[2003] KEELRC 6 (KLR)

IN THE INDUSTRIAL COURT OF KENYA

AT NAIROBI

(Coram: Charles P. Chemmuttut, J.,

S.M. Maithya & A.K. Kerich, Members.)

CAUSE NO.10 OF 2000

KENYA BUILDING, CONSTRUCTION, TIMBER,

FURNITURE & ALLIED INDUSTRIES EMPLOYEES’ UNION...................Claimants.

v

SILENTNIGHT (KENYA) LTD...........................................................Respondents.

Issues in Dispute:-

1. Basic Monthly Minimum Rates of Pay.

2. General Wage Increase.

3. Housing Allowance.

4. Retirement of Employees.

5. Medical Scheme.

W.D. Wambua for the Claimants (hereinafter called the Union).

L.W. Kariuki, Senior Executive Officer, F.K.E., for the Respondents (hereinafter called the Company).

A W A R D.

The Notification of Dispute, Form ‘A’, dated 16th August 1999, together with the statutory certificate from the Labour Commissioner under Section 14, subsections (7) and (9)(e) of the Trade Disputes Act, Cap.234, Laws of Kenya (which is hereinafter referred to as the Act), were received by the Court on 18th January, 2000. Mr. Wambua for the Union submitted his written memorandum on 6th April, 2000, and Mr. Kariuki for the Company filed his reply statement on 24th July, 2000. The dispute was heard on 26th July, 2000, and final submissions were made on 24th August, 2000.

The Company, which was a member of the Furniture Manufacturers Group of F.K.E. from 1973 to 1993, is situated in Industrial Area, Nairobi, along Kitui Road, and it is engaged mainly in the manufacture of furniture for sale.

Consequent upon the Company’s withdrawal from the membership of the group as aforestated, the Union sought direct recognition from the Company, and the parties signed the same on 8th April, 1999. However, the present dispute arose when the parties attempted to draw up their first collective agreement. The parties met at their own level and agreed on all other

issues, but disagreed on the following seven (7) issues:-

1. Basic Monthly Minimum Rates of Pay.

2. General Wage Increase.

3. Housing Allowance.

4. Redundancy Benefits.

5. Retirement of Employees.

6. Termination of Employment.

7. Medical Scheme.

On 8th June, 1999, the Union reported a trade dispute to the Minister for Labour in accordance with Section 4 of the Act. The Minister accepted the dispute; and, pursuant to Section 6(2)(a) of the Act, appointed Mr. J.N. Kiraguri of Ministry of Labour Headquarters to act as the Conciliator. During their conciliation meeting held on 11th August, 1999, the parties agreed on issues Nos.4 and 6, re:, Redundancy Benefits and Termination of Employment, but were unable to compromise on the five(5) issues now before the Court for consideration and determination (see Union Apps. I and 2).

In its analysis of this dispute, the Economic Planning Division (which is hereinafter referred to as the EPD) has observed at page 3 of its report that the employment levels for all categories of staff, i.e., management, unionisable and casuals, increased to a peak in 1997, with the management staff reaching 35, unionisable 123 and casuals 21, but declined to 14 management staff, 18 unionisable employees but no casuals as at June 2000. The corresponding labour cost for the management staff stood at Kshs.9. 3 million in 1998 but declined to Kshs.2. 9 million as at June, 2000, while the labour cost for the unionisable employees was at its peak in 1997 when it reached Kshs.12. 9 million but declined to Kshs.4. 3 million as at June, 2000. The labour cost for casual employees stood at Kshs.1. 1 million in 1997, but dropped to zero by June, 2000. Overall, the EPD report shows that the trend for both employment levels and labour costs were consistent with the changing levels in employment over the period. Thus, the overall labour costs rose from kshs.16. 9 million in 1995 to a peak of Kshs.22. 4 million in 1997, but declined to Kshs.7. 0 million as at June 2000. The EPD report also shows that the wage bill for the management staff rose from Kshs.8. 6 million in 1995 to Kshs.10. 3 million in 1996, but declined to Kshs.5. 2 million in 1999. Similarly, the wage bill for the unionisable

employees also rose from Kshs.5. 9 million in 1995 to Kshs.7. 6 million in 1997, but declined to Kshs.6. 5 million in 1999. Overall, therefore, the total wage bill for both management staff and unionisable employees declined from Kshs.16. 9 million in 1996 to Kshs.11. 7 million in 1999.

Alluding to the challenges facing the Company, the EPD states at page 9 of its report that the Company has traditionally been a manufacturer of spring mattresses, solid wood furniture and motor vehicle trims, but there has been a number of challenges in the recent past that have adversely affected its operations, which include timber shortages caused by forestry protection and escalation, high competition in furniture trade or business, importation of cheap furniture in knock-down form, depressed hotel and commercial construction sectors and high impact of hydro-electric power rationing. Therefore, the Company is considering to withdraw from the furniture sector. The motor vehicle trim department has also significantly reduced its operations due to high decline in demand by vehicle assembly plants in recent years. In the medium term, however, the Company’s furniture activities are geared towards its original and core business, namely, bedding products, but sales volume for the products have drastically shrunk and inadequate to sustain high-fixed expenses. In the circumstances, the future business prospects are grim and the Company is considering, albeit reluctantly, to close the loss-making divisions and off-load the employees working thereat.Finally, the report states that the labour productivity has progressively dropped from 80% in 1995 to 20% as at June 2000 because the Company measures it by production units against man-hours.

On the financial position of the Company, the EPD report shows that the Company made meagre operating profits of Kshs.2. 3 million and Kshs.2. 0 million in 1995 and 1996 respectively, but incurred or suffered losses of Kshs.2. 5 million and Kshs.9. 2 million in 1997 and 1998 respectively.

With the foregoing observations in view, and after consultation with the two members of the Court, I now consider seriatim the issues in dispute and award accordingly.

1. Basic Minimum Rates of Pay.

The Union had proposed a pay hike of 45% for the first year, and a further 35% for the second year, or 80% for the two years’ period, based on the “employee/employer” agreement, but they have since dropped the demand to 40% for the two years’ period so as to bring its members’ wages close to those offered by the Furniture Manufacturers Group of F.K.E. The Company has made a nil offer in view of the fact that the demand is vague and also that all its employees are earning over and above statutory Minimum General Order of the year 2000.

On careful perusal of the EPD report, it is clear that the employees of the Company earn over and above the statutory rates of pay, and these rates are also favourable to those offered by the Furniture Manufacturers Group of F.K.E.

This being the case, the demand is rejected.

2. General Wage Increase.

The Union argues that general wage increase is part and parcel of the minimum wages. Therefore, the current personal rates of pay should be increased by the same percentage applicable to the basic minimum rates of pay.

On the other hand, the Company is of the view that, although the demand is vague, the Union demand 40% general wage increase, spread over the two years. However, the Company has offered 5% general wage increase for the first year, and a further 5% for the second year, or a total of 10% for the two years’ period, on the existing wages, considering that none of its employees earn below the statutory minimum rates of pay.

The EPD report shows that between 1995 and 2000, the management staff and the unionisable employees were awarded the following general wage increases:-

Year Management Staff Unionisable Employees

1995

1996

1997

1998

1999

2000 10%

15%

7. 5%

0

0

0 10%

21%

10%

5%

0

0

Keeping in view the poor business performance of the Company as observed

hereinabove, I consider that the offer by the Company of 5% general wage for the first year, and a further 5% for the second year, or 10% for the two years’ period, is adequate for now, and I so award.

3. Housing Allowance.

The Union has proposed as follows:-

“An employee who is not provided with free accommodation bythe employer shall be entitled to housing allowance equal to 25% of his/her monthly wages.

Provided no employee shall receive housing allowance of less than Kshs.2,000/= per month”.

But during the hearing of this dispute, Mr. Wambua for the Union said that the employees are prepared to accept Kshs.1,500/= per month, across the board, or any reasonable amount which the Court may deem fit to grant, so long as the agreement is for two years and also taking into account the rates offered by the Furniture Manufacturers Group of F.K.E.

The Company has offered an increase of 5% house allowance on the existing amount of Kshs.1,200/= per month. Mr. Kariuki has argued that the Company cannot meet the full cost of house allowance but can only try to assist the employees to get reasonable accommodation, and any hefty increase on this item might force the Company to close down.

In the circumstances, Mr. Kariuki urged the Court to uphold the Company’s offer as reasonable.

The EPD has noted that in 1995, the Company awarded to the employees 15. 33% house allowance of their monthly wages, and in 1996 the employees received house allowance of Kshs.900/= per month. But from 1995 to-date, the employees have been getting house allowance of Kshs.1,200/= per month. It has been observed in the EPD report that no employee is housed by the Company, but they reside in various estates in Nairobi, e.g., Kayole, Dandora, Kariobangi, Kibera, Eastleigh, Embakasi, Mukuru Kayaba, Kawangware and Wangige, where the house rent for a 10’ x 10’ single room with electricity, without water in most of them, range between Kshs. 1,500/= and Kshs.3,000/=, depending on the nature of the house. The EPD has observed further that the amounts of house allowance offered by the said Furniture Manufacturers Group of F.K.E. in 1998 ranged between Kshs.900/= and Kshs.1,366/=, while from 1999 to 2000, it ranged between Kshs.1,099/= and Kshs.1,571/=.

Section 9 of the Employment Act, Cap.226, Laws of Kenya provides, inter alia that:-

“Every employer shall at all times, at his own expense, provide reasonable housing accommodation to each of his employees either at or near to the place of employment, or shall pay to the employee such sufficient sum, as rent, in addition to his wages or salary, as will enable the employee obtain reasonable accommodation:

……………………………………………………………………………….”.

The Union has, during the hearing of this dispute revised its demand downwards to Kshs.1,500/= across the board, or any reasonable amount which the Court may deem fit to grant, as stated hereinabove, against the offer by the Company of 5% on the existing amount of Kshs.1,200/= per month.

On careful consideration of the dismal business performance of the Company, the exorbitant rents charged by unscrupulous landlords and the above legal provision on this matter, I am inclined to accept the revised demand by the Union of Kshs.1,500/= across the board, and I award accordingly.

4. Retirement of Employees.

The current rate of retirement benefit is 10 days pay for each completed year of service, but the Union has proposed as follows:-

“A retirement benefit equal to 25 days pay for each completed year of service. The rate of pay at the time of retirement will be the rate used for calculating his benefit”.

The Company has offered 16 days pay for each completed year of service. The Furniture Manufacturers Group of F.K.E., which the Union has cited for comparison on this issue, is giving 18 days pay for each completed year of service, but Mr. Kariuki contended that the Furniture Manufacturers Group of F.K.E.. is not a comparable concern because the Company is not a member thereof.

During its investigation, the EPD has established that the rate of 10 days pay for each completed year of service was in force until April 1995, but these days were increased to 17 days since May, 1995. However, the EPD report shows that the Company has given two(2) months’ notice pay and 16 days pay for each completed year of service to 65 unionisable employees who have since been declared redundant, i.e., 20 in 1998 and 45 as at June 2000, and 29 unionisable employees have already been given redundancy notices to quit by 31st August, 2000.

Keeping in view the submissions of the parties, and the findings of the EPD on this issue, I am firmly persuaded that the offer by the Company of 16 days pay for each completed year of service is reasonable, and I so award.

5. Medical Scheme.

The Union proposes on this issue as follows:-

“The employer undertakes to make arrangements for medical treatment in respect of employees working for the Company together with his immediate family of himself, his wife and four children under the age of 18 years. Such arrangements to be made with an Insurance Company, Medical Institution, or a private medical practitioner who has his own surgery/clinic or a Doctor of the employee’s choice. Treatment shall not exceed Kshs.15,000/= per annum in respect of each employee in any one calendar year”.

In support of the demand, Mr. Wambua submitted that the health of an employee is of paramount importance if his production is to be achieved and such a scheme cannot be over-emphasized in view of the high cost of treatment vis-à-vis the employees’ low pay or meagre earnings. He, therefore, urged the Court to award as hereinabove.

Mr. Kariuki has opposed the demand on the ground that all the employees of the Company receive medical treatment or service of a highly qualified medical practitioner who is available daily for consultation without any charge or inconvenience to the employees; but for referral cases the patients are treated at consulting hospitals where all common ailments

are attended to. He pointed out that the medical facilities offered to the employees are very generous and in line with the Medical Treatment Rules, and to introduce another medical scheme would be very expensive to run or operate. Thus, since the financial position of the Company is unsound, the inclusion of the employee’s spouse and his/her four (4) children under the age of 18 years cannot be sustained.

Mr. Kariuki, therefore, prayed that the present arrangement be allowed to stay.

According to the EPD report, the employees complained that the medical practitioner hired by the Company is available for a very short time daily and does not give attention to their medical problems, but he only gives simple treatment without much concern for individual cases. The report states further that the employees are opposed to deductions made from their wages after they visit the medical practitioner’s clinic for serious treatment, and that two employees have since died for lack of proper medical attention. For these reasons, therefore, the report says, the employees demand that the Company should allow them to claim reimbursement for the medical treatment they may incur, not exceeding Kshs.15,000/= per annum, or alternatively the Company should provide a better medical scheme than

the one that is currently in force.

Section 12(1) of the Employment Act, Cap.226, Laws of Kenya, provides that:-

“Subject to subsection (2) every employer shall ensure the provision for his employees of proper medicines during illness and (if procurable) medical attendance during serious illness, and shall take all reasonable steps to ensure that the illness is brought to his notice as soon as reasonably practicable after the first occurrence thereof”.

In his submission hereinabove, Mr. Kariuki for the Company has stated that the medical practitioner treats all employees and refers deserving cases to consulting hospitals. He has, however, pleaded inability by the Company to sustain the inclusion of the employees’ spouse and his/her four (4) children under the age of eighteen (18) years due to the Company’s poor business performance.

The main ground on which this demand is based is that the welfare of the employee’s family is as important to the employer as the welfare of the employee himself or herself because the sickness of an employee’s family member would certainly perturb him or her, and under the circumstances he or she would not be able to devote his or her full attention to his or her work. This is true, but the Company’s business performance is bleak.

With these observations in view, I am unable to concede to the demand at the moment, which is hereby disallowed. The current arrangement should stay.

This award, except on general wage increase, will not apply retrospectively.

DATED and delivered at Nairobi this 2nd day of April, 2003.

Charles P. Chemmuttut

JUDGE