https://new.kenyalaw.org/akn/ke/judgment/keelrc/2026/1637

Zacosia Trading Limited v Ogara (Appeal E084 of 2025) [2026] KEELRC 1637 (KLR) (16 June 2026) (Judgment) Neutral citation: [2026] KEELRC 1637 (KLR) Republic of Kenya In the Employment and Labour Relations Court at Kisumu Appeal E084 of 2025 Nzioki wa Makau, J June 16, 2026 Between Zacosia Trading Limited Appellant and Irene Atieno Ogara Respondent (Being an appeal from the ruling and order of Hon. Chrispine Noel Choka Oruo in Rongo MCELRC No. E003 of 2024 delivered on 23rd September 2025) Judgment 1.The appeal herein arises from the Learned Magistrate’s Ruling on an application dated 23rd January 2025 by Zacosia Trading Limited (the Appellant) in which it sought the following orders:a.That the Court directs that the matter be referred to arbitration for settlement as per the terms of the agreement between the parties;b.That the Court stays proceeding in the suit pending reference to arbitration in compliance with the arbitration agreement between the parties.c.That costs of the application be awarded to the Respondent. 2.The application was premised on the contention that the suit offended the doctrine of exhaustion. The Appellant relied on Clause 14 of the Respondent’s contract of employment, which required disputes arising out of the employment relationship to be referred to arbitration. According to the Appellant, the Respondent had failed to comply with that contractual dispute resolution mechanism before instituting the suit. 3.The Respondent opposed the application, arguing that the arbitration clause was only operative during the subsistence of the employment relationship and ceased to apply upon termination of her employment. 4.Upon considering the parties’ respective positions, the Learned Magistrate agreed with the Respondent and found that the arbitration clause was intended to govern disputes arising during the course of employment. 5.The Appellant was aggrieved and it lodged the present appeal via a Memorandum of Appeal dated 27th October 2025 contending:i.That the Learned Magistrate erred in law and in fact by holding that the Arbitration Clause under Clause 14.0 of the subject Employment Agreement applies only to disputes arising during the employee's employment, by virtue of being a prima facie case, while ignoring the plain wording of the clause which generally requires Parties to refer any dispute that arises out of the Agreement or any aspect of the employee's employment to arbitration, hence arrived at a wrong conclusion;ii.That the Learned Magistrate erred in law and in fact by misinterpreting and misapplying the decision in Jane Muthoni Mukuna v FSI Capital Limited [2015] eKLR, and arriving at a conclusion that after termination of the employment relationship, there was nothing to refer to arbitration, without considering that the Claimant in the instant case is suing under the terms of the contract for matters arising from the employment.iii.That the learned Magistrate erred in law and in fact by disregarding the mandatory provisions of Section 6 of the Arbitration Act, 1995, which empowers the court to stay proceedings and refer the dispute to arbitration where an Arbitration Agreement exists, hence exercised his discretion wrongly.iv.That the Learned Magistrate erred in law and in fact by failing to promote alternative dispute resolution mechanisms, including arbitration, as anchored in Article 159(2)(c) of the Constitution of Kenya, 2010; the Respondent had produced no single iota of evidence to show that the arbitration clause was vague, non-consensual, or inapplicable post-termination.v.That the Learned Magistrate erred in law and in fact by grossly misdirecting himself by dismissing the Application for referral to arbitration, contrary to the well-established principle that an Arbitration Agreement survives the termination of the contract and can be enforced for disputes arising therefrom. 6.On the strength of these grounds, the Appellant urges this Court to allow the appeal, set aside the ruling delivered on 23rd September 2025, and substitute it with an order referring the dispute to arbitration. The Appellant further seeks an order staying the proceedings before the Trial Court and an award of the costs of this appeal. 7.The appeal was canvassed by way of written submissions. Appellant’s Submissions 8.The Appellant submits that the wording of the arbitration clause, which refers to “any dispute that arises out of this agreement or any aspect of the employee’s employment,” demonstrates that the clause remained operative even after termination of employment. It asserts that arbitration agreements are independent of the contracts in which they are contained by virtue of the doctrine of separability as embodied in section 17(1) of the Arbitration Act. In support of that proposition, reliance is placed on Nedermar Technology BV Ltd v Kenya Anti-Corruption Commission & another [2006] eKLR, where it was stated:“...the additional reason for this is the application of the now internationally recognised principle of separability which in Kenya is reflected in s 17 of the Arbitration Act 1995. In short, the principle of separability means that the arbitration agreement is separate from the underlying contract…” 9.It also relies on the decision in the case of Dock Workers Union v Messina Kenya Limited (Court of Appeal, Civil Appeal No. 109 of 2018) [2019] eKLR, where the court in affirming that arbitration clauses survive termination unless parties expressly provide otherwise stated:“On the contrary and as rightly held by the learned trial Judge, the parties herein had categorically agreed to refer any ensuing dispute as regards the contract of employment herein to arbitration. Parties have the freedom to choose the regime of the law they want to be governed under and embody it in their contracts. If parties opt to have an arbitration agreement in their contract of employment which spells out how disputes between them would be resolved, that is perfectly within their rights. The parties entered into the said agreement freely and opted to oust other means of dispute resolution mechanisms other than arbitration. They cannot turn around and denounce the arbitration agreement. It is also worth of note that the Constitution of Kenya itself has given prominence to arbitration by acknowledging it as one of the alternative modes of dispute resolution that courts should encourage. The learned Judge cannot therefore be faulted for finding that the arbitration agreement in the parties’ contract was valid. In this case, the parties were bound under the contract to refer the matter to arbitration…” 10.On that basis, the Appellant contends that the Respondent’s claims for unfair termination and terminal dues arise directly from the employment agreement and therefore fall within the scope of the arbitration clause. Additionally, the Appellant submits that the Learned Magistrate failed to apply section 6(1) of the Arbitration Act, which requires a court to stay proceedings and refer parties to arbitration where a valid arbitration agreement exists, unless such agreement is null, void, inoperative or incapable of being performed. For this proposition reliance is placed on Maina v Kenya Commercial Bank PLC & another [2024] KEELRC 2287 (KLR). Moreover, the Appellant asserts that the Magistrate failed to give effect to Article 159 (2) (c) of the Constitution that advocates for promotion of alternative dispute resolution mechanisms such as the arbitration agreement herein. It contends that the exclusive jurisdiction of the ELRC under Article 162 (2) (a) of the Constitution does not preclude parties from agreeing to arbitrate disputes arising from employment relationships. Reliance is placed on Maina v Kenya Commercial Bank PLC & another [2024] KEELRC 2287 (KLR), where it was stated:“The foregoing leaves no doubt in my mind that the presence of an arbitration clause in a contract does not operate so as to oust the court’s jurisdiction to adjudicate on disputes which may arise from such contract. That notwithstanding, the court is required to show deference to the principle of party autonomy by allowing the parties the opportunity to resolve such disputes through arbitration.” 11.In conclusion the Appellant submits that enforcing the clause upholds the rule of law and reduces backlog. It accordingly urges the Court to allow the appeal. Respondent’s Submissions 12.The Respondent, on the other hand, submits that the arbitration clause became inoperative upon termination of the employment relationship. She asserts that having terminated her employment without invoking the arbitration clause, the Appellant cannot subsequently seek to rely on it. In support of that position, she relies on the decision in the case of Jane Muthoni Mukuna v FSI Capital Limited [2015] KEELRC 841 (KLR), where it was held:“The claimant also has another very valid argument that the employment relationship having been terminated there was nothing to refer to arbitration. That the respondent, having had a dispute with the claimant, should have referred the dispute to arbitration before termination of contract. After its termination, and taking into account the fact that the claimant is not suing for reinstatement but for terminal dues, there is no contract to be referred to arbitration. The applicant did not make any submissions in respect of this argument by the claimant.” 13.The Respondent consequently contends that the contractual foundation upon which the arbitration clause rested ceased to exist once the Appellant unilaterally terminated her employment. Regarding section 6 of the Arbitration Act, the Respondent maintains that the provision is inapplicable because the arbitration agreement had become inoperative. She further submits that the Employment and Labour Relations Court is a specialized court established under Article 162(2)(a) of the Constitution with exclusive jurisdiction over employment and labour disputes. She points out that section 87 of the Employment Act expressly contemplates determination of such disputes by the Court, while section 15 of the Employment and Labour Relations Court Act recognizes conciliation, mediation and traditional dispute resolution mechanisms but makes no reference to arbitration. According to the Respondent, that omission reflects a deliberate legislative choice aimed at safeguarding employees, who generally occupy a weaker bargaining position in employment relationships. Consequently, she asserts that an arbitration clause cannot oust the constitutional and statutory jurisdiction of the Employment and Labour Relations Court. In support of that proposition, she relies on. Okeyo v Board of Directors HHI Management Service Limited & another [2024] KEELRC 1006 (KLR), where the Court declined to enforce an arbitration clause in an employment contract, holding that arbitration is principally intended for commercial disputes and that employment contracts are characterized by unequal bargaining power. 14.The Respondent further submits that arbitration is not among the dispute resolution mechanisms contemplated for employment matters. She cites the case of Rono v Delish Nail & Beauty Ltd [2023] KEELRC 2996 (KLR) which in citing Dr. Kennedy Amuhaya Wanyonyi v African Medical and Research Foundation [2014] eKLR, expressed reservations regarding arbitration in employment disputes holding as above. With respect to the Appellant’s reliance on Article 159(2)(c) of the Constitution, the Respondent submits that alternative dispute resolution mechanisms do not override the court’s jurisdiction under Article 162(2)(a) of the Constitution neither does it permit private agreements to do the same. In support of that proposition, the Respondent relies on Bia Tosha Distributors Limited v Kenya Breweries Limited & 6 others [2023] KESC 14 (KLR), where the Supreme Court held that arbitration is founded on party autonomy and that questions involving constitutional violations and enforcement of constitutional rights remain within the province of the courts. The Respondent submits that employment disputes frequently involve constitutional rights such as fair labour practices, fair administrative action and access to justice, thereby necessitating judicial oversight. 15.Finally, the Respondent submits that the Learned Magistrate correctly interpreted the arbitration clause and properly applied Jane Muthoni Mukuna v FSI Capital Limited [2015] KEELRC 841 (KLR), in finding that, following termination of the employment relationship, the clause was inoperative and incapable of performance. She therefore urges the court to dismiss the appeal with costs as the trial court’s ruling is legally sound, constitutionally grounded and consistent with prevailing jurisprudence. Disposition 16.The arguments by the Appellant are that the arbitration clause requires the case preferred to be sent to arbitration. The Respondent counters that the arbitration clause is not applicable as the employment relationship was severed. The reference of an employment matter to arbitration has to meet certain criteria. The Employment and Labour Relations Court Act has not identified arbitration as one of the mechanisms through which the employment dispute can be determined. The Respondent before me has another very compelling argument. The Respondent consequently contends that the contractual foundation upon which the arbitration clause rested ceased to exist once the Appellant unilaterally terminated her employment. The Court agrees that there was no employment relationship at the time the suit was filed and that the employment relationship having been terminated there was nothing to refer to arbitration. 17.Having determined that the dispute with the Respondent was post employment, the arbitration clause is not applicable in my considered view. The dispute ought to have been referred to arbitration before, not after termination of contract. After its termination, and taking into account the fact that the Respondent was not seeking re-instatement to employment, there is no contractual dispute capable of being referred to arbitration as contemplated in the agreement that subsisted prior to its termination. 18.In my considered opinion the Learned Magistrate was correct in her surmise regarding the impropriety of the objections by the Appellant. In my view, there was no error in the determination vide the Ruling made on 23rd January 2025. There was no employment dispute capable of reference to arbitration. There is therefore no infringement of the alleged doctrine of exhaustion as it was not applicable in the instance case. The foregoing is ample to demonstrate that the appeal before me is completely devoid of merit and is accordingly hereby dismissed with costs to the Respondent. It is so ordered. DATED AND DELIVERED AT KISUMU THIS 16TH DAY OF JUNE 2026NZIOKI WA MAKAU, MCIARB.JUDGE