Kenya Airline Pilots Association v Co-operative Bank Kenya Limited & Kenya Airways Limited [2021] KEELRC 1961 (KLR)

REPUBLIC OF KENYA

IN THE EMPLOYMENT AND LABOUR RELATIONS COURT

AT NAIROBI

CAUSE NUMBER 78 OF 2021

[Formerly H.C.C.C No. E134 of 2019, Commercial and Tax Division]

BETWEEN

KENYA AIRLINE PILOTS ASSOCIATION..................................CLAIMANT

VERSUS

1. CO-OPERATIVE BANK KENYA LIMITED

2. KENYA AIRWAYS LIMITED..............................................RESPONDENTS

RULING

1. The Claimant Association, filed an Application dated 9th November 2020. The Application is based on the Affidavit of Claimant’s General Secretary, Muriithi Nyaga, or record.

2. It seeks among other orders: -

a. The Respondents are restrained from deducting or threatening to deduct any sums related to ab initio pilot training scheme, from the remuneration of the Claimant’s members, pending hearing and determination of the Claim.

b. The 1st Respondent is compelled to freeze all loan accounts relating to the training scheme above, and in particular, the 1st Respondent is stopped from accruing any and all amounts including the repayment of principal amounts, interest, bank charges and any other charges related to the scheme pending hearing and determination of the Claim.

c. The 1st Respondent is restrained from reporting the beneficiaries of the scheme to any credit reference bureau, pending hearing and determination of the Claim.

3. The Claim was initially filed at the High Court in Nairobi, as shown in the title to this Ruling. It was re-routed to the Employment and Labour Relations Court, through a Ruling of the High Court, delivered on 20th January 2021.

4. The High Court also gave an order for retention of the status quo, on 19th November 2020. It was explained by the High Court, that status quo means, ‘’the 2nd Respondent is not to make any deductions from the salaries of the Plaintiff’s members in respect of the impugned loans, until the 20th January 2021. ’’ On 20th January 2021, the High Court transferred the matter to the E&LRC, clarifying that the order for status quo remained in place, until the E&LRC became seized of the matter.

5. The matter was mentioned before the E&LRC on 11th February 2021. Parties took directions on filing and exchange of Submissions. The order on status quo was extended, and Ruling scheduled for 19th March 2021. The question that is to be considered in making this Ruling is: whether the order retaining the status quo, should be confirmed pending hearing of the main dispute.

6. The facts, as commonly pleaded by the 3 Parties are as follows: -

The Respondents executed Memorandum of Understanding on 17th November 2010.

The 2nd Respondent was keen on training what was described as ab initio Pilots.

The 1st Respondent Bank, through a tender process, was identified to provide the 2nd Respondent a loan facility under blanket term limit of Kshs. 324 million, to finance training of the Pilots.

Trainees would be availed a maximum of Kshs. 5. 4 million loan.

Repayment period was 123 days, which included a moratorium period of 27 months.

The interest was at a flat rate of 6. 69% per annum.

Any revisions of the interest rate, would only apply to loan applications made subsequent to such revisions.

7. In a second Memorandum of Understanding executed by the Respondents on 11th June 2013, changes were made to the first Memorandum of Understanding: -

There was introduced a revolving fund under the scheme, with a maximum limit of Kshs. 1 billion.

No specific amount was stated as being available to the trainees. The Bank would, upon successful loan application, grant an Applicant under the scheme, a loan to be determined by the total costs paid for the training programme being undertaken at the prevailing exchange rate, together with insurance premiums paid and interest accrued to the end of the moratorium, or so much thereof as may have been disbursed and from time to time owed by the Applicant, and including all the Applicant’s obligations.

The loans would be available to all ab initio Pilots as determined by the 2nd Respondent, under the Memorandum of Understanding and the individual loan agreements.

The rate of interest would be 12% per annum, on reducing balance for the Applicants who obtained loans at the initial rate of 6. 69 % per annum.

16. 5 % per annum on reducing balance, for the Applicants who signed onto the scheme at a flat rate of 10% per annum or higher, or for any new Applicants.

8. Members who were part of the Scheme were, in May 2013, asked to sign new loan contracts, reflecting the changes in the Memorandum of Understanding. It is submitted by the Claimant, that they did so under duress, coercion and undue influence. The Claimant did not have details of the new loan application forms, until September 2019, when the 1st Respondent was compelled to disclose the forms, through an order of this Court issued in E&LRC Petition No. 83 of 2019.

9. The Claimant states that resulting from the changes in the Memorandum of Understanding between the Respondents, the salaries of its Members are subject to massive deductions. The situation has been worsened by Covid-19, with more deductions made on the Pilots’ salaries. They have experienced deductions in the range of 65% to 81%. The Claimant and the 2nd Respondent agreed that the loan repayments be frozen, with the 2nd Respondent giving an undertaking to cushion affected Members, so long as the salaries remain depressed.

10. The Claimant states that the 2nd Respondent has now directed the beneficiaries of the scheme, to engage the 1st Respondent Bank directly on loan repayments, failing which the Members will be deemed to be in default. The 2nd Respondent has attempted to bypass the Claimant, by engaging the beneficiaries directly.

11. In a letter dated 2nd November 2020, the 2nd Respondent informed the Claimant that all loans under the Scheme would go into default, at the end of November 2020. Moratorium would end on 22nd November 2020, and loans fall due for payment. The 2nd Respondent urged all concerned Employees to engage the 1st Respondent Bank directly.

12. It is against this background that the Claimant approached the Court under Certificate of Urgency, and obtained protective measures in the interim, in a Ruling made on 19thNovember 2020, and affirmed on 20th January 2021 at the High Court.

13. The 1st Respondent opposes the Application, relying on the Affidavit of its Director, Corporate and Institutional Banking, Jacquelyne Waithaka, sworn on 26th November 2020.

14. She explains that the 1st Respondent won a tender floated by the 2nd Respondent in 2010, to provide loan facility for training of Pilots. There was a Memorandum of Understanding executed between the Respondents in 2010, which was revised in 2013.

15. The Pilots applied for the loans individually. The Pilots were individual borrowers and the 1st Respondent a lender. The terms and conditions were accepted by the Pilots. Some of the Pilots have repaid their loans in full, while others continue to service their loans.

16. Due to Covid-19, the 1st Respondent agreed to freeze repayment of the loans through various moratoriums. It is true that that last moratorium expired at the end of November 2020.

17. The Pilots were aware at all times, of the expiry date. They were reminded to resume servicing of their loans in line with the individual agreements in place.

18. The 1st Respondent posits, that prolonged moratorium, beyond 6 months, can impact credit behaviour of borrowers, and increase the risk of delinquencies post-resumption of scheduled payments. Extension of moratorium is not in the interest of the Pilots, as cumulative interest becomes expensive to them, in the long run.

19. The 1st Respondent invited the Pilots for a consultative meeting on 30th October 2020, which the Claimant cancelled, 30 minutes to the scheduled hour. The 1st Respondent took this as an act of bad faith on the part of the Claimant, meant to frustrate the 1st Respondent in recovering the loans.

20. Consequently, the 1st Respondent advised the Pilots that the moratorium ended on 22nd November 2020. The loan facilities fell due on this date. They were advised by the 2nd Respondent, to engage the 1st Respondent individually. Only a few of them engaged the 1st Respondent. The rest opted to approach the Court through the Claimant.

21. The 1st Respondent submits that the Pilots have not exhausted voluntary settlement mechanism. They have jumped the gun by filing the Claim.

22. The loans comprise depositors’ money, and it would be prejudicial to the 1st Respondent and its depositors at large, if the loans are not recovered. Depositors’ interest outweighs the interest of a few Pilots, who have elected not to engage the 1st Respondent, and opted instead to pursue this Claim. Covid-19 cannot be used to circumvent contractual obligations, as it has affected everyone. The Pilots’ salaries have been reviewed by the 2nd Respondent. They are currently earning over 50% of their salaries, with the balance to be paid at a later date. They should therefore have approached the 1st Respondent and discussed repayment, in light of the review of salaries granted by the 2nd Respondent.

23. The 1st Respondent prays the Court to decline the Application, and to set aside the orders of status quo, made at the High Court.

24. The 2nd Respondent opposes the Application, relying on the Affidavit of its Chief Human Resources Officer, Evelyne Munyoki, sworn on 8th December 2020.

25. She agrees that the Respondents entered into a Memorandum of Understanding on training of Pilots in 2010 and 2013.

26. The loans would be granted to young Kenyans, and guaranteed by the 2nd Respondent, as part of its social responsibility to develop air transport in the Country.

27. At the time of granting the loans, the loanees did not have employment contracts with the 2nd Respondent, and were not guaranteed employment by the 2nd Respondent.

28. The loanees would be bonded by the 2nd Respondent such that if they successfully completed pilot training, they would serve the 2nd Respondent for 8 years, during which period they would repay the loans to the 1st Respondent through salary check-off.

29. Save for the 2nd Respondent guaranteeing the loans, the loan contracts were a commercial matter between the loanees and the 1st Respondent.

30. The Claim and the Application are misconceived. They are based on the Memorandum of Understanding between the Respondents. The loanees have individual contracts with the 1st Respondent.

31. The Claimant and the 2nd Respondent have a Recognition Agreement. Their relationship is governed by the Labour Relations Act, 2007. The 1st Respondent is not a party to the Recognition Agreement. The Claimant is not a party to the Memorandum of Understanding or the loan contracts.

32. The loanees entered into loan agreements with the 1st Respondent and bonding agreements with the 2nd Respondent, when they were not Employees of the 2nd Respondent. They were only employed upon completion of ab initio training.

33. Pursuant to clause 3[a] of the Recognition Agreement, the Claimant can only represent Employees of the 2nd Respondent, on issues relating to terms and conditions of service as Employees, and not terms and conditions of agreements entered into, prior to being employed, since the Recognition Agreement does not extend to pre-employment agreements between the 2nd Respondent and 3rd Parties.

34. Ab initio training is not a negotiable item, under the Recognition Agreement. The Recognition Agreement has its own grievance and dispute settlement mechanisms.

35. The letters on loan application after the Memorandum of 2013 were written by the loanees, and do not disclose duress. Individual loanees did not at any time ask for the Memorandum of Understanding of 2013. It is true that the Clamant asked for a copy of the Memorandum of Understanding of 2013, in January 2019, which was availed in September 2019.

36. The 2nd Respondent has arrangements with other banks, where its Employees are granted loans, and recovery made through salary check-offs, which prevents the Employees from falling into arrears.

37. With the advent of Covid-19, the 2nd Respondent negotiated moratorium with various banks on behalf of its Employees. This was done in good faith, and not meant to disturb individual loan contracts.

38. It is not true that the 2nd Respondent has massively cut the salaries payable to its Employees. It merely negotiated with the Employees to defer payment of a percentage of their salaries by withholding the amount to their credit, to be paid at a later date when the economic conditions improve. This arrangement is not unique to the ab initio Pilots. This has been a course of action adopted by many Employers, to obviate redundancies.

39. Freezing of loan accounts / indefinite extension of moratorium, would amount to specialized treatment of Claimant’s Members.

40. Some of the individual loanees have held discussions with the 1st Respondent on repayment

41. The loanees committed themselves to pay to the 1st Respondent the full cost of training plus interest.

42. The 2nd Respondent holds that the Claimant has no capacity to institute the Claim. Even if it has the capacity, the protective measures sought cannot be made at an interlocutory stage.

43. Parties agreed when the matter was mentioned before the Court on 11th February 2021, that the Application is considered and determined on the strength of their Affidavits and Submissions on record.

44. The issues as understood by the Court are whether the Claimant has the legal capacity to institute the Claim; and if so, whether the protective measures sought should be granted.

The Court Finds: -

45. The ab initio Pilots, in the view of the Court, fell in the category of Apprentices and Indentured Learners, who are by law, considered to be Employees.

46. Section 2 of the Labour Relations Act, and other Labour Acts [Employment Act 2007, Labour Institutions Act 2007, Industrial Training Act Cap 237, the Laws of Kenya] define the term ‘Employee,’ to include an apprentice and an indentured learner.

47. The law defines a contract of apprenticeship and learnership, to mean a contract of service, where there is: an obligation on the Employer to take all reasonable steps to ensure that an Employee is taught, and acquires knowledge and skills of that industry, by means of practical training received in the cause of the Employee’s training and employment; and provision for formal recognition that the Employee has acquired the knowledge and skills intended to be acquired where the Employee has done so.

48. Trainees and apprentices are considered to be Employees, and the Court thinks, the ab initio Pilots, were deemed Employees of the 2nd Respondent, right from the inception of the pilot training scheme.

49. That is why the 2nd Respondent made a commitment to guarantee their loans under both Memorandum of Understanding and the Individual Loan contracts. The 2nd Respondent executed Ab Initio Training Bonds with the Trainees, where the Trainees bound themselves to work for the 2nd Respondent for 8 years upon the completion of the training. The 2nd Respondent identified who would be a Trainee under the scheme. It made substantial investment in the training scheme.

50. It is a flawed argument by the 2nd Respondent therefore, to posit that in the course of being trained, the Pilots were not Employees of the 2nd Respondent. The law deems that the Trainees were indeed, Employees of the 2nd Respondent from the inception of the training.

51. They were eligible right from the inception, to subscribe to, and be represented by the Claimant Association. The Claimant is recognized as the Association representing all pilots. Trainee Pilots, considering that the law deems them to be Employees, cannot be excluded from the representation of the Claimant Association. In a complex world of labour relations, the role of a Trade Union goes beyond mere negotiation of collective bargaining agreements. Trade Unions advocate for the collective rights and interests of their Members and Potential Members, within and outside the formal structures of collective bargaining. They mind the general welfare of the industries which they represent.

52. The right of the Claimant to represent the ab initio Pilots in any event, concretized once they were taken in by the 2nd Respondent, on completion of the training. Representation on the subject matter, must necessarily lean back to the terms and conditions of employment created before the ab initioPilots were formally granted contracts of employment by the 2nd Respondent.

53. None of the Pilots on whose behalf the Claim is brought, is claimed not to be a Member of the Claimant, or to be ineligible to join the Claimant, so as to cast doubt, on the capacity of the Claimant Association to bring this Claim.

54. The dispute hinges on the Memorandum of Understanding between the Respondents and the Individual Loan Contracts, between the 1st Respondent and the Pilots/ Loanees who are represented collectively by the Claimant. These contracts are inter-related, and one cannot be severed from the other, without creating mischief which was not intended by any of the Parties. The Court does not share the view by the 2nd Respondent that there are separate contracts, involving separate Parties, which must be dealt with separately.

55. The Memorandum of Understanding initiated all the contracts relating to grant of loans and the bonding of the Pilots. The Claimant is not deprived of the right to represent the Pilots, based on the subject matter.

56. The 2nd Respondent negotiated moratorium with the 1st Respondent to cushion the Pilots from defaulting, considering the depressed business environment, imposed by Covid-19.

57. This is a measure taken across the industries, as an alternative to mass layoffs.

58. The 2nd Respondent states it has withheld a percentage of the Employees’ salaries, to be paid at a later date, when the economic situation changes.

59. Reading across all the Affidavits on record, there is a consistent view that there are acknowledged contractual obligations, which have been affected by an unforeseen occurrence, and that Parties have adjusted their positions, to accommodate each other, and sustain the fundamentals of existing contracts.

60. What the Court does not accept, based on the Affidavits on record, is the view that obligations are likely to be rescinded, or liabilities shifted to other Parties. Contractual obligations in the long run have to be met. If the Pilots were compelled to sign revised loan terms through duress, the law contemplates that duress, undue influence or coercion, are established through substantive, rather than affidavit evidence.

61. The Court is doubtful on the appropriateness of freezing loan accounts, or ordering that the loan obligations are met by the 2nd Respondent, at an interlocutory stage. The Pilots must first establish duress, and show that the 2nd Respondent should assume liability for their loans, under the loan guarantee. Paragraph 11 of the Affidavit filed by the 1st Respondent is quite persuasive. The Pilots have already enjoyed moratorium. Prolonged moratorium would impact credit behaviour and increase the risk of delinquencies. Repayment would shield the Pilots from the heavy burden of arrears. It would benefit them in the long run.

62. What would happen to training of Pilots in the future, if the financing institutions are barred from recovering the costs of training?

63. The Parties need to engage in a three-way conversation on how to deal with the situation. The Respondents need to engage the Pilots through their Association. The Association is wrong to ignore meetings called by the Bank. The Respondents should avoid engaging the Pilots individually. The 2nd Respondent must not abandon its Pilots, by directing that they deal with the 1st Respondent Bank individually. The exercise was intended in the Memorandum of Understanding, to be a collective exercise, assisting the airline industry in Kenya collectively. A collective approach would have the best result. The individuals, as is attested by the non-availability of the Memorandum of Understanding to the Claimant until 2019, 6 years after its authorship, may not know or comprehend, the full details of the training scheme. If the 2nd Respondent is withholding a percentage of the Pilots’ salaries, to be paid after the economy improves, should not the Parties discuss whether the withheld salaries, could be channelled to service the Pilots’ loans? There are other options open to the Parties. A three-way approach, involving the Respondents and the Claimant Association, would benefit all the Parties.

IT IS ORDERED: -

a. The orders of status quo made at the High Court on 19th November 2020, and affirmed on 20th January 2021, are extended for a period of 45 working days, from the date of this Ruling.

b. Within that period, the Parties shall engage at their own level and settle the Application dated 9th November 2020.

c. If there is no settlement, the Application stands dismissed, and the orders of status quo discharged.

d. Within the same period, Parties to explore settlement of the full Claim.

e. Costs in the cause.

Dated and delivered at Nairobi, this 19th day of March, 2021.

James Rika

Judge