ensuring that the Respondent did not leave empty-handed, clearing all statutory and contractual dues at the point of exit. By imposing an additional hefty financial burden of Kshs. 250,530.00, the Learned Magistrate ignored the Appellant’s compliance with its financial obligations. This resulted in an award that is not only excessive in the circumstances of a performance-based termination but also legally untenable as it ignores the mitigation of loss already provided by the Appellant’s prompt payment of terminal benefits. The Learned Magistrate failed to properly evaluate the Respondent’s own testimony under oath, which effectively neutralized her claim of unfairness regarding the termination timing. While the Respondent alleged unlawful termination, she admitted during cross-examination that a one-month notice was issued on 10th September 2021 and explicitly stated that her contract was set to end on 10th October 2021. This admission confirms that the Appellant strictly adhered to the contractual and statutory notice requirements. By acknowledging that the termination was aligned with a clear thirty-day notice period, the Respondent’s testimony directly contradicts the finding of an "unlawful" surprise dismissal, proving instead that the termination was a structured and foreseeable separation. 2. Conversely, the respondent submitted as follows:-The Respondent submits that the award of 5 months' salary as damages for unlawful termination amounts to Kshs. 250,000/= is justified in law and is not excessive. The court established that she was unlawfully and unfairly terminated from employment. She was thus entitled to compensation. Furthermore, the Appellant’s Claim that the Respondent unlawfully absented herself from work is false as the Appellant accepted the Claimant’s Letter dated 10th September 2021 through which she requested that her pending 35 leave days be used to cover the one month notice and the rest be paid to her. In the event that the Respondent unlawfully absented herself from work in the month of October and November 2021, she would have been issued with a show cause letter for the absenteeism and subjected to a disciplinary action. None of this was done. The Claimant is rightly entitled to the 5 months salary awarded by the trial court and the same should not be interfered with. 3. The Supreme Court in Ken freight (E.A) Limited v Benson K. Nguti SC Pet. No. 37 of 2018 [2019] eKLR Court explained the applicability of the provisions of Section 49 as hereunder;- “…..What then should be the correct award on damages be based on? Having keenly perused the provisions of Section 49 of the Employment Act, we have no doubt that once a trial court finds that a termination of employment as wrongful or unfair, it is only left with one question to determine, namely, what is the appropriate remedy? The Act does provide for a number of remedies for unlawful or wrongful termination under Section 49 and it is up to the judge to exercise his discretion to determine whether to allow any or all of the remedies provided thereunder. To us, it does not matter how the termination was done, provided the same was challenged in a Court of law, and where a Court found the same to be unfair or wrongful, Section 49 applies….”The exercise of the discretion of the court is not capricious or whimsical and the court should justify the award (see Olpejeta Ranching Limited v David Wanjau Muhoro (2017)e KLR). The trial court did not justify the award of 5 months. The court then applied the factors in section 49(4) of the Employment Act. It was true the notice had been issued. The same was a right of the employee under section 35 of the Employment Act and is one of the remedies under section 49. Compensation is a separate remedy under section 49 for wrongful dismissal. The respondent had served from 2012 to 2021, which is approximately 9 years. Indeed, as submitted by the appellant, there is no evidence that the respondent faced difficulty in securing equivalent employment. The respondent ought to mitigate his losses. There was no evidence of the respondent having contributed to the termination. The trial court awarded 5 months. The maximum compensation is the equivalent of 12 months' gross salary. I find the award of 5 months over and above the Notice was justified and not so high as to warrant the court's interference. The award is upheld. 1. On costs, the appellant submitted- that the Trial Court failed to exercise its discretion under Section 27 of the Civil Procedure Act. The Respondent’s primary claim for service pay (Kshs. 1,052,226.00) was dismissed. Where a party loses the bulk of their monetary claim, they should not be awarded costs as a matter of course. Each party should have been ordered to bear their own costs, or the costs should have been apportioned to reflect the Appellant’s success in defending the larger claim. Conversely, the respondent submitted the general rule in terms of costs is that costs follow the event, and consequently, that the successful party ought to be awarded costs. However, a court in the exercise of its discretion can depart from that structure where there exist grounds to justify such a course of action. In the present case, it can be deciphered that the trial court was justified in awarding costs of the suit and interests thereof to the Respondent herein. Furthermore, the Appellant’s case is not meritorious and thus serves to be an abuse of the court process. In this vain, the Respondent submits that the costs of the Appeal ought to be awarded to the Respondent. 2. The claim before the trial court was for maximum compensation for unfair termination , service pay for 9 years of service and a certificate of service. (page 7 of ROA). As per the claim, it is not true that the primary claim was of service pay. The primary claim was unfair termination. The claimant having succeeded in the claim for unfair termination was thus entitled to costs under the principle of costs follow the event. I find no basis to interfere with the award of costs. 3. In the upshot, the appeal is held to lack merit and is dismissed with costs to the respondent. The entire Judgment and Decree delivered on the 24th day of September 2025 by Hon. T.M. Orlando, Principal Magistrate in MCELRC/E880/2024 is upheld. 4. It is so Ordered. DATED, SIGNED, AND, DELIVERED IN OPEN COURT AT NAIROBI THIS 15TH DAY OF MAY, 2026. JEMIMAH KELI, JUDGE. IN THE PRESENCE OF: Court Assistant: Otieno Appellant : Macharia Respondent: Ms Nyabuta h/b Kogai