Kutus Stage Savings & Credit Co-operative Society v Nyamau (Employment and Labour Relations Appeal E002 of 2025) [2026] KEELRC 981 (KLR) (17 April 2026) (Judgment)

IN THE EMPLOYMENT AND LABOUR RELATIONS COURT AT NYERI REPUBLIC OF KENYA ELRC APPEAL NO. E002 OF 2025 BETWEEN KUTUS STAGE SAVINGS & CREDIT SOCIETY...........................................APPELLANT AND CO-OPERATIVE FRNACIS MUNENE NYAMAU.................................................RESPONDENT (Being an appeal against the Judgment and decree of Hon. Mutuku dated and delivered on 17th January 2025, in Kerugoya ELRC E006/2023 Francis Munene Nyamu vs Kutus Stage Savings and Credit Co-operative Society Limited) JUDGMENT 1. This Judgment relates to the Appeal lodged by Kutus Stage Savings & Credit Co-Operative Society (the Appellant herein), which was the Respondent in Kerugoya CMELRC No. E006 of 2023, Francis Munene Nyamu vs Kutus Stage Savings and Credit Co-operative Society Limited. In that suit, the Respondent herein averred that he was employed by the Appellant on 1st October 2016 as a secretary at a monthly salary of Kshs 8,000.00. 1 2. The Respondent stated that, in addition to his designation, he performed duties akin to those of a cashier, including making book entries, preparing books of accounts, maintaining records, attending to mobile money (Mpesa) transactions, handling cash received from members, issuing change, writing cheques, banking cash, and preparing vouchers for payment of officials’ allowances and his own salary. 3. It was the Respondent’s case at the trial Court that throughout his employment, he was paid below the prescribed minimum wage for a cashier. He further contended that he served diligently until 11th December 2022, when he resigned due to what he described as frustrating working conditions, including denial of leave and rest days, unpaid overtime, and persistent underpayment. On that basis, the Respondent asserted that he had been constructively dismissed. 4. Consequently, the Respondent sought a declaration that he had been constructively dismissed and was entitled to terminal dues and compensation computed on the applicable minimum wage. He also sought underpayments for the period between 1st October 2016 and 30th November 2022, unpaid salary for 11 days in December 2022, accrued leave, service pay, unpaid house allowance, compensation for unfair termination, issuance of a certificate of service, as well as costs and interest. 2 5. The Appellant opposed the claim through its Reply dated 7th March 2024, contending that the contract of employment relied upon by the Respondent did not indicate any salary and that the figure alleged was fictitious. 6. The Appellant further maintained that the Respondent was not terminated but left employment on his own accord after being called upon to account for allegedly misappropriated funds, and that he never returned to work thereafter. 7. It was the Appellant’s case that an audit conducted for the period 2019 to 2022 revealed a loss of Kshs 658,036.00 attributed to the Respondent. According to the Appellant, the Respondent admitted the loss and made verbal assurances to refund the same, which he failed to honour, prompting the issuance of a formal notice of intention to sue. 8. The Appellant further averred that, by a written undertaking dated 22nd September 2023, the Respondent agreed to repay the sum in monthly instalments of Kshs 5,000.00 commencing 1st November 2023, with a default clause allowing recall of the full amount together with interest at 10% per annum. However, the Respondent allegedly failed to make any payments, leading to the institution of Civil Suit No. 159 of 2023 on 9th November 2023 to recover the said amount. The Appellant therefore contended that the 3 Respondent had approached the Court with unclean hands and urged that the Statement of Claim be dismissed with costs. 9. At the trial Court, both parties adduced oral evidence, which was tested through cross-examination. The Respondent testified in support of his case, while the Appellant called its Treasurer, Lydia Njoki Mugo, as its witness. Upon conclusion of the hearing, both parties filed written submissions. 10.Upon evaluating the evidence on record, the trial Court found in favour of the Respondent. The Court held that the Respondent had established that he was underpaid during the period of his employment and that his working conditions were intolerable, thereby justifying his resignation on grounds of constructive dismissal. 11.Consequently, the trial Court awarded the Respondent the sum of Kshs 1,805,374.00 being salary underpayments, Kshs 13,612.00 being unpaid salary in December 2022, Kshs 113,410.00 as service pay, Kshs 455,371.00 as unpaid house allowance, and Kshs 72,245.00 as compensation for unfair termination equivalent to two (2) months’ gross salary. The Appellant was also directed to issue the Respondent with a certificate of service and to bear the costs of the suit. 4 The Appeal 12.Aggrieved by the findings and orders of the trial Court, the Appellant has preferred this Appeal on the basis of the following 13 grounds as set out in its Amended Memorandum of Appeal dated 26th July 2025: 1) The learned trial magistrate erred in law and fact in finding that the claimant had been constructively dismissed from service by failing to consider the judgment in Kerugoya Civil Case No. 159 of 2023, which found that the claimant had unlawfully taken or converted KES.658,036 from the respondent, a fact that fundamentally impugned the claimant’s claim of dismissal. 2) The learned trial magistrate erred in law and fact in finding that the claimant had been underpaid, contrary to the evidence adduced by the respondent regarding the nature of the employment and agreed remuneration. 3) The learned magistrate erred in law by rewriting the employment contract contrary to established judicial principle that courts do not rewrite contracts between parties. 4) The learned magistrate misapplied the relevant Wage Regulations and failed to appreciate that the claimant was a 5 contract employee and not entitled to the wage scales applicable to permanent employees. 5) The learned trial magistrate erred in awarding the Respondent KES.1,805,374/= being underpayment in salaries from 1st October 2016 to 30th November 2022, without a proper evidentiary basis. 6) The learned trial magistrate erred in awarding the Respondent KES.13,612/= for 11 days worked in December 2022 based on gross minimum wage without taking into account the actual contractual terms. 7) The learned trial court erred in awarding the Respondent KES.159,220 for accrued annual leave and KES.113,410 for service pay without proof of continuous employment or proper basis in the pleadings. 8) The learned trial court erred in awarding the claimant unpaid house allowance KES.445,371 from the period 1st October 2016 to 11th December 2022 and other benefits despite the absence of contractual or statutory justification by failing to apply Section 90 of the Employment Act in determining house allowance arrears as a continuing injury, where the limitation is 12 months 6 only (as held in Trevar Marambe v For You Chinese Restaurant [2021] eKLR. 9) The learned trial magistrate erred by shifting the burden of proof to the respondent on issues of conversion of employment status and wage entitlement, contrary to sections 107 and 108 of the Evidence Act. 10) The learned magistrate erred in awarding KES 72,245 being two months’ salary as compensation for unfair termination despite lack of sufficient proof of constructive dismissal. 11) The learned trial magistrate erred by going beyond the pleadings and making findings that were not supported by the issues framed by the parties. 12) The learned trial magistrate erred in law by analyzing the evidence in a manner that no reasonable tribunal properly directing itself on the law and facts could have done, leading to a perverse and unsustainable judgment. 13) The entire judgment was against the weight of the evidence and the applicable legal standards. 13.Accordingly, the Appellant seeks the following orders from this Court: 7 a) That the judgment and decree of the Employment and Labour Relations Court delivered on 17th January 2025 be set aside in its entirety. b) That the Respondent’s suit in the lower court be dismissed with costs. c) That the costs of this appeal be awarded to the Appellant. d) Any other relief that the Honourable Court may deem fit and just to grant. The Submissions 14.The Appeal was canvassed by way of written submissions. Both parties filed written submissions, which the Court has duly considered. 15.On its part, the Appellant submitted that the Respondent’s claim for underpayment was predicated on the application of wage scales applicable to permanent employees under the Regulation of Wages (General) Order. It was its position that the Respondent was engaged on specific contractual terms as a contract employee. 16.Relying on the case of National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & Another [2001] eKLR, the Appellant submitted that parties are bound by 8 the terms of their agreement and that courts ought not to rewrite contracts for them. 17.It was the Appellant’s further contention that the trial magistrate erred in disregarding both the contractual documents and oral evidence relating to the agreed remuneration, thereby effectively imposing a new and more favourable contract upon the parties. In its view, this amounted to judicial overreach. 18.The Appellant further submitted that the trial court awarded accrued leave, service pay, and house allowance without proof that the Respondent was in continuous employment or otherwise entitled to such benefits. 19.It was further submitted by the Appellant that the burden of proof lay with the Respondent to establish conversion of his employment status and entitlement to enhanced remuneration. On this score, the trial court was faulted for improperly shifting this burden onto the Appellant by requiring it to disprove the Respondent’s claims or to produce documentation beyond what is required by law. 20.Additionally, the Appellant submitted that the Respondent’s own evidence demonstrated that he absconded duty following inquiries into financial discrepancies. The Appellant maintained that there was no evidence of 9 unilateral or fundamental changes to the contract, harassment, or any conduct on its part that would justify a claim for constructive dismissal. In its view, the trial court erroneously inferred dismissal without a proper legal basis. 21.The Appellant further contended that the trial court made findings and granted remedies that were neither specifically pleaded nor supported by the evidence on record. 22.On the other hand, the Respondent submitted that the finding of constructive dismissal was firmly grounded on the evidence presented before the trial court, much of which remained uncontroverted by the Appellant, and that no error had been demonstrated. 23.The Respondent further argued that the Appellant’s assertion that the trial court “rewrote” the contract was misplaced, maintaining that the court merely interpreted the employment relationship in light of the evidence and applied the applicable statutory minimum standards. 24.It was the Respondent’s position that the trial court did not rewrite the contract but instead enforced statutory minimum terms which are implied by law into every contract of service. The Respondent further relied on Section 48(1) of the Labour Institutions Act, arguing that it prohibits contracting out of Wage 10 Orders. The Respondent maintains that statutory minimum remuneration forms part of the employment contract. Analysis and Determination 25.This being a first appeal, the Court is obliged to re-evaluate and analyse the evidence on record and arrive at its own independent conclusions, while bearing in mind that it neither saw nor heard the witnesses testify. This position was affirmed by the Court of Appeal in J. S. M. v E. N. B. [2015] eKLR, thus: - “We shall however bear in mind that this Court will not lightly differ with the trial court on findings of fact because that court had the distinct advantage of hearing and seeing the witnesses as they testified and was therefore in a better position to assess the extent to which their evidence was credible and believable. Should we however, be satisfied that the conclusions of the trial judge are based on no evidence or on a misapprehension of the evidence on record or that the learned judge demonstrably acted on wrong principles, we are enjoined to interfere with those conclusions.” 26.Having reviewed the record, the rival submissions, and the applicable law, it is my considered view that the following twin issues arise for determination by this Court: - 11 a) Whether the trial Court erred in holding that the Respondent was constructively dismissed; and b) Whether the reliefs awarded by the trial Court are sustainable. Constructive dismissal? 27.Before the trial Court, the Respondent’s case was that he was constructively dismissed, having resigned as a result of frustrations allegedly occasioned by the Appellant at the workplace. In this regard, he cited denial of leave and rest days, unpaid overtime, and persistent underpayment below the prescribed minimum wage. 28.The Appellant disputed this position, contending that the Respondent voluntarily left employment after being called upon to account for allegedly misappropriated funds. 29.In her Judgment, the learned trial Magistrate found that the Respondent had been constructively dismissed. 30.In view of the parties’ rival positions and the finding of the trial Court, the issue for determination is whether the trial Magistrate erred in arriving at that conclusion. 12 31.The Black’s Law Dictionary (10th Edition, p. 561) defines constructive dismissal as “an employer’s creation of working conditions that leave a particular employee or group of employees little or no choice but to resign, as by fundamentally changing the working conditions or terms of employment; an employer’s course of action that, being detrimental to an employee, leaves the employee almost no option but to quit.” 32.In a nutshell, constructive dismissal arises where an employee resigns due to the employer’s conduct rendering the working environment so intolerable or oppressive that the employee is left with no option but to resign. In such circumstances, although the resignation is ostensibly initiated by the employee, it is in effect a termination attributable to the employer. 33.In the leading case of Coca-Cola East & Central Africa Limited v Maria Kagai Ligaga [2015] eKLR, the Court of Appeal formulated the following guiding principles for determining claims of constructive dismissal: - a) What are the fundamental or essential terms of the contract of employment? b) Is there a repudiatory breach of the fundamental terms of the contract through the conduct of the employer? 13 c) The conduct of the employer must be a fundamental or significant breach going to the root of the contract of employment or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract. d) An objective test is to be applied in evaluating the employer’s conduct. e) There must be a causal link between the employer’s conduct and the reason for the employee terminating the contract i.e causation must be proved. f) An employee may leave with or without notice so long as the employer’s conduct is the effective reason for termination. g) The employee must not have accepted, waived, acquiesced or conducted himself to be estopped from asserting repudiatory breach; the employee must within a reasonable time terminate the employment relationship pursuant to the breach. 34.As can be discerned from the foregoing principles, the evidentiary threshold for establishing constructive dismissal is high. Accordingly, an employee alleging constructive dismissal bears the burden of proving the following three essential elements: 14 a) A fundamental breach of contract by the employer; b) That the breach created intolerable working conditions; and c) That the breach directly caused the resignation. 35.It is worth noting that the Respondent’s resignation letter was not produced before the trial Court. As a result, the reasons, if any, that he gave for resigning from the Appellant’s employment cannot be ascertained. It is therefore unclear whether any reasons were advanced by the Respondent at the time of resignation and, if so, whether they are consistent with those relied upon at trial. 36.The production of the resignation letter was crucial, as a successful claim of constructive dismissal requires proof of a causal nexus between the employer’s conduct and the employee’s decision to resign from employment. In essence, causation must be established. 37.This omission is further compounded by the Appellant’s assertion that the Respondent left employment after being called upon to account for allegedly misappropriated funds. 38.Fundamentally, the reasons the Respondent relied upon at the trial Court as motivating his resignation are not evident from the record. Consequently, it 15 cannot be determined that his departure from employment was caused by the conditions alleged in his Statement of Claim rather than by the Appellant’s demand that he accounts for the funds allegedly misappropriated. 39.Accordingly, the Court finds that the Respondent failed, at the trial Court, to establish a causal link between his resignation and the Appellant’s alleged conduct of underpaying him, denying leave, and withholding overtime compensation. 40.Taking all factors into account, this Court finds that the learned trial Magistrate erred in concluding that the Respondent was constructively dismissed. Remedies? Compensation 41.Having found that the trial Court erred in concluding that the Respondent was constructively dismissed, the Court hereby sets aside the award of compensation for unfair termination. Service pay 42.With respect to service pay, the trial Court awarded the Respondent Kshs 113,410.00. From the record, it is evident that the Respondent left employment 16 voluntarily, and the termination of his employment was not initiated by the Appellant. Accordingly, in terms of Section 35(5) of the Employment Act, he is not entitled to service pay. Underpayments 43.The Respondent was also awarded Kshs 1,805,374.00 as underpaid salary from 1st October 2016 to 30th November 2022. While the Respondent pleaded that his salary was Kshs 8,000.00, the Appellant disputed this figure, terming it as fictitious. However, despite its contention, the Appellant did not provide evidence of the actual salary paid to the Respondent. If anything, during cross- examination, the Appellant’s witness, Lydia Njoki Mugo, admitted that the Respondent received a monthly salary of Kshs 8,000.00 as stated in the Claim. 44.The Respondent further pleaded that although employed as a secretary, he performed the duties of a cashier. In cross-examination, Ms. Mugo confirmed that the Respondent handled cash from members, kept records of transactions, banked money, raised vouchers, wrote cheques signed by committee members, and managed Mpesa transactions. Therefore, the Court has no reason to doubt the Respondent’s assertion that he performed cashier duties. 45.For the period 1st May 2015 to 30th April 2017, the statutory minimum wage for a cashier working in Kerugoya as the Respondent was Kshs 21,811.10. 17 Including a 15% house allowance, the minimum consolidated salary as per Legal Notice No. 116 of 2015 was Kshs 25,082.77. Given that the Respondent was earning Kshs 8,000.00 per month, he was underpaid by Kshs 17,082.77 monthly from 1st October 2016 (when he was employed) to 30th April 2017. 46.With respect to the period 1st May 2017 to 30th April 2018, the statutory minimum wage for a cashier in Kerugoya was Kshs 25,737.10, pursuant to Legal Notice No. 111 of 2017. Inclusive of a 15% house allowance, the minimum consolidated salary was Kshs 29,597.67. Since the Respondent earned Kshs 8,000.00 per month, it follows that he was underpaid by Kshs 21,597.67 monthly and is entitled to compensation for this underpayment. 47.Regarding the period 1st May 2018 to 30th April 2022, the statutory minimum wage for the Respondent’s category of employees in Kerugoya was Kshs 27,023.95 pursuant to Legal Notice No. 2 of 2018. Including a 15% house allowance, the minimum consolidated salary comes to Kshs 31,077.54. Accordingly, the Respondent was underpaid by Kshs 23,077.54 per month during this period. 48.As from 1st May 2022 to 11th December 2022, when the Respondent left employment, the statutory minimum wage for workers in his category working in Kerugoya was Kshs 30,266.80 pursuant to Legal Notice No. 125 of 2022. 18 Including a 15% house allowance, the minimum consolidated salary was Kshs 34,806.82. Consequently, he was underpaid by Kshs 26,806.82 per month during this period. 49.In view of the foregoing, it is evident that the Respondent was underpaid during certain periods of his employment. The Appellant’s argument that the parties are bound by their contractual terms and that the trial Court erred in applying the Regulation of Wages (General) Order to determine the Respondent’s salary is therefore misplaced. 50.Why do I say so? Section 48 (1) of the Labour Institutions Act provides as follows: [48](1) Notwithstanding anything contained in this Act or any other written law— (a) the minimum rates of remuneration or conditions of employment established in a wages order constitute a term of employment of any employee to whom the wages order applies and may not be varied by agreement; (b)if the contract of an employee to whom a wages order applies provides for the payment of less remuneration than the statutory minimum remuneration, or does not provide for the conditions of employment 19 prescribed in a wages regulation order or provides for less favourable conditions of employment, then the remuneration and conditions of employment established by the wages order shall be inserted in the contract in substitution for those terms. 51.In essence, the wage orders issued under the Labour Institutions Act constitute, by law, the minimum terms and conditions of employment applicable to employees. It therefore establishes binding minimum standards below which remuneration or conditions cannot lawfully fall. 52.Consequently, the Appellant is prohibited from relying on contractual terms that are inferior to, and fall below, the prescribed statutory minimums. Salary for December 2022 53.There being no evidence that the Respondent was paid for the days worked in December 2022, the Court finds no reason to interfere with this component of the award. Annual leave 54.The award for accrued leave is upheld, as the Appellant failed to produce the Respondent’s leave records despite its statutory obligation under Section 74(1) (f) of the Employment Act. However, the period for which the Respondent is 20 entitled to unpaid leave is reduced from six (6) years to 18 months in accordance with Section 28(4) of the Employment Act. Orders 55.The total sum of my consideration is that the Appeal is partially allowed as follows: - a) The award of compensation for unfair termination is hereby set aside in its entirety. b) The award for salary underpayments is upheld but reduced from Kshs 1,805,374.00 to Kshs 1,674,121.10, calculated as follows: Kshs 17,082.77 × 7 months + Kshs 21,597.67 × 12 months + Kshs 23,077.54 × 48 months + Kshs 26,806.82 × 7 months, covering the period from 1st October 2016 to 30th November 2022. c) The award of salary for 11 days in December 2022 is sustained but reduced from Kshs 13,612.00 to Kshs 12,762.50. d) The award of accrued leave is sustained but reduced from Kshs 159,220.00 to Kshs 36,547.16. e) The award of unpaid house allowance of Kshs 455,371.00 is set aside in its entirety, as it is subsumed within the award for salary underpayments. 21 f) The award of service pay of Kshs 113,410.00 is set aside in its entirety. g) The total decretal amount is determined at Kshs 1,723,430.76. h) Costs in this Court and at the trial Court shall be borne by the Appellant and shall be pegged on the final award. DATED, SIGNED and DELIVERED at NYERI this 17th day of April 2026. ……………………………… STELLA RUTTO JUDGE Appearance: For the Appellant No appearance For the Respondent Mr. Malonza Court Assistant Ndati ORDER In view of the declaration of measures restricting Court operations due to the COVID-19 pandemic and in light of the directions issued by His Lordship, the Chief Justice on 15th March 2020 and subsequent directions of 21st April 2020 that judgments and rulings shall be delivered through video conferencing or via email. They have waived compliance with Order 21 Rule 1 of the Civil Procedure 22 Rules, which requires that all judgments and rulings be pronounced in open Court. In permitting this course, this Court had been guided by Article 159(2)(d) of the Constitution which requires the Court to eschew undue technicalities in delivering justice, the right of access to justice guaranteed to every person under Article 48 of the Constitution and the provisions of Section 1B of the Civil Procedure Act (Chapter 21 of the Laws of Kenya) which impose on this Court the duty of the Court, inter alia, to use suitable technology to enhance the overriding objective which is to facilitate just, expeditious, proportionate and affordable resolution of civil disputes. STELLA RUTTO JUDGE 23