[2004] KEELRC 11 (KLR)

IN THE INDUSTRIAL COURT OF KENYA

AT NAIROBI.

(Coram: Charles P. Chemmuttut, J.,

A.B. Ongaro & P.M. Osero, Members.)

CAUSE NO. 13 OF 2004.

KENYA UNION OF SUGAR PLANTAION WORKERS...............................Claimants.

v.

SUGAR EMPLOYERS GROUP OF F.K.E.............................................Respondents.

Issues in Dispute:-

1. Wages.

2. House Allowance.

3. Shift Allowance.

Francis B. Wangara, General Secretary, for the Claimants (hereinafter called the Union).

J.N. Namasake, Principal Executive Officer, F.K.E., for the Respondents (hereinafter called the Group).

A W A R D.

The undated Notification of Dispute, Form ‘A’, together with the statutory certificate from the Labour Commissioner under Section 14(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 10th February, 2004. The dispute was then listed for mention on 18th February, 2004, and the parties were notified to attend. On this occasion, Mr. Michael Ouma and Mrs. M. Onyango, who appeared for the parties respectively, were directed to submit or file their written memoranda or statements by 10th March and 13th April, 2004, and the dispute was fixed for hearing on 13th May, 2004. The Union submitted their memorandum on 5th March, 2004, and the Group filed their reply statement on 5th May, 2004. The case was heard as aforestated, i.e. on 13th May, 2004, and final submissions were made on 22nd July, 2004.

The Group originally included Mumias Sugar Co. Ltd., Muhoroni Sugar Co. Ltd. and Miwani Sugar Co. Ltd. However, Mumias Sugar Co. Ltd. has since de-linked from it to negotiate a separate collective agreement with the Union, while Muhoroni and Miwani sugar companies are under receivership. The Group, therefore, comprises of Chemelil Sugar Co. Ltd., Sony Sugar Co. Ltd. and Nzoia Sugar Co. Ltd., with 3,000 unionisable employees who are affected by this dispute.

The parties have a valid recognition agreement and have also entered into several collective agreements which regulate the terms and conditions of service of said employees. The present dispute, however, arose when the parties embarked on a review or revision of their latest collective agreement for the period 1st May, 2001 to 30th April, 2003. After an exchange of proposals and counter-proposals, the parties subsequently met at their own level and agreed on all other issues, but disagreed on the issues at hand. On 1st and 2nd October, 2003, both parties reported a formal trade dispute on the said issues to the Minister for Labour and Human Resource Development in accordance with Section 4 of the Act. The Minister accepted the dispute and appointed Mrs. A.O. Tabu of Ministry of Labour Headquarters to act as the Conciliator; but during their conciliation meeting held on 12th January, 2004, the parties were again unable to reach a compromise on the said issues. Hence this dispute for consideration and determination.

In their analysis and observations for the relevant period of this dispute, the Economic and Planning Division (which is hereinafter referred to as the EPD) stated that the level of management staff remained almost constant during the period under review, with slight fluctuations between the years. In Chemelil Sugar Co. Ltd., the management staff decreased from 265 in 2001 to 258 in 2003, while the labour cost rose from Kshs. 95. 6 million to Kshs. 109. 8 million during the same period. In Sony Sugar Co. Ltd., this category of staff also decreased from 372 in 2001 to 347 in 2003, and their labour cost rose from Kshs. 89. 0 million to Kshs. 119. 2 million during the same period. As regards Nzoia Sugar Co. Ltd., the management staff declined slightly from 320 in 2001 to 314 in 2003, while their labour cost sharply rose from Kshs. 80. 7 million to Kshs. 150. 5 million during the same period.

As regards unionisable employees, the EPD report shows that in Chemelil Sugar Co. Ltd., this category of employees decreased from 996 in 2001 to 865 in 2003, while their labour cost rose from Kshs. 127. 8 million to Kshs. 167. 5 million during the same period. In Sony Sugar Co. Ltd., the level of unionisable employees dropped from 1,179 in 2001 to 998 in 2003, but the labour cost rose from Kshs. 103. 8 million to Kshs. 138. 9 million during the same period. Regarding Nzoia Sugar Co. Ltd., the number of unionisable employees declined from 1,635 in 2001 to 1,465 in 2003, but their labour cost rose from Kshs. 218. 4 million to Kshs. 235. 9 million during the same period.

On casual workers, their number fluctuated between 494 and 201, 633 and 144, and 1,307 and 3,749, representing 30%, 30% and 90% of the total number of employees, for the three companies respectively. In the case of Nzoia Sugar Co. Ltd., the labour cost trend remained constant at about Kshs. 16. 0 million for the years under review. Overall, the Group’s labour force ranged between 1,843 and 1,376, 2,400 and 1,533 and 1,936 and 5,528, representing a ratio of 1:3,1:4 and 1:5 respectively.

Turning to the operations and the financial position of the Group for the period under consideration, the EPD report shows that several factors, including heavy wage bills due to bloated workforce, unfavourable weather conditions, high cost of cane development and low yielding cane varieties, high cost of fertilizers, unfair trading practices, high interest rates on loans, 80% of the cane from outgrowers and obsolete technology, are causing financial problems to them. But, on the other hand, the Union maintained that some of the problems facing the Group are due to mismanagement and poor planning. They stated that the employees have played their part successfully by meeting the targets set by the Group because all the sugar they produce are sold instantly. During the period under review, i.e. 2001, 2002 and 2003, the turnover of Chemelil Sugar Co. Ltd., which was established by the Government as a parastatal for purposes of sugar self-sufficiency and to spar economic and industrial development in Western Kenya, rose from Kshs. 1. 5 billion to Kshs. 1. 7 billion, but it incurred net losses of Kshs. 7. 2 billion, Kshs. 110. 0 million and Kshs. 221. 0 million during the period under consideration. Sony Sugar Co. Ltd. was established in 1976 with the objective of improving domestic sugar production, to create employment and to be the engine of development in the region. Its turnover rose from Kshs. 1. 1 billion in 2001 to Kshs. 2. 1 billion in 2003, but it also suffered net losses of Kshs. 370. 7 million, Kshs. 74. 5 million and Kshs. 467. 3 million in 2001, 2002 and 2003, respectively. In the case of Nzoia Sugar Co. Ltd., the company was incorporated on 1st August 1975, with the same objective as Sony Sugar Co. Ltd. The government holds 98% of its shares; and its turnover rose from Kshs. 1. 1 billion in 2001 to Kshs. 2. 0 billion in 2003. The company posted net losses of Kshs. 848. 0 million, Kshs. 468. 5 million and Kshs. 196. 5 million 2001, 2002 and 2003 respectively.

Mr. Wangara observed that the Union have negotiated with the Group in good faith and it is their belief that the demands are justified in terms of the current Wages Guidelines and the prevailing renewed performance in the sugar industry. He averred that the imposition of taxation on imported sugar, coupled with the Government initiative in restructuring the energy sector, will make Kenya sugar more competitive, and shortage of this commodity will be eliminated completely if the employees are motivated through improved wages and terms and conditions of service.

In his introductory submission, Mr. Namasake for the Group stated that the industry is currently in crisis with most of the companies experiencing cash flow problems and heavy indebtedness; and hence technically insolvent. He pointed out that the major challenges facing the industry are unfavourable weather conditions poor access roads, high costs of cane development, high maintenance and production costs, low yielding cane varieties, rising unit cost of production, increased marketing and distribution costs due to current marketing needs, deteriorating soils in the marginal areas, uncompetitive sugar pricing due to cheap sugar imports, low farmers’ confidence in the companies for the last two years, poor funding for sugarcane development, inability to fully implement the Sugar Act of 2000 and loss of manpower due to the Aids epidemic. On indebtedness, Mr. Namasake submitted that the Group has debts on farmers arrears, bank loans and accrued interest, sugar development levy, VAT, statutory payments, supplies, contractors e.t.c. According to him, the total indebtedness is as follows:-

(a) Chemelil Sugar Co. Ltd. - Kshs. 1,189,756,602/=

as at 30th September, 2003.

(b) Sony Sugar Co. Ltd.- ” 2,600,000,000/=

as at 30th June, 2003.

(c) Nzoia Sugar Co. Ltd.- ” 16,001,260,817/=

as at 31st October, 2003.

He said that the three companies made losses in the year ending

2001/2002 as follows:-

(a) Chemelil Sugar Co. Ltd. - Kshs. 155,446,139/=.

(b) Sony Sugar CO. Ltd. - ” 140,304,620/=.

(c) Nzoia Sugar Co. Ltd. - ” 439,679,576/=.

The Group sold sugar at a price below the budget at Kshs. 40,000/= per tonne, resulting in reduced revenue on average of Kshs. 4,000/= per tonne in the last financial year due to cheap imports. Mr. Namasake averred further that the industry’s average rate of performance in terms of time efficiency for the three companies was 51. 43%, far below the standard 85% due to aging machines and equipment. The companies also have bloated workforce or are over-established. Hence the heavy wage bill.

No. of employees. Optimum.

Chemelil Sugar Co. Ltd. 1,154 700

Sony Sugar Co. Ltd.1,347 915

Nzoia Sugar Co. Ltd.1,802 1,200

The labour cost stood as follows:-

Chemelil Sugar Co. Ltd. - Kshs. 310,914,056/= - 17%

of the operating cost.

Sony Sugar Co. Ltd.- Kshs.547,900,473/= - 33. 5%

of the operating cost.

Nzoia Sugar Co. Ltd.- Kshs. 421,060,554/= – 42. 15%

of the total cost.

With the foregoing observations in view, and after consultation with the two members who constituted the coram with me, l now proceed to consider seriatim the three issues before me and award accordingly.

1. Wages.

The Union demand a general wage increase of 25%, spread over two years period, for the lower income group and 20%, also spread over two years period, for the upper income group, or an average of 22. 5% for the two years period, against an offer by the Group of 3. 5% for the first year and a further increase of 3. 5% for the second year, or a total of 7% for the two years period.

In support of the demand, Mr. Wangara submitted that the employees in the sugar sector, whose current minimum wage is Kshs. 5,394/= per month, deserved 16% wage increase or compensation, based on the cost of living indices, productivity, economic growth rate for the country and wage differentials between similar jobs in similar industries. He pointed out that a general employee at Mumias Sugar Co. Ltd. earns Kshs. 9,670. 50 per month, while the same employee under the Group receives Kshs. 5,394/=. Therefore, the percentage wage differential is equivalent to 79%. Mr. Wangara said that during the same period, i.e., 2001 and 2002, the economy grew by 1. 2% and 1. 1% respectively – equivalent to 2. 3% for the two years period. He stated that the Government commitment and recent economic indicators show that the sugar industry and the economy as a whole is being revitalized – for example, last year’s Ministerial order to impose taxation on imported sugar has boosted the sale of locally produced or manufactured sugar, leading to the financial sustainability of companies such as Nzoia Sugar Co. Ltd. and Mumias Sugar Co. Ltd., which have lately recorded improved performances (see Union Apps. 6 and 7). Mr. Wangara noted further that in an Internal Memo, dated 11th December, 2001 (Union App. 8), from the Human Resource Manager of Nzoia Sugar Co. Ltd., which is a member of the Group, to the Management Accountant of the company, there was a proposal to increase the salaries of management staff by 30%, while the wages for unionisable employees were to be increased by 7% only. But he observed that, in principle and also in order to reduce wage disparities, it was only logical for lowly paid employees to receive a higher percentage of their wage increase and not vice-versa. In the circumstances, Mr. Wangara said, the unionisable employees in the sugar sector are entitled to a wage increase of 97%, i.e. 16% + 79% + 2% = 97%.

Mr. Namasake strongly opposed the demand mainly on the ground that it is untenable and unrealistic. He contended that the Group has no ability to pay extra wages and any attempt to do so will lead to a total collapse of this important industry in the Western region of the country. The current economic situation does not also favour the industry, and it will not be justifiable to raise employees’ salaries or wages before farmers, who have been in arrears for a couple of years, are paid. He averred that the Group went overboard in making the said offer of 3. 5% wage increase so as to reach an amicable settlement or agreement with the Union, otherwise this would have been a case of wage freeze or, in some countries, reduction in wages. Mr. Namasake argued further that compensation under the Wages Guidelines is only possible where the employer does not continue making losses, and even where a company makes losses, such losses keep on reducing as a result of increased productivity. He stated that in the case of all the members of the Group, the losses keep on increasing and there is also continuing negative productivity. Therefore, any huge increase of salaries or wages of the unionisable employees will make the situation more desperate and will also have a disastrous effect on the sector.

As regards the comparison of Mumias Sugar Co. Ltd. with the members of the Group on salaries or wages and other terms and conditions of employment, Mr. Namasake vehemently denied that it was a comparable concern, and it was due to the dissimilarities that Mumias Sugar Co. Ltd. pulled out of the Group in order to negotiate a separate collective bargaining agreement with the Union. On the issue of wage differential, Mr. Namasake pointed out that the Wages Guidelines only emphasize the gap between the highest paid unionisable employees and the lowest paid non-unionisable staff; whereas in this case, there is no gap between them because in a number of cases wages between these categories overlap (Group Ann. 6). He said that the situation is going to be made worst by a circular from the Office of the President which states that the salaries of the management staff should remain the same for the time being (Group Ann.4B). Finally, Mr. Namasake urged the Court not to take into account the meagre growth of the Kenya economy as it is irrelevant to this dispute.

The EPD report shows that during the period under consideration, the cost of living indices rose by 16. 05% and 6. 70% for the lower and middle/upper income groups respectively, or by an average of 11. 38% for the two income groups; and according to Wage Guideline 2(i), the unionisable employees are entitled to compensation of 8. 03% for the first year and another 8. 03% for the second year, or a total of 16. 05% for the two years period as they fall within the lower income group. The cost implication of the demand by the Union, the offer by the Group and the cost of price indices for Chemelil Sugar Co. Ltd. shows that, based on the 2003 unionisable employees’ wage bill of Kshs. 143. 0 million, the demand by the Union would hike the wage bill by Kshs. 16. 0 million in the first year and by a further Kshs. 17. 8 million in the second year, or by a total of Kshs. 33. 9 million for the two years’ period of the proposed collective agreement, while the offer by the Group would raise the wage bill by Kshs. 5. 0 million in the first year and by a further Kshs. 5. 1 million in the second year, or by a total of Kshs. 10. 1 million for the duration of the proposed collective agreement. But assuming that the maximum cost of price indices entitlement is upheld, the implication would be an additional wage bill of Kshs. 11. 4 million in the first year and a further Kshs. 12. 4 million in the second year, or a total additional wage bill of Kshs. 23. 8 million for the two years’ period.The management staff wage bill rose from Kshs. 55. 7 million in 2000 to Kshs. 72. 3 million in 2003, while the unionisable employees’ wage bill also rose from Kshs. 113. 9 million to Kshs. 143. 0 million during the same period.

The cost implication of the demand by the Union, the offer by the Group and the cost of price indices for Sony Sugar Co. Ltd. would also show that, based on the 2003 unionisable employees’ wage bill of Kshs. 183. 5 million, the demand by the Union would raise the wage bill by Kshs. 20. 6 million in the first year and by a further Kshs. 22. 9 million in the second year, or by a total of Kshs. 43. 6 million for the two years’ period of the proposed collective agreement, while the offer by the Group would raise the wage bill by Kshs. 6. 4 million in the first year and by a further Kshs. 6. 6 million in the second year, or by a total of Kshs. 13. 0 million for the duration of the proposed collective agreement. If, however, the maximum cost of price indices entitlement is upheld, the implication would be an additional wage bill of Kshs. 14. 7 million in the first year and a further Kshs. 15. 9 million in the second year, or a total of additional wage bill of Kshs. 30. 6 million for the two years’ period. The management staff wage bill declined from Kshs. 232. 1 million in 2000 to Kshs. 206. 4 million in 2003, while the unionisable employees’ wage bill also declined from Kshs. 206. 3 million to Kshs. 183. 5 million during the same period.

Turning to Nzoia Sugar Co. Ltd., the EPD report shows that the cost implication of the demand by the Union, the offer by the Group and the cost of price indices entitlement, based on the 2003 unionisable employees’ wage bill of Kshs. 212. 7 million, would translate into additional wage bill of Kshs. 23. 9 million in the first year and a further additional wage bill of Kshs. 26. 6 million in the second year, or a total additional wage bill of Kshs. 50. 5 million for the whole period of the proposed collective agreement, while the offer by the Group would mean an additional wage bill of Kshs. 7. 4 million in the first year and a further additional wage bill of Kshs. 7. 7 million in the second year, or a total additional wage bill of Kshs. 15. 1 million for the whole duration of the proposed collective agreement. In the event that the maximum cost of price indices entitlement is upheld, the implication would be an additional wage bill of Kshs. 17. 0 million in the first year and a further additional wage bill of Kshs. 18. 4 million in the second year, or a total additional wage bill of Kshs. 35. 5 million for the two years period. The management staff wage bill rose from Kshs. 54. 4 million in 2000 to Kshs. 134. 1 million in 2003, while the unionisable employees’ wage bill also rose from Kshs. 183. 4 million to Kshs. 212. 7 million during the same period.

I have said elsewhere on several occasions before that what matters in awarding additional benefits to the employees is most importantly the financial position of the employer (see Cause No. 86 of 1994: Kenya Union of Commercial, Food & Allied Workers v. Mwea Rice Mills Ltd. and Cause No. 6 of 1995: Tailors & Textiles Workers’ Union v. Londra Ltd.). With regard to wage increase, the primary objective is and has to be the ability of the employer to pay and the restoration of peace and harmony in the industry concerned so as to do justice to the interests of both labour and capital. In Cause No. 6 of 1996: Kenya Union of Commercial, Food & Allied Workers’ v. M/S El-Nasr Export & Import Ltd.,I observed at page 16 thereof as follows:-

“In awarding wage increase, this Court always bears in mind all the relevant factors in relation to the demand, e.g., the extent of the business carried on by the concern, the capacity of investment by them, the profits made or losses incurred by them, the nature of their business, their standing, strength or their labour force, presence or absence and extend of reserves, dividends declared, e.t.c, e.t.c,”

Considering the huge losses which all members of the Group have suffered during the period under consideration, I am of the opinion that the demand by the Union of 25% each year, or 50% for the two years’ period, for the lower income group, and 20% each year, or 40% for the two years’ period, for the higher income group, is on a higher side, unreasonable and unaffordable. Equally, the Group’s offer of 3. 5% each year, or a total of 7% for the two years’ period, is also too low. In my considered judgment, therefore, and keeping in view the submissions of the parties and the EPD report, I am of the view that a general wage increase of 9% each year, or 18% for the two years’ period, across the board will meet the ends of justice. I so award and order.

2. House Allowance.

The collective agreement under review or consideration provides for payment of house allowance at the rate of 12% of the basic salary for the lower income group and 11% of the basic salary for the upper income group.

The Union demand that the current house allowance rates be increased to 15% of the basic salary, against the offer by the Group to improve the rate to 13% of the basic salary in respect of the lower income group but to retain the current rate of 11% for the upper income group.

In support of the demand, Mr. Wangara submitted that the current labour legislation provides for a minimum of 15% of basic wages as house allowance. He cited the following concerns as comparable:-

Lower income Upper income

group group

Mumias Out-Growers Co. Ltd. 20% 18%

Mumias Sugar Co. Ltd.17% 15%

West Kenya Sugar Co. Ltd.15% 15%

Mr. Wangara pointed out that the normal self-contained house that can accommodate an average family of six in the plantations/farms where the employees live goes for Kshs. 2,500/= per month, which is far much more than the minimum amount of Kshs. 647/= per month given to the unionisable employees as house allowance. In the circumstances, the demand of 15% of the basic salary, which is based on the current minimum salary of Kshs. 5,394/= per month, is equivalent to Kshs. 809. 10 per month, which is far below the actual rates of rent of Kshs. 2,500/= paid as above in the urban centres.

In reply, Mr. Namasake submitted that Chemelil Sugar Co. Ltd. and Sony Sugar Co. Ltd., house upto 80% of their employees, and those who are not housed are paid housing allowance at the afore-mentioned rates. He stated that over the years a lot of investment has been made on construction of housing units for the employees and to increase the allowances to 15% as demanded by the Union would be suicidal, especially for Nzoia Sugar Co. Ltd., where majority of their employees live outside the company premises and are provided with free transport to and from work.

Mr. Namasake contended further that there was no law which provides that an employer must accord 15% of the basic wage as house allowance; but once an employer provides house allowance, the same is negotiable, as in the case at hand, by the parties. He urged the Court to take cognizance of the fact that the value of the housing allowance is automatically improved once the wages are hiked; and for this reason, the employees are likely to get double increment on housing since it is based on a percentage of the basic wages.

Accordingly, Mr. Namasake prayed that an award may be made in terms of the offer hereinabove.

The EPD report shows that Wage Guidelines (iv) entitles the unionisable employees to a house allowance increment of half (1/2) of the cost of price indices entitlement, which is 8. 03% per annum. On the other hand, however, the management staff who are housed by the members of the Group pay market rates for their rents; and in a case where the house rent is lower than the house allowance entitlement, then the management staff are paid the difference as house allowance. But this arrangement does not apply to unionisable employees of the Group.

The EPD report on housing in respect of Chemelil Sugar Co. Ltd. shows that majority of the unionisable employees are housed by the Company, and the type of houses provided are single rooms for the lower grades and one-bedroomed self-contained house for the upper unionisable grades. However, non-housed unionisable employees have rented houses in the neighbouring estates, e.g. Awasi and Roundabout, at the going rent rates of between Kshs. 1,000/= and Kshs. 1,500/= for easily accessible and permanent single rooms of 10’x10’, while the rents for those in inaccessible areas are less. The EPD report goes on to show that the unionisable employees pay rents of between Kshs. 1,000/= and Kshs. 2,000/=; and, based on the current rates, the implication is that the employees have to dig deeper into their pockets to meet their rents.

The above narrative applies to Sony Sugar Co. Ltd. and there is no need to dilate about it.

As regards Nzoia Sugar Co. Ltd., the EPD report shows that majority of the unionisable employees are not housed by the company, but the few who are housed live in single rooms for the lower unionisable grades and one-bedroomed self-contained house for the upper unionisable grades. However, non-housed unionisable employees have rented houses in the neighbouring estates in Webuye and Bungoma at the going rent rates of between Kshs. 1,000/= and Kshs. 1,500/= for easily accessible and permanent single rooms of 10’x10’, while rents for one bedroom self-contained houses vary between Kshs. 2,500/= and Kshs. 3,000/=. The EPD report also show that the unionisable employees pay rents of between Kshs. 1,000/= and Kshs. 2,000/=; and, based on the current rates, the implication is that the employees have to dig deeper into their pockets to meet their rents.

The housing allowance bill on the company in respect of the management staff increased by 635% in 2002 to stand at Kshs. 15. 8 million, up from Kshs. 2. 1 million in 2001. In 2003, the house allowance bill again rose by 108% to stand at Kshs. 33. 1 million. However, the unionisable employees’ bill was almost constant during the period under review.

It is incumbent upon every employer to provide reasonable housing accommodation, or pay sufficient rent, to each of his employees as stipulated under Section 9 of the Employment Act, Cap. 226, Laws of Kenya, which states, inter alia, as follows:-

“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…………………………………..”

On careful consideration of the submissions by the parties on this issue, and also keeping in view Wage Guideline 2(ii) and (iv) and the above legal provision imposed upon every employer, I am of the opinion that the current house allowances be improved by 2% across the board to stand at 14% for the lower income group and 13% for the upper income group. I award accordingly.

3. Night Shift Allowance.

The current night shift allowance entitlement is Kshs. 3. 00 per hour. The Union demand that the same be raised to Kshs. 5. 00 per hour, while the Group is of the view that the demand is unjustified and desires a status quo.

In support of the demand, Mr. Wangara cited United Textiles Mills, Pan Paper Mills and Mumias Sugar Co. Ltd. as comparable concerns. But Mr. Namasake submitted that these enterprises are not relevant because the first two are completely different industries.

Considering the poor business performance of the members of the Group, I am of the view that the demand by the Union should await the advent of better and more suitable economic conditions. In the result, I award that status quo be maintained.

Finally, I wish to observe that the award on house allowance will not apply retrospectively, but will come into force henceforth.

DATED, delivered and signed at Nairobi this 28th day of September, 2004.

Charles P. Chemmuttut

JUDGE.