[2007] KEELRC 8 (KLR)

REPUBLIC OF KENYA.

IN THE INDUSTRIAL COURT OF KENYA

AT NAIROBI.

(Before: Charles P. Chemmuttut, J.,

J.M. Kilonzo & O.A. Wafula, Members.)

CAUSE NO. 98 OF 2005.

TAILORS & TEXTILES WORKERS’ UNION....................................................................... Claimants.

v.

AFRICAN COTTON INDUSTRIES LTD............................................................................Respondents

Issues in dispute:-

1. General Wage Increase.

2. House Allowance.

3. Leave Travelling Allowance.

4. Night Shift Allowance.

5. Meals and Safari Allowance.

6. Basic Minimum Wage.

7. Sick Leave.

8. Redundancy.

9. Retirement Benefits/Gratuity.

10. Two Bars of Soap.

11. Incentive (Production) and Yearly Bonus.

12. Medical Expenses.

Mr. Charles N. Ngatia, Director of Industrial Relations and Research, for the Claimants (hereinafter called the Union).

Mr. A.O. Ambenge, 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 27th June, 2005, 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 5th August, 2005, and the dispute was listed for mention on 15th August, 2005. On this occasion, the parties were directed to submit or file their respective memoranda or statements on or before 5th September and 5th October, 2005, and the dispute was fixed for hearing on 13th October, 2005. Mr. Ngatia belatedly submitted his memorandum, on behalf of the Union, on 22nd September 2005, and Mr. Ambenge also belatedly filed his reply statement thereto, on behalf of the Company, on 26th October, 2005. Consequently, the dispute suffered some adjournments for one reason or the other, and it was eventually heard on 28th February, 2007.

The Union is registered as such under Section 11 of the Trade Unions Act, Cap. 233, Laws of Kenya, while the Company, which deals in the manufacture and supply of cotton wool, feminine or sanitary towels, petroleum jelly, baby diapers, surgical dressings and gloves, toilet tissue rolls, tissue products and industrial paper products, is a limited liability concern, incorporated in Kenya before independence under the Companies Act, Cap. 486, Laws of Kenya. Its main plant is located in Mombasa and another one is situated in Nairobi.

The parties have a valid recognition agreement and have also negotiated and entered into several collective agreements which regulate the terms and conditions of service of the unionisable employees of the Company. The present dispute arose when the parties embarked on a review or renewal of their latest or outgoing collective agreement for the period 1st September, 2002 to 31st August, 2004. They exchanged proposals and counter proposals, and held several or a series of meetings at their own level and during the course of conciliation proceedings to resolve the issues, but no settlement was reached on the twelve (12) issues now before the Court for adjudication and determination (see Union Apps. I to 6 and Company Anns. I to 7).

The case of the Union is that this is a family concern of long standing, and that it has the ability to meet the demands by the Union. Mr. Ngatia refuted the allegations that the Company was on the verge of collapse, considering that there have been some expansion measures and increased employment in the Company. He blamed the new management for mismanaging the Company and urged the Court to find that the proposals or demands by the Union are reasonable and justifiable.

On the other hand, Mr. Ambenge pleaded inability to pay as the demands by the Union were unreasonably high. He pointed out that, in addition to its financial obligations, the Company has experienced financial constraints and problems since 2002 to date. For example, in 2002, the Company made a modest profit of Kshs. 5. 3 million, but in 2003, the profit declined to Kshs. 4. 8 million. In 2004, the Company incurred a loss of Kshs. 4. 2 million, and currently the loss stands at Kshs. 8. 0 million (see Company Ann. 9). Mr. Ambenge submitted further that the Company continues to experience shortage or lack of raw materials for effective production, and when available the cost has also escalated tremendously, leading to poor business performance by the Company. Furthermore, the Company, like other textile companies, e.g. Coast Blankets, Mombasa Towels Manufacturers, Emke Textiles, has also experienced and faced serious competition from imported cheap products in the market, and any high and unwarranted increase will lead to redundancy of the unionisable employees. Mr. Ambenge also urged the Court to consider (i) that the loss for the 2005 and 2006 would even be higher than that of 2004, and the Company would not sustain the demands by the Union without loss of jobs or complete shutdown of the plant, (ii) that the Company is now almost dependent on the sale of erratic toilet paper as the sanitary towels market is completely stagnant due to duty free imports of finished products, (iii) that the cotton industry has been on the decline over the years and (iv) that the Company has to service heavy financial cost for capital expenditure which failed to take off as anticipated.

In her analysis and observations on the financial position of the Company for the relevant period under consideration, Ms. S.M. Achieng of the Economic and Planning Division (which is hereinafter referred to as the EPD) stated that the total sales increased from Kshs. 248. 5 million in 2002 to Kshs. 393. 6 million in 2003, i.e. an increase of 58. 3%, before dropping marginally to Kshs. 382. 7 million in 2004, a decrease of 2. 8%. The net profits for 2002 and 2003 stood at Kshs.5. 2 million and Kshs.9. 1million respectively, but the Company suffered a loss of Kshs. 7. 6 million in 2004.

On employment, annual labour costs and the wage bill for the period 2002 to 2004, the report shows that throughout the period under review, the casual workers averaged 310, or 2/3, of all the employees, while the unionisable employees stood at 46 in 2003 and 2004, or 10% of the total labour force. It is also stated in the report that the management staff were about twice the level of unionisable employees. As regards the labour costs, the report states that the unionisable employees’ wage bill rose from Kshs. 8. 0 million in 2002 to Kshs.8. 8 million in 2003 and to a further Kshs. 9. 4 million in 2004, or an average increase of 8% each year. The management staff wage bill increased from Kshs. 10. 4 million in 2002 to Kshs.11. 4 million in 2004, i.e. a yearly average of 4. 9%; while the labour costs for casual workers remained constant at Kshs. 16. 5 million, Kshs. 17. 0 million and Kshs. 17. 0 million in 2002, 2003 and 2004 respectively. Thus, in 2004, the labour costs for the unionisable employees stood at 1/4 of the total labour costs of Kshs.37. 8 million, while the labour costs for the management staff accounted for 30% thereof, and the labour costs for the casual workers stood at 50%.

With the foregoing observations in view, we now take up the issues in the order in which they are given in the Notification of Dispute, Form ‘A’, at the commencement of this award.

1. General Wage Increase.

This item is covered under Clause 26 of the parties’ outgoing collective agreement which provide for a wage increase of 8% each year, or a total of 16% for the two years period.

The Union now demands a general wage increase of 25% each year, or a total of 50% for the two years period, due to inflation and to enable the unionisable employees earn a living wage.

On the other hand, the Company has offered a general wage increase of 5% each year, or a total of 10% for the two years period, of the incoming collective agreement. The factors which the Company took into account in making this offer include lack of and escalating prices of raw materials, high cost of production, liberalization of the market, stiff competition from cheap imports, effects of the 2004/2005 budget and heavy capital investment.

The EPD report shows that the rise in the cost of living indices for the entire period under consideration, i.e. 1st September, 2002 to 31st August, 2004, for purposes of compensation to the unionisable employees who fall in the lower income group, is about 26% for the two years period, or 13% each year. If the Unions’ demand is granted, the wage bill for 2004 would rise by Kshs.4. 5 million, whereas the Company’s offer would hike it by Kshs. 0. 8 million, and the rise in the cost of living indices would translate to additional labour costs of Kshs.2. 2 million.

It is well-settled that increase in wages depends on increase in the cost of living, when such increase is proved and when the financial position of the employer is found to be capable of bearing this burden. In this case, no evidence, documentary or otherwise, has been led to show that the financial position of the Company justifies any substantial increase as demanded by the Union and will bear the additional burden of such an increase. This being the case, and considering the compensatory entitlement to the unionisable employees of 26% for the two years period, or 13% each year, and the parties aforementioned demand and offer, we are of the considered opinion that a modest wage increase of 7% each year, or 14% for the two years period, will meet the ends of justice, and we so award and order accordingly.

2. House Allowance.

Clause 28 of the parties’ outgoing collective agreement provides that:-

“Every employee who is not provided with free housing accommodation by his/her employer, shall be entitled in addition to the basic minimum wage prescribed, a housing allowance of Kshs. One thousand, seven hundred per month (Kshs. 1,700/=).”

The Union demands a house allowance of Kshs. 3,500/= per month against the proposal by the Company of Kshs.1,900/=. The Company maintains that it cannot afford any additional cost on this item until its liquidity situation improved.

The EPD report shows that the applicable compensation entitlement for house allowance is 13% for the period under review. The bill hereof rose from Kshs.1. 0 million in 2002 to Kshs.1. 3 million in 2003 and stood at Kshs. 1. 4 million in 2004 – differences of Kshs. 0. 3 million and Kshs. 0. 2million, or increases of 25% and 12% respectively. However, the management staff house allowance remained constant at Kshs. 1. 4 million throughout the period under consideration. The demand by the Union would raise the current house allowance bill by Kshs. 1. 0 million per annum, while the offer by the Company would hike it by Kshs. 0. 1 million per year, and the consumer price indices would result in an increase of Kshs. 0. 2 million per year.

Unfortunately, the EPD report does not show where the employees reside and how much they pay for their accommodation. It is true, however, that decent and reasonable accommodation is scarce and unaffordable, particularly in urban centres, and landlords have been quick to exploit the situation to the disadvantage of the public, especially employees of low wages or earnings. But it is incumbent upon every employer to provide reasonable housing accommodation, or pay sufficient rent, to each of his employees as provided for by Section 9 of the Employment Act, Cap. 226, Laws of Kenya.

Clauses 17, 20 and 24 of the current collective agreements on this item between this Union and Mega Spin Ltd., Ken-Knit (Kenya) Ltd. and Spinners & Spinners Ltd. provide as follows.

1. Mega Spin Ltd. Kshs. 1,390/=.

2. Ken-Knit (Kenya) Ltd. Kshs. 950/=.

3. Spinners & Spinners Ltd. Kshs. 1,670/=.

In the circumstances, and considering the poor financial status of the Company, we are of the considered view that the proposal or offer by the Company of Kshs. 1,900/=house allowance per month is fair and reasonable, and we so award and uphold the same.

3. Leave Travelling Allowance.

Clause 16 of the parties outgoing collective agreement provides that “when proceeding on annual leave, an employee shall be entitled to Kshs.2,000/= (Two thousand) leave travelling allowance.”

The Union demands that the present leave travelling allowance be raised to Kshs. 4,000/= against a nil offer by the Company.

In support of the Union’s demand, Mr. Ngatia said that the current amount is inadequate because of the recent fare hike due to the rising cost of fuel and Government reforms in the transport sector, e.g. installation of speed governors and safety belts. In addition, he said, fares are increased arbitrarily or doubled during Public holidays and at month-ends.

In response, Mr. Ambenge contended that the existing leave travelling allowance of Kshs. 2,000/= is more than adequate and payable uniformly to all the employees, majority of whom spend a small proportion of the same to travel to their homes. It was not, he said, intended to be an extra income.

The EPD report shows that the demand by the Union would double the annual leave travelling allowance bill for the unionisable employees from the current Kshs. 92,000/= to Kshs.184,000/=.

Under Clauses 6,4,and 23 of the current collective agreements in respect of the aforementioned undertakings, the unionisable employees are entitled to leave travelling allowance, amounting to Kshs. 1,400/=, Kshs.1,100/= and Kshs. 1,500/= respectively. On average, the rate stands at Kshs. 1,333/= leave travelling allowance. Since leave travelling allowance is personal to the employee himself or herself, we are of the view that the current rate of Kshs. 2,000/= is adequate for the time being. The Union’s demand is, therefore, rejected and status quo should be maintained.

4. Night Shift Allowance.

Under Clause 16 of the parties expired collective agreement, “any employee who works on night shift between the hours of 6. 00 pm. up to 6. 00 a.m. shall be entitled to a night allowance of Kshs. 50/= per night”.

The Union demands a rise of the night shift allowance from the current amount of Kshs. 50/= to Kshs. 150/= per night shift against a nil offer by the Company.

In support of this demand, Mr. Ngatia argued that the allowance is basically compensation and/or an incentive for the inconvenience that the employees who work on night shift undergo, while their colleagues who work during the day enjoy and relax. He cited Thika Cloth Mills, Spinners & Spinners Ltd. and Fine Spinners Ltd., which on average pay Kshs. 22/= as night shift allowance.

Mr. Ambenge urged the Court to maintain the status quoinview of the fact that the business performance of the Company is poor and below par.

The EPD report shows that the demand by the Union would triple the current rate. The average number of employees on night shift per month both at Mombasa and Nairobi are 15 for 26 days and 5 for 20 days respectively. The total night shift bill for the period under consideration rose steadily from Kshs. 70,000/= in 2002 to Kshs. 75,000/= in 2003 and Kshs. 78,000/= in 2004.

The provision for night shift allowance under Clauses 21, 18 and 28 in the current collective agreements between the Union and Mega Spin Ltd., Ken-Knit (Kenya) Ltd. and Spinners & Spinners Ltd. are Kshs. 17. 50, Kshs. 15/= and Kshs. 18/= respectively per night worked. In Cause No. 21 of 2006between this Union and T.S.S. Spinning & Weaving Ltd., we observed at page 18 as follows:-

“It is purely the function of the management to regulate the number of shifts according to the requirements of the business. They are the best judge to decide what are the thin hours and busy hours of the business and what would be the number of shifts to cope with the business.”

In our opinion, the rate of Kshs. 50/= night shift allowance which is currently being paid by the Company to the employees compares quite favourably with rates in other comparable concerns in this sector, especially the aforementioned establishments, and for this reason we reject the demand by the Union as untenable.

5. Meals and Safari Allowance.

Clause 29 of the parties’ collective agreement provides for a flat rate of Kshs. 600/= for drivers and Kshs.350/= for turnboys or loaders per day.

The Union demands meals and safari allowance of Kshs. 2,800/= per day, made up as follows:-

Breakfast. Kshs. 400/=.

Lunch. ” 400/=.

Dinner. ” 500/=.

Boarding/Lodging ” 1,500/=.

The demand is premised on the rise of food prices and high inflation rate which has allegedly eroded the purchasing power of the employees.

Mr. Ambenge urged the Court to maintain the status quoand submitted further that the demand is completely unrealistic and disproportionate to the Company’s current bleak financial situation; and, if it is granted, it would be no longer feasible to retain the Company’s delivery vehicles and the Company would be forced against its wish to outsource transport and/or sell ex-factory because it is not in a position to absorb any additional costs.

The EPD report states that the Company is not specific on the category of the employees who go on safari and the costs involved. But during the hearing of this dispute, it was found that the employees who are entitled to this benefit are 5 drivers and 5 turnboys or loaders. The number is small indeed, and considering the high cost of foodstuffs and accommodation, we are inclined to raise the current amounts across the board by Kshs. 150/=, making it Kshs. 800/=for drivers and Kshs.500/= for turnboys or loaders, and we so award and order.

6. Basic Minimum Wage.

This item is covered under Clause 27 of the parties collective agreement.

The Union demands that the new general wage increase of 25% each year, or 50% for the two years period, be the new basic minimum wages. The Company did not make any written submission on this issue. However, Mr. Ambenge submitted during the hearing of this dispute that it should run concurrently with the increase of the general wage increase. In any case, he said, the current rates are above the minimum wage of 2003.

The EPD notes that the basic minimum wage rates in the parties’ outgoing collective agreement were comparable to the Regulation of Wages (General) (Amendment) Orders. This being the case, the demand does not call for an award and it is rejected.

7. Sick Leave .

The relevant provision under Clause 6 of the parties’ collective agreement is as follows:-

(a)The first 40 days with full pay.

(b)The next 45 days with half pay.

The Union demands 60 days sick leave with full pay and a further 60 days sick leave with half pay on the ground that diseases like HIV/AIDS pandemic and T.B. treatment, for example, take longer period or time to cure.

Mr. Ambenge urged the Court to maintain the status quodue to the unsatisfactory business performance of the Company.

The EPD has established that no unionisable employee took any sick leave during the period under consideration, i.e in 2002, 2003 and 2004. Under Clauses 7 of the aforementioned comparable concerns, an employee on sick leave is entitled to an average of 33 days sick leave with full pay.

In Clause No. 21 of 2006, which has been referred to hereinabove, we observed at page 14 on this item as follows:-

“It is not desirable that an employee should be required to fall back upon sick leave at times when he is really not ill, but only feels a little below par. Sick leave is intended to cover absence on account of illness however minor or insignificant may be.”

In our considered opinion, and keeping in view the provision of sick leave in the collective agreements of other comparable concerns in the industry, we feel that the demand is baseless and it is thus rejected.

8. Redunduncy.

This item is covered under Clause 20 of the parties’ collective agreement, and the demand by the Union relates to severance pay which states under sub-clause (e) thereof as under:-

“Employee(s) declared redundant shall be entitled to severance pay at the rate of 21 days wages for each completed year of service.”

The Union demands that the current 21 days wages for each completed year of service be increased to 30 days for each completed year of service.

The Company desires status quoin view of the fact that its priority at the moment is to financially turn around the establishment so that the necessity for redundancy does not arise. It is also stated that no unionisable employee was declared redundant during the period under consideration, i.e 2002, 2003 and 2004.

The comparable concerns on the record have provided under Clauses 10,12 and 17 of their collective agreements for 19, 18 and an average of 19 days wages respectively for each completed year of service. This being the case, the provision by the Company of 21 days wages for each completed year of service is reasonable. The demand is, therefore, rejected.

9. Retirement Benefits/Gratuity.

In order to provide for additional benefits to its members, the Union wishes to introduce the following amendments to Clause 21 of the parties’ collective agreement.

a)Voluntary retirement age at 50 years and compulsoryretirement age at 55 years.

b)An employee who is retired on medical grounds or who dieswhile in employment shall also qualify for retirement benefits.

c)An employee who has served for more than 10 years but has not attained the retirement age should receive 30 days pay for each completed year of service.

The Company has urged the Court to maintain the status quo in view of the prevailing financial constraints in its concern.

The outgoing parties’ collective agreement provides for 15 days pay for each completed year of service for those employees who have served the Company between 5 and 10 years and 20 days pay for each completed year of service for employees who have rendered service to the Company for 11 years and more.

The EPD established that no unionisable employee qualified for this benefit during the period under consideration, i.e in 2002, 2003 and 2004.

On careful perusal of various provisions on this benefit in the entire sector, we find that the existing provision is a bit on the lower side. Accordingly, and in order to maintain some sort of uniformity in the sector, we award that an employee who retires after serving the Company for between 5 and 10 years shall be entitled to 18 days pay for each completed year of service, and an employee who retires after 11 yeas or more service shall be entitled to 24 days pay for each completed year of service. The rest of the provisions under the said clause remain unchanged. We so order.

10. Two Bars of Soap.

This item is covered under Clause 14 of the parties’ collective agreement. The Union demands that all the employees should be supplied with a pair of overalls/dust coats, uniforms and two bars of soap each month across the board and not selectively as is the case now.

The Company is willing to supply a second bar of soap as and when necessary, but an assessment should be carried out for the needs of different cadres of employees.

The EPD established that 98 employees currently receive a bar of soap at a cost of Kshs. 30,000/= per month.

Section 53 of the Factories Act, Cap. 514, Laws of Kenya, provides, inter alia, as follows:-

“Where in any factory workers are employed in any process involving exposure to wet or to any injurious or offensive substance, suitable protective clothing and appliances, including where necessary, suitable cloves, footwear, goggles and covering shall be provided and maintained for use of such workers.”

We have not been informed and there is no evidence on the record to show that all the employees in the Company’s establishment have been explored “to wet or to any injurious or offensive substance” In the circumstances, the demand for supply of a pair of overalls/dust-coats and uniforms to all the employees is disallowed. However, we award that all deserving employees be provided with two bars pf soap each month to keep their soiled clothes clean and tidy all the time.

11. Incentive (Production) and Yearly Bonus.

This is a new demand whereby the Union is proposing its inclusion in the parties’ future negotiations and collective agreements.

The Company is of the view that bonus incentive payments are motivational tools which are granted by an employer at his discretion. However, the Company is not prepared to consider this demand now because of its financial constraints.

In our view, this matter is entirely in the hands of the parties. While it is the function of the management whether or not to introduce a scheme of incentive bonus, once such scheme is introduced, the right to claim such a bonus becomes a condition of service of the employees. In the circumstances, there is no justification for this demand now due to hopelessly poor business performance of the Company. This being our view, we reject the demand for the moment.

12. Medical Expenses.

During the hearing of this dispute, the Union withdrew its demand on this item, and the Company did not object to its withdrawal. This being the position, the matter is dismissed as withdrawn.

DATED and delivered at Nairobi this 20th day of June, 2007.

Charles P. Chemmuttut, MBS.

JUDGE.

J.M. Kilonzo, O.A. Wafula,

MEMBER. MEMBER.