UON SOL LLB 111

Status of an Employee

Introduction

• Before examining the form and substance of the employment contract, it
is important to understand the parties to the contract.


What is an employee?
People work in a variety of occupations. There are two types of employment in
which people get an opportunity to exercise their skills and abilities to earn a
living; Employment and Self-Employment.

• Self-employment: This is the use of skills to earn a living for one own
benefit. E.g. running a personal business, a law firm, tilling your farm, etc.
Here the individual owns both the skills and the means of utilizing these
skills.
• Employment: An individual does not own the means of production. She
however has the skills that another requires and provides them as service
for pay.


An employee is defined in section 2 of the Employment Act, 2007 as:

An employee is any person employed for wages or salary and includes an
apprentice or indentured learner.


Contract of Service and Contract for Service

An employee and an employer may enter into a contract of service, defined in
section 2 of the Employment Act, 2007 as; … an agreement, whether oral or in
writing, and whether expressed or implied, to employ or to serve as an
employee for a period of time, and includes a contract of apprenticeship and
indentured learnership but does not include a foreign contract of service to
which Part XI of this Act applies.

Though statute provides for the definition of an employee, in reality, it is not
easy to make a clear-cut distinction on who is an employee and who is an
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independent contractor. This has become more problematic with the expansion
of different employment and business relationships e.g. outsourcing and
consulting. In practice, it is not easy to distinguish between the two.

Stanley Mungai Muchai vs. National Oil Corporation Of Kenya [2012]Eklr
Industrial Court of Kenya _Cause 447(N) of 2009


There are tests that the court applies to establish employee status:

In Child Welfare Society of Kenya v. Margaret Bwire and Isiolo Children’s
Home- Isiolo County, Industrial Court of Kenya Cause Number 684 of 2011], the
Court concluded that, ‘’an employer- employee relationship exists, where an
Employee agrees to work for an Employer, full time or part-time, for a specified
period or indeterminate period of time, in return for wages or salary. The
Employer has the right to decide where, when and how the work is to be done.
There are four factors [at common law] in determining the presence of an
employment relationship: control; ownership of the tools of work; the chance
of profit or risk of loss; and integration.’’

1. The Control Test

The test was basically founded on the principle that if a master/employer
controlled or had the right of control not only what the worker did but also the
manner in which the worker did it, then there was an employment relationship.

In Yewens v. Noakes [1806 QB 530] Bramwell LJ stated that “a servant is a
person subject to the command of the master as to the manner in which he shall
do his work.”

Independent contractors are different because they are hired to achieve a
certain specific objective or result but they have complete discretion as to how
to effect it.
The control test was first enunciated in the 1924 case of Performing Rights
Society v. Mitchell & Booker (Palaise de Danse) Ltd. With the advent of
technology, it became evident that employers could not control how their highly
skilled staff performed their work because the staff skills far outstripped that of
the employers e.g. surgeons in a private hospital owned by a business
entrepreneur.

 UON SOL LLB 111

• Ochieng' -vs- Amalgamated Sawmills Limited (2005) 1 KLR 152 that the
extent of control over the work while it is being done will determine
whether one is an employee or independent contractor.

• Duncan Nderitu Ndegwa v Kenya Pipeline Company Limited & another
[2013] eKLR High Court of Kenya at Nairobi_Civil Case no. 2577 of 1990.

Lord Thankerton in Short v. J & W Henderson Ltd (1946) 62 TLR 427 looked at
whether the putative employer had;
i. Power of selection of the worker
ii. Right to control the method of doing the work
iii. The right of suspension and dismissal

Only if these questions were answered in the affirmative and the worker was
paid wages, then a contract of employment existed.

• Mwalimu Kalimu Gamumu & 35 others v Coastline Safaris Limited & 2
others [2013] eKLR Industrial Court of Kenya at Mombasa _Cause no. 31
of 2013


Other than the control test, other factors must also be considered. This is
because the control test does not cover all situations of alleged employment.

2. Integration Test

In Stevenson, Jordan & Harrison Ltd v. Macdonald & Evans (1952) 1 TLR 101,
Denning LJ considered the test of whether the person under consideration
as an employee was fully integrated into the employer’s organization. The
question to be asked is whether the employee was part and parcel of the
employer’s organization. Thus, where the person is employed as part of the
business and her work is done as an integral part of the business then they
are under a contract of service.

Denning LJ stated that in a “contract of service, a man is employed as part of
the business and his work is done as an integral part of the business.” This
test is useful to address cases where the control test may not be conclusive
e.g. where you have highly skilled staff like surgeons.

3. Mutuality of Obligations/Economic Reality Test
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Over and above the indicators of control, it is important to establish whether

there is mutuality of obligations between the parties to the contract. There must
be an irreducible minimum of personal service in order to distinguish the
employee from the independent contractor. Factors that should be considered
in determining whether there is mutuality of obligations include;
i. Whether the employer is required to provide a minimum amount if work
under the contract;
ii. Was the claimant required to perform a minimum amount of work?
iii. Was there one contract or a series of several short-term contracts;
iv. Was there sufficient control to create a contract of employment.

There must be an obligation on the employer to provide work and on the
employee to perform the work for there to be mutuality of obligations. If this is
absent, then the claimant is in business for his own benefit and no contract of
employment exists.

In Ready Mixed Conctrete (South East) Ltd v. Minister of Pensions & National
Insurance, [1968] 2 QB 497, McKenna J. Identified three conditions for a
contract of service to exist.
i. The worker agrees that in consideration of a wages or other
remuneration, he will provide his work and skill in performing the same
service for his master.
ii. She agrees expressly or impliedly that in performance of the services, she
will be subject to the other’s control to a sufficient degree to make the
other master;
iii. The other provisions of contract are consistent with being a contract of
service.

Christine Adot Lopeyio v Wycliffe Mwathi Pere [2013] eKLR Industrial Court Of
Nairobi _ Cause No. 1688 Of 2012

4. Self-Description

Another test that may be applied but is not decisive is the test of self-
description. Where the parties describe themselves as employer and employee,
then this could be deemed to be an employment relationship.
The courts have held that self-description is not sufficient in itself and one
should go behind the agreement made and establish if all the features of a
contract of service or for service exist e.g. being in business for their own
account or for another’s account.
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In Maurice Oduor Okech v Chequered Flag Limited [2013] eKLR Industrial Court
of Kenya at Nairobi _Cause no. 12 of 2011, the court stated that in determining
the existence of an employment relationship, the Court is expected to go
beyond mere terminologies employed by the parties either in their pleadings or
in their testimony. The Court is called upon to inquire into the entire spectrum
of facts and circumstances to establish whether an employer/employee
relationship as defined in the Employment Act, 2007 actually exists. The
fundamental behaviour of the parties such as the form of documentation
evidencing the relationship and the mode of payment is critical.

In Hall v. Lorimer {1994} 1RLR 171, the Court of Appeal stated that there was
no single path to determining whether a contract was a contract of service or
for services. One has to look at the bigger picture.

Some factors that point towards whether a contract is one of service or for
service is;
i. Ownership of tools and instruments. If the individual owns the tools of
work, then they are likely to be self-employed.
In Parade Park Hotel v. Commissioner of HM Revenue & Customs, a
worker carried out maintenance repairs at a hotel. The hotel did not have
to offer him work and he was under no obligation to accept the work. He
used his own tools and equipment, paid his own national insurance
payments and income tax. It was held that he was self-employed.

ii. Payment of wages and sick pay; this indicates the person is under
consideration as an employee. An independent contractor bears the
costs of any ill health that she may suffer.
iii. Deductions of payments such as PAYE, NHIF & NSSF may indicate
employment while registration for making VAT payments points towards
self-employment.
iv. A short term or casual engagement suggests an independent contractor
especially if the worker retains the right to work elsewhere.
v. If the worker works on their own premises, this may indicate self-
employment.
vi. Where the putative employer makes payments to the worker, then that
may amount to employment if other contractual provisions reflect an
employment relationship.


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Importance of Distinction between Employee and Independent Contractor.

The distinction between an employee and an independent contractor is
important because only an employee qualifies for certain benefits under
statute. These benefits include:

i. Workman’s compensation
ii. Social security payments
iii. Employment protection rights such as guaranteed pay, rights to notice
and time off.
iv. Health and safety provisions under OSHA- An employer owes a duty of
care to ensure the health and safety of her employees as stipulated in the
Occupational Health and Safety Act. This duty is not owed to independent
contractors.
v. Benefit from the employer’s common law duty of care. An employer is
liable for any acts done by his employee in while on official duty. Where
an employee causes injury of damage while performing their official
duties, the employer is liable for their actions. In Cassidy v. Ministry of
Health, a resident surgeon operated negligently on the plaintiff. The court
held that the hospital board was liable as the employer. By contrast in
Hillyer v. Bartholomew’s Hospital, the plaintiff selected a private surgeon
who operated negligently in the defendant hospital. It was held that the
surgeon was an independent contractor and the hospital was not liable
for his actions.
vi. Statutory Rights- Statutory rights such as compensation for unfair
dismissal and redundancy apply only to employees and not to
independent contractors.
vii. The distinction is also important for purposes of taxation. Different
taxation regimes apply for the employed and for the self-employed. The
employer does not deduct PAYE for those who are self-employed. A self-
employed person may be required to pay taxes such as VAT.




Types of Work Relationships

There are a number of work relationships. The nature of the work relationship
plays a role in the determination of the status of the employee and their
employment rights.
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1. Casual Employment

This form of work relationship is very common, so much so that the Employment
Act provided for it. Section 2 of the Employment Act defines a casual employee
as;

“casual employee” means a person the terms of whose engagement provide

for his payment at the end of each day and who is not engaged for a longer
period than twenty-four hours at a time.

• A casual worker is engaged on a need basis and the contract is terminated

automatically at the end of the day.
• There is no obligation for the employer to offer work the next day or for
the casual employee to turn up for work the next day.
• The employee status of a casual labourer is for 24 hours only. A casual
employee is an employee to the extent that there is a contract of service
and there is payment of wages.

A casual employee:

• has no guaranteed period of employment

• doesn't get paid sick or annual leave or payment for public holidays not
worked
• is entitled to workman’s compensation
• can end employment without notice,

Conversion of causal employment to term contract is provided for under

Section 37.

Where a casual employee works for a period or a number of continuous working

days which amount in the aggregate to the equivalent of not less than one
month; or performs work which cannot reasonably be expected to be completed
within a period, or a number of working days amounting in the aggregate to the
equivalent of three months or more the contract of service of the casual
employee shall be deemed to be one where wages are paid monthly and section
35(1)(c) shall apply to that contract of service.
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This means that if an employer employs a casual employee continuously for a

period of one month or more and the period of employment exceeds three
months, then the status of the casual employee is converted to monthly
contract of service.

GILFRINE NOAH MASIO V. MAREBA ENTERPRISES LIMITED

Industrial Court Cause 2007 of 2011

Regardless of the agreement of the parties that the work relationship is one of
casual employment, by virtue of section 37, the contractual terms are
superseded by the provisions of statute.

In calculating wages and the continuous working days, a casual employee is

deemed to be entitled to one paid rest day after a continuous six days working
period and such rest day or any public holiday which falls during the period
under consideration shall be counted as part of continuous working days.

An employee whose contract of service has been converted and who works
continuously for two months or more from the date of employment as a casual
employee shall be entitled to such terms and conditions of service as he would
have been entitled to under this Act had he not initially been employed as a
casual employee.

Kenya Hotels and Allied Workers Union v Alfajiri Villas (Magufa Ltd) Industrial
Court of Kenya at Mombasa – Cause No. 229 of 2013

In conclusion, an employee with a contract of service that is of casual
employment can be converted to a monthly contract of employment. The
change in status is determined by the terms of the contract and the conduct of
the parties. This is one example of how the conduct of the parties has the effect
of determining the nature of employment contract.

Apprentices
An apprentice is defined by section 2 of the Industrial Training Act Cap 237
revised in 2012 as a person who is bound by a written contract to serve an
employer for such period as the Board shall determine with a view to acquiring
knowledge, including theory and practice, of a trade in which the employer is
reciprocally bound to instruct that person;
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An apprentice or trainee is an employee under the definition of an employee

under the Employment Act 2007. During an apprenticeship, an employer
undertakes to train and instruct an apprentice in a particular trade or skill. The
apprentice contracts to serve the employer and learn from the employer.
Pupillage for lawyers is a form of apprenticeship. During apprenticeship, an
apprentice has similar rights to an employee. Their contract of employment is
terminated by expiry of the period of apprenticeship rather than by notice or
dismissal except for extenuating circumstances. There is no obligation on the
employer to offer employment to the apprentice after completion of the
apprenticeship.

JAMES MUTEMBEI V. LANDMARK HOLDINGS LIMITED ELRC CAUSE NO. 2564
OF 2012

There must be evidence of the apprenticeship. Section 6 of the Industrial
Training Act provides that No person shall employ an apprentice without
having first obtained written permission of the Director General so to do. For
lawyers, pupillage must be registered with the Kenya School of Law.


Part-time Work/Employee and Full-time Employees

A part time employee is an employee like any other. The distinction between a
full-time employee and a part-time employee is that the part-time employee
works for less hours per week than the full-time employee. The Employment Act
does not define a part-time employee so it is left to the employer to determine
the number of hours that a part-time employee engages in work.

Ideally part-time employees must not be treated less favourably than the full-
time employees with regard to their terms and conditions of employment. The
part-time employee has the right not to be treated less favourably than the full-
time counterpart with regard to their terms of contract or to be subjected to
any detriment simply because they are a part-time employee.

The part-time worker must be treated comparably to a full-time worker. This is
not a hypothetical test but one based on fact. Comparable must be in the
context of:
• The part-time worker performs similar work, have similar qualifications
skills and experience and work for the same employer;
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• Both the full-time and part-time employee work in the same

establishment or for the same employer at different establishments.

Probationary Employees

Probationary employment is employment during which for a stipulated period.
the employer retains the right not to confirm the appointment. Section 2 of the
Employment Act defines a probationary contract as a contract of employment,
which is of not more than twelve months duration or part thereof, is in writing
and expressly states that it is for a probationary period. Probation periods vary
from a period of one month, three months or six months. Where the employee
has not proved their suitability within the given period, the employer has the
option of extending the period of probation. The accumulative period of
probation should not exceed twelve months.

Where the probation period is extended, the employer must inform the
employee.
Industrial Court of Kenya, Cause Number 784 of 2010 between Catherine E.
Nyawira Nyaga v. the Wilderness Lodges Limited [UR]
Once the probationary period lapses without any word from the employer, the
employee is deemed to be confirmed by effluxion of time
Jane Wairimu Machira vs Mugo Waweru and Associates (cause no.621 of
2012).

A probationary employee is on trial and must prove his or her suitability for the
job. The employer can terminate the contract of service before the probation
period ends by giving the required notice. Employers should retain a freehand
in evaluating Employees’ suitability, and in terminating the relationship during
probation, where the Employee is found wanting.
DANISH JALANG’O & CHRISTPOHER KISIA KIVANGO V. AMICABRE TRAVEL
SERVICES LIMITED CAUSE NUMBER 1068 OF 2012

The law requires an employer to confirm an employee upon satisfactory
completion of probation and if for any reason, an employer requires more time
to assess the performance of the employee then the right thing to do is to
formally extend the probation period for a specific period as provided under
Section 42(2) of the Employment Act, 2007.

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In David Namu Kariuki v Commission for the Implementation of the

Constitution (2015) eKLR

Piecework
Piece work is a type of employment where workers are paid for the piece of
work or task they do. It is any work, the pay for which is ascertained by the
amount of work performed irrespective of the time occupied in its performance
(Section 2).
Employers who adopt Piece Work are nonetheless not exempt from meeting the
demands of fair labour practices, the minimum employment standards found in
the Constitution and the relevant Acts of Parliament. The piece rate would for
instance have to meet the requirement that an Employee is paid a minimum
wage. Failure to keep accurate time records and properly calculate hourly wages
can lead to minimum wage and overtime violations.
GARAMA KARISA MASHA V. KRYSTALLINE SALT LIMITED ELRC Mombasa
CAUSE NUMBER 176 OF 2015

An employee can be employed and paid by piece rate. They are employees but
the method of pay is based on work output. The employer must comply with the
law on minimum wage and other rights of employees such as health and safety
conditions, etc.

Agency Employment.

An employer may elect to source employees from employment agencies. An

employment agency seeks to find employment for a job seeker and once the job
seeker secures the job, the agency comes out of the picture having been paid a
commission by either the employer or the employee. There is no employment
relationship between the agency and the employee. The employee is employed
by the employer directly whether on a full-time or part-time basis.

Outsourced Workers

Distinct from the employee who is placed by the employment agency, there is a
category of workers who are employed by an employment business that hires
out its employees to other users for a fee. The employees remain the employees
of the employment business, though they work in the premises of the end user
and are controlled by the end user with regard to how they perform their work.

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Outsourcing is a tool that, from an employer’s perspective, is used to reduce

costs by transferring portions of work to outside suppliers who have expertise
in the specific portions of work rather than undertaking the task in its entirety.
It is said to be an effective cost saving strategy when used properly and the
tool allows employer to focus on the core areas of business. Outsourcing can,
but does not have to, involve the transfer of employees from one firm to
another.

Hewlett Packard Ltd v. O’Murphy (2002) IRLR 4

• Where the worker has a contract of employment with the employment
business, this usually negates the existence of employee status with
regard to the end user.
• The fact that a worker at the end user looks like an employee, acts like
one and is treated like one does not make the worker an employee of the
end user.
• James v. Greenwich Council {2007} ICR
Without a specific law in Kenya that outlines what should go into an outsourcing
agreement, the possibility for abuse and circumvention of the statutory
protections by unscrupulous employers is easy to imagine. In the absence of a
specific legislative provision, Article 41 of the Constitution becomes applicable
with the standard being the use of fair labour practices.

South African Airways (PTY) Limited versus Aviation Union of South Africa and
Others, Supreme Court of Appeal of South Africa, Case No. 123 of 2010.
Therefore, outsourcing does not mean the rights of employees in whichever
entity abet. Quite to the contrary, employees either move as part of a going
concern in the outsourcing or remain with the employer with their rights
unaffected. On the other hand, if such employees wish to terminate their
employment and get new employment with the new entity, this is equally
regulated. The employee protection both ways is guaranteed.
• Where a whole or a part of a business or trade is outsourced or
transferred, unless there is a consent from the affected employees, all the
rights and obligations between the old employer and each individual
employee as at the time of the outsourcing or transfer continue in force
as if they had been rights and obligations between the new employer and
each employee.
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• Consequently, anything done before the outsourcing or transfer by or in

relation to the old employer is to be considered to have been done in
relation to the new employer.

Aviation and Allied Workers Union versus Kenya Airways Limited and 3 Others

ELIZABETH WASHEKE and 62 Others V. AIRTEL NETWORKS (K) LTD & SPANCO
RAPS (K) LTD Cause 1972 of 2012

Directors and Office Holders

This category of persons, work by virtue of appointment to an office as opposed
to a contract of employment. Office holders such as directors of a company are
not employees. They occupy an office which attracts some privileges including
an allowance, honorarium or fee. An office holder can be an employee in a case
where they have a contract of service. E.g. a managing director is a member of
a board but they have a contract of employment and is therefore an employee.

In Johnson v. Ryan {2000} ICR 236, EAT, the Employment Tribunal held there
are three categories of office holders:
(a) An officeholder whose rights and duties are defined by the office they
hold and not by a contract of service. MP
(b) Persons that have the title of an officeholder, but who are in reality
employees with a contract of service; and Group Finance Director
(c) Workers who are both office holders and employees such as company
directors. MD

Children and Minors

For purposes of employment, a child is defined as a person who has not attained
the age of eighteen years under section 2 of the Employment Act. Children
between the ages of thirteen and 18 can be employed in restricted types of
work. A child of between thirteen years of age and sixteen years of age may be
employed to perform light work which is not likely to be harmful to the child’s
health or development; and not such as to prejudice the child’s attendance at
school, his participation in vocational orientation or training programmes
approved by the CS or his capacity to benefit from the instructions received.
Section 56. Children under the age of 13 cannot be employed in any work except
in helping out their parents.
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The rights of employees apply to child workers and an extra duty of care is owed
to children by the employer. E.g. children cannot work at night or be required to
handle heavy machinery. The law prohibits an employer to enter into a written
contract of employment because it would not be valid under the law of contract.

Domestic Workers

Domestic workers are employees so long as the terms and conditions of service
meet the requirements of a contract of service. These include an oral or written
contract of employment, payment of wages, hours of work and leave days.
Provided they engage in period of continuous employment, they may claim
statutory rights.

KENYA UNION OF DOMESTIC HOTELS, EDUCATIONAL

INSTITUTIONS, HOSPITALS AND ALLIED WORKERS V. INDERJEET SINGH
Industrial Court at Nakuru CAUSE NO. 90 OF 2013

Consultants

Consultants are persons contracted to perform specific tasks for a fixed period
and are paid a daily or hourly rate. In determining whether a consultant qualifies
to be considered an employee, reference must be made to the consultancy
contract. The question to be asked is whether the contract is a contract of
service of contract for service. Does the contract bear the features of a contract
of service?

Most consultancy contracts specifically provide that the consultant is not an
employee. They provide that the consultant shall bear the cost of their medical
and health benefits and shall pay their own taxes. There is usually little or no
control over how the consultant performs their work so long as the deadlines or
targets are met. A consultant is not an employee unless the conduct of the
parties and circumstances establish that there has been a conversion of the
contract from a contract for service to one of service.
KENNETH KIMANI MBURU & SAIDI EMMERICH V. KIBE MUIGAI HOLDINGS
LIMITED
Industrial Court CAUSE NUMBER 339 OF 2011 on what constitutes a
consultancy contract and its distinction from a contract of employment.

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Partners

Section 3(1) of the Partnership Act defines the term partnership as the
relationship which subsists between persons carrying on a business in common
with a view of profit. There must be three ingredients to establish if there is a
partnership relationship. These are:
1. There must be a business;
2. The business must be carried on with a view of profit;
3. The business must be carried on by or on behalf of the alleged partners.

• In view of the above definition of a partnership, a partner is not an
employee because a partner is in business for his or her own benefit.
• A partner is person who in a firm such as a law firm or other professional
firm, is not an employee.

There are partners that may have employee status. These are junior partners or
associates but they bear the title partner but are in effect employees of the
partnership. The contracts between them and the partnership determine their
status.
See LUCY NYANDIA MWANGI V. MATHENGE AND MUCHEMI ADVOCATES
Industrial Court Cause 811 of 2012

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Status of the Employer

Who is an Employer?

• An “employer” means any person, public body, firm, corporation or
company who or which has entered into a contract of service to employ
any individual and includes the agent, foreman, manager or factor of such
person, public body, firm, corporation or company; Section 2 of EA 2007.
• The definition of the employer reflects the fact that the actions of an
employer are ordinarily undertaken by its functionaries such as members
of management.
• A crucial characteristic of an employer is the level of control held over the
employee either directly or indirectly.

LUCY NYANDIA MWANGI V. MATHENGE AND MUCHEMI ADVOCATES

Industrial Court Cause 811 of 2012

The Labour Institutions Act 2007 adopts a slightly different definition of the term
employer. It defines the term to mean, ‘’a person, including the government,
who employs or has employed an employee and where appropriate includes:
[a] an heir, successor or transferor of an employer; or [b] the agent, director,
or any person authorized to represent the employer.’’
• In cases where the employer entity is part of a group pf companies, it may
be found that the parent company may be found to be an employer if it
has majority shareholding of the subsidiary or the group of companies
acts as one entity. De facto control such as the reality on the ground e.g.
how the company is run in practice is not sufficient. The control must be
proven.
• A change in the structure of the employer e.g. through mergers or
acquisitions, outsourcing, etc does not impact on the statutory protection
of the employee. The change does not interrupt the continuity period of
employment of the employee for purposes of calculating their dues.

ELIZABETH WASHEKE and 62 Others V. AIRTEL NETWORKS (K) LTD & SPANCO
RAPS (K) LTD
Cause 1972 of 2012