Peter Adams Ludaava v Bonito Hotels Limited [2022] KEELRC 407 (KLR)

Full Case Text

REPUBLIC OF KENYA

IN THE EMPLOYMENT AND LABOUR RELATIONS

COURT AT BUNGOMA

ELR CAUSE NO. 3 OF 2020

PETER ADAMS LUDAAVA .........................................CLAIMANT

VERSUS

BONITO HOTELS LIMITED...................................RESPONDENT

JUDGMENT

ISSUE

Whether the Claimant’s terms of contract amounted to a consultancy or contract of service

1. The Claimant by way of Memorandum of Claim dated 4th February, 2020 and amended on the 28th October, 2021 sought the following reliefs:-

A. a declaration that the Respondents’ conduct and in particular their failure to officially declare their position with regards to the Claimants employment status with them is unlawful.

B. An order that the Respondent do forthwith:-

i. Unconditionally reinstate the claimant to his last position,

ii. Pay the claimant :-

a. Salary that is outstanding as at 15. 10. 2018 which amounts to Kshs. 1,523,950/-

b. November consultancy fees of Kshs. 200,000/-

c. 1-14th December consultancy fee of Kshs. 100,000/-

d. 3 months paid leave of Kshs. 600,000/-

e. Annual leave (worked for 4 years remains one month which amounts to Kshs. 200,000/-

f. Salaries since February when he stopped from working up to when he shall be reinstated currently standing as (Kshs. 200,000/- x 11 months) Kshs. 22,000,000/-

g. Cash advanced to Bonito Hotels Ltd Kshs. 41,000/-

Total Kshs. 24,772,950/-

iii General Damages for the breach of contract

iv. costs of this suit

v. interest in ii(a-h) above at commercial rates from date of suit till payment in full.

vi. any other relief the court may deem fit

2. In addition to the claim the Claimant lodged list of witnesses dated 20th January 2020, plaintiff’s statement dated 4th February, 2020, list of documents dated 4th February 2020. The Claimant further filed witness statements of Antony Muimi Muthui dated 4th February, 2020.

3. In response to the Claim the Respondents entered appearance through the law firm of M/S Lumumba & Ayieko Advocates on the 28th February, 2020 and filed Response to the claim dated 7th March, 2020, Respondents’ list of witnesses dated 7th March, 2020, witness statement by Alfred Agengo dated 7th March 2020 and Respondents’ list of documents dated 7th march 2020.

4. The Respondents filed proposed issued for determination dated 8th September 2021.

5. On the 29th October 2021 the Claimant filed amended Memorandum of claim dated 28th October 2021 striking out the 1st and 2nd respondents from the suit.

6. The court heard the case on the 6th December 2021 where the Claimant gave evidence and called one witness and was cross -examined by counsel for the Respondent. The Claimant’s case was closed. On the same day the court heard the defence case with the Respondent calling one witness who was cross examined by counsel for the Claimant. The defence case was closed.

7. The court gave directions on filing of written submissions. The Claimant’s written submissions dated 6th January 2022 by Gabriel Fwaya Advocates were filed on the 11th January 2022. The respondent’s written submissions by Lumumba & Ayieko Advocates are dated 18th December 2021 and filed in court on the 7th January 2022.

8. The Claimant’s Case.

The Claimant by undated consultancy Agreement was engaged by the Respondent as consultant specialist hotelier for Bonito Hotels ltd and among the terms his primary duty was to run Tourist Hotel Bungoma in the position of a General manager ( exhibit 1) where he worked from 2014 to December 2018 when he told the court he was asked by the Respondent through its Chairman/ Director of Board to proceed on leave. He stated that since employment as a General Manager he has never been paid his salary consistently and /or lumpsum. That as at October 2018 the Respondent owed him an outstanding salary of Kshs. 1,523. 950/-. The Claimant also stated that he used to advance money to the Respondent during year 2017 general elections due to cash follow issue running into 2018 of total sum kshs. 41,000/- which amount was never refunded.

9. The Claimant stated that he never went on leave nor paid in liue. That he was send on 3 months paid leave and not paid. He reported back after lapse of 3 months on 13th February, 2019 to find his office closed. That one Alfred Agengo ordered him to leave the premises and later called him to say he will get in touch but did not do so. That he was not paid salary since December 2018 to date and previous salary arrears. That his Advocates wrote a demand letter which did not elicit response.

10. Respondent’s Case.

The Respondent denied it had employed the Claimant and stated he was a consultant and not employee of the Bonito Hotel Bungoma. The Respondent stated that the claim for salary arrears was untenable in law as claimant were not an employee. The Respondent stated that the dispute was purely commercial falling within the purview of Commercial courts.

Determination

10. Issues for determination .

The Respondent filed proposed issues for determination dated 8th September 2021 as follows:-

(i) Whether the Claimant was a consultant or employee of the Respondent .

(ii) Whether there existed an employee employer relationship between the Claimant and the Respondent.

(iii) Whether the matter herein is purely commercial that falls within the purview of Commercial courts and not employment court.

(iv) Whether the Claimant is entitled to remedies sought under his memorandum of claim.

The Claimant did not file list of issues. The court having heard the parties and perused the pleadings and documents before court is of the opinion that the issues placed before the court for determination in the instant suit are as follows:-

(i) Whether there existed an employer- employee relationship between the Claimant and Bonito Hotels Limited (The Respondent)

(ii) Whether the Claimant was a consultant and not employee of Respondent

(iii) Whether the focus within the Purview of Commercial Courts and not Employment court.

(iv) Whether the Claimant is entitled to reliefs sought?

Whether there existed an employer- employee relationship between the Claimant and Respondent herein

11. The Claimant produced his contract ( exhibit 1 ) which was undated and signed by the Respondent’s Managing Director Ken Musebe. The said contract was also produced by the Respondent in list of documents. The contract is titled “ Consultancy Agreement” and states as follows :-

‘Mr. Peter Adams Ludaava

C/O Tourist Hotel Bungoma

P.O. Box 1838 -50200

Bungoma.

Dear Mr. Ludaava

CONSULTANCY AGREEMENT

This letter confirms our agreement for you to perform the duties of a consultant specialist Hotelier for Bonito Hotels LTD on the following terms and conditions:-

1. That your primary duty is to run Tourist Hotel Bungoma in the position of the General Manager with effect from 1st December 2014 . In addition, you will provide consultancy services for Bonito Hotels ltd who intend to expand into other hotel business in the Western region

2. That you will assist Bonito Hotels ltd to complete the construction of Tourist Hotel Bungoma.

3. That you will in addition assist in the planning and development of Busia Teso Teachers Hotel.

4. That it has been greed that you will be initially be paid consultancy fees of kshs.200,000 per month until the business stabilizes. In addition you will be provided with a fully furnished Company house including the provision of electricity and water. The Company will arrange for cleaning services of the house and laundry.

5. That the company will pay you a fuel allowance of kshs. 6,000/- per week for the use of your car for company business which will be increased to Kshs.12,000 per week with effect from 1st August, 2015.

6. That you will be provided with meals and reasonable allowances for beverages.

7. That as General Manager you will be entitled to a normal day off every week and a leave of 30 days in every year.

8. That should there be need for the termination of this consultancy, either party is entitled to give 3 months notice for the termination of payment in lieu of such notice.

May we take this opportunity to wish you the best of luck in this venture.

Yours Sincerely

KEN MUSEBE

MANAGING DIRECTOR’

The said letter was admitted as evidence of the Claimant ( exhibit 1). The Claimant further produced letter dated 13th February 2015 written to Bank of Africa by Directors of the Respondent introducing the Claimant as the sole signatory of the Respondents Account No.099008 10007 in Bungoma. The letter states that “ Mr. Ludaava is our General Manager at BONITO HOTELS LTD and in order to Manage payment in Bungoma better, it has been resolved as per foregoing and we hereby request you to update this mandate in your system accordingly”. (Claimant’s exhibit no.3)

12. The Claimant produced record indicating monies he states is owed by the Respondent ( exhibit No. 5) . The Claimant produced letter dated 11th December 2018 and titled “ proceed on leave”. By James Olubayi; signing as chairman of Directors. The court notes the said person is a director of the Respondent ( see exhibit 2) The said letter is reproduced herein and states:-

‘11th December 2018

Mr. Peter Ludaava

C/O Tourist Hotel Bungoma

Mumisa Road

P.o. Box 1838 -50200

Bungoma.

Dear Mr. Ludaava,

Proceed on leave

The Board of Directors of Bonito Hotels Limited, the Managers of Tourist Hotel Bungoma, at its last Directors Meeting resolved to let you go on leave for ninety ( 90) calendar days.

The purpose of this letter is to inform you that your proceed on paid leave for the next ninety ( 90) calendar days effective 14 December 2018 . You are directed to handover the General Manager Management responsibilities to the Acting Deputy General manager Ms Rhoda Simiyu and responsibilities relating to Finance and Operations to Mr. Alfred Agengo. The Board also directs that throughout the period of this leave you please allow Rhoda and Alfred to fully perform all the functions of the GM unhindered.

Thank you.

Yours sincerely

JAMES OLUBAYI

CHAIRMAN

BOARD OF DIRECTORS.’’

The letter to proceed on leave implies that the Claimant enjoyed the benefits of an employee and worked with other employees who could act in his absence.

13. The Respondent submits that even though it was not provided for in the undated consultancy agreement, it was agreed that the consultancy period would run for two months with no provision for renewal and it will be terminated by performance. The court places zero weight on this particular submission as it has no value as no evidence was led at trial in support and further a contract is based on its written terms. The contract was written and produced in court as evidence.

14. The Respondent submits there was never an employee employer relationship between the Claimant and the Respondent, it was purely a consultancy agreement which was to run for a specific period of time. That the position of being a consultant was confirmed by CW2 who stated he knew the Claimant as Consultant for Respondent. The Respondent further submits that the Claimant having testified he was a general Manager of Tourist Hotel Bungoma an entity which is no longer a party in these proceeds and Tourist Hotel Bungoma being a different entity, the Respondent herein is not the correct entity to respond to the allegation of Employment Relationship that the Claimant had run Tourist Hotel Bungoma. The Respondent further submits that the Claimant contended that there existed some sort of relationship between the Respondent and Tourist Hotel Bungoma. However, it submits there was no evidence of sort of relationship between that hotel and the Respondent. That the CR 12 ( exhibit 2 by Claimant) does not indicate Tourist Hotel Bungoma is a shareholder in the Respondent.

15. The court considered the foregoing submissions by the Respondent. The contract letter issued by Respondent (Claimant’s Exhibit 1) indicates that the Claimant’s primary duty is to run Tourist Hotel Bungoma in the position of General Manager with effect from 1st December 2014. It is not the burden of the Claimant to proof the relationship between the Respondent and Tourist Hotel Bungoma. He only had a contract with the Respondent who engaged him to also run that hotel as part of his terms under the contract.

16. The court finds that Claimant by producing the contract discharged his burden that he was also in addition engaged as general Manager of Tourist Hotel Bungoma by the Respondent . This was buttressed by production of exhibit 6 being letter to proceed on leave by a director of the Respondent who asked the Claimant to handover the General Manager responsibilities to the acting General Manager Rhoda Simiyu and responsibilities relating to Finance and operations to Mr. Alfred Agengo who testified for the Respondent.

17. The Respondent submits that the burden of proving existence of employee employer relationship lies on the claimant and relies on the decision of Martin Juma Kundu -vs- KEMU Salt Packers production Limited ( 2016) eKLR where the court held that the onus of proving that he was employed under a contract of service lies with the Claimant.

18. The Respondent submits that the Claimant was paid a fee and not salary and did not enjoy insurance health benefits and relies on the decision in N’DRI Therese Assie - Lumumba -vs Forum for Africa Women Educationists( 2020 ) eKLR where court found the Claimant was a consultant having considered her contract and correspondence between parties to find she was not entitled to claim of insurance.

19. The court has also considered submissions that were no statutory deduction of NHIF, NSSF (CW2) testified to that effect, no was the Claimant placed on payroll. The Respondent submits there were no specific duties specified in the Agreement for court to assess if he performed roles integral to the business.

20. The court finds that the duty of General Manager is specific in relations to running Tourist Hotel Bungoma, that the act of Respondent to appoint the Claimant as it is a sole signatory of Bank Account amounts to an integral role which is unusual to be allocated to a consultant. The contract through title “Consultancy Agreement” provides for housing, cleaning services and laundry, fuel allowance of kshs. 6000/- per week for use of his car for company business, provision of meals and reasonable allowances for beverages, that as a General Manager the Claimant was entitled to a normal day off every week and a leave of 30 days in every year. Finally, the Contract provided should there be need of termination of the consultancy, either party is entitled to give 3 month’s notice for the termination or payment in lieu of such notice. The contract did not have defined period of service. The requirement of payment in lieu of notice is a statutory requirement under the Employment Act, Section 35; leave is a statutory benefit of employees under Section 28 of the Employment Act.

21. A contract of service is defined under the Employment Act to mean an agreement whether oral or in writing and whether expressed or implied, to empty to serve as an employee for a period of time. Further the Act defines employee as a person employed for wages or salary and an employer is defined to mean any person, Public body, firm , corporation or company who or which has entered into a contract service to employee any individual and includes the agent, company….”.

22. In a recent case similar in the instant case against the Respondent, ELRC Bungoma No. 4 of 2019, Michael Otieno Ouma -vs Bonito Hotels Ltd TA Tourist Hotel Bungoma, ( Reported 2022 eKLR) the court adopted with a approval the test of whether the Claimant was employee or Consultant by applying decision by Kimondo J in Eldoret Aviation Ltd -vs- Kenya Revenue Authority ( through the Commissioner of Taxes) 2013 eKLR Which was adopted with approval decision of Maureen Onyango J in Lolengode Venkatachala Lalsi Mintayan -vs Intex Construction Ltd ( 2020) eKLR where Justice Kemondo held as follows:- “ There are various tests to be employed when there is doubt whether a person is an employee one of those tests whether the person’s duties are an integral part of the employers business. See Beloff -vs- Preddram Ltd (1973) Allier 2011. The greater the direct control of the employee by the employer, the stronger the ground of holding it to be a contract of service. See Simmons -vs- Health Laundry Company (1990) IKB 543 Okelly -Vs Trust House Forte ( 1983) eKLR 456 . That test is however not conclusive. The passage cited by the Appellant in Halsbury Laws of England vol 1, 26 4th Edition Paragraph 3 is instructive. “ There is no single test for determining whether a person is anemployee, the control test can no longer be considered sufficient especially in the case of employment of highly showed individuals and is only one of the particular factors which may assist court or tribunal in deciding the point.

The question whether the person was integrated into the enterprise or remained a part from and independent of it has suggested as appropriate testbut it is otherwise only one of the relevant factors for the modern approach is to balance all of the facts in decision on the overall classification of the individual . The particulars relevant in a particular case may include, in addition to control and integrate the method of payment, any obligation to work only for the employer, stipulation as to hours, overtime, holidays, etc. arrangements for payment of income tax and insurance contributions how the contract was terminated, whether the individual may delegate work, who provided tools and equipment and who ultimately bears the risk of loss and chance of profit. In some cases the nature of work itself may be important.

23. In the cited case of Michael Otieno Ouma, this court found that the fact that the undated agreement is titled Consultant Agreement, like the instant case, does not make the Claimant an independent Contract nor does the payment of a fee as opposed to salary .

The court upholds its said decision in the instant case. The court finds that the decision in N’DRI Therese Assie Lumumba - Forum for Africa Women Educationists (2020) eKLRwas distinguishable from instant case as the Claimant in that case was not awarded any employee benefits the housing, leave and off days.

24. The Claimant in the instant case performed role of General Manager and was integrated in the enterprise as an employee, for example, he was appointed as a sole signatory of the company Bank Account ( exhibit 3 by Claimant ), he was asked to proceed on leave for 3 months and handover roles of General manager and Management responsibilities and finance and operations to existing employees. These are the roles in the company which are integral to the operations of an enterprise. The Claimant’s case meets the test of employee in terms of integration and employee statutory benefits.

The Court founds that the undated agreement (exhibit 1 by Claimant amounted to employment contract. That on balance of probabilities there existed employee employer relationship between the Claimant and the Respondent.

25. Whether the Claimant was a Consultant and not employee of Respondent .

In view of the finding under issue No. 1 above the Claimant was an employee of the Respondent .

26. Whether the Claims falls within the Purview of Commercial Court and not Employment Court.

The court having found the Claimant was an employee of the Respondent and not consultant this case falls under the jurisdiction of this court flowing from Article 162 (2) of the Constitution and Section 4 and 12 of the Employment and Labour Relations Court Act No. 20 of 211 to hear and determine an employment disputes .

27. Whether the Claimant is entitled to relief sought.

On the relief of declaration that the Respondents conduct and in particular their failure to officially declare their position with regards to the claimant Employment status with them was unlawful.

The Respondent submits that this prayer confirms the Claimant was not employee but consultant. The court has already found that for the contents of the contract, correspondence and engagement the Claimant was an employee. The Respondent submits the court cannot create a non – existent relationship . It is the role of the court to interpret the contract and establish the intervention of the parties. It was apparent to the court the contract intended to create an employer employee relationship and this position was supported by conduct of the Respondent as per evidence produced before court ( Claimant’s exhibits 2, 3 and 6 ). The court declares the Respondent’s failure to declare the employment status of the Claimant opinion end of the 3 months’ leave to be unlawful and tantamount to constructive dismissal.

28. On the order of reinstatement. The same is not available due to lapse of time and the breakdown of relationship between the parties. The order is denied.

29. On the claim for outstanding salary as at 15th October 2018 amount to Kshs. 1,523,950/-. The Claimant led evidence he was to be paid Kshs. 200,000 per month as net salary, what is called fees under the contract. On cross examination he said it was per the contract which indicates consultancy fees of kshs. 200,000/- per month until business stabilizes. He told the court the amount was later increased to Kshs. 250,000/- . There was no evidence to that effect. In cross examination the Claimant said his payment was as per the computation ( exhibit 8 ). The Respondent did not produce evidence to contradict the claim for the arrears sought.

30. The Respondent submits that in absence of the Accountant who generated the computation to authenticate the document is inadmissible. The Respondent did not produce evidence as employer on record of remuneration of the Claimant as provided for under Section 74 of the Employment Act, 2007 . In absence of contrary evidence the court grants the claim of outstanding arrears of Kshs. 1,523,950/- as sought to the Claimant.

31. On claim for November Constancy fee of kshs. 200,000/- the court having found Claimant was employee and there being no evidence of the payment by Respondent grants amount sought of kshs. 200,000/- being unpaid wages.

32. On claim for payment of amount of kshs. 100,000/-. From 1st to 14th December, the Respondent submits the year was not stated. The Claimant told the court he was not paid any money after proceeding on leave on in December 2018. The court finds he was entitled to pay for the days worked in December 2018 before proceeding on leave and kshs. 93,333/- is granted for the 14 days.

33. On claim for 3 months paid leave of kshs. 600,000/- There was no evidence that the Claimant was paid for the 3 months he was ordered to be on leave. The Claim is granted for Kshs. 600,000/- as prayed.

34. On the Claim for annual leave for extra 1 month the same is denied as the Claimant went on leave for 3 months which caters for 3 years. The 4th month sought is outside Section 90 of the Employment Act Limiting claims under the Employment Act to 3 years.

35. Claim f is for salaries since February 2019 when the Claimant stopped working upto when he shall be reinstated currently stated to be standing at Kshs. 22,000,000/-. The court has already found the Claimant to be an employee. Wages to employees are paid for work done. The Claim is without merit as the Claimant did not work for the Respondent from the said date of February 2019.

36. On Claim for fuel allowance ( under agreement ) for October 2018 to 1st week of December 2018, amounting to Kshs. 108,000/- No evidence of payment was placed before the court by the Respondent. The amount being contractual is allowed at kshs. 108,000/-.

37. Cash advanced to Bonito Hotels Ltd ksh.41,000/-. The Claimant produced exhibit (5) being what he called loan to the Respondent advance for cash follow. No evidence was led to the contrary. The claim for kshs. 41,000/- is granted as prayed.

38. The Respondent submits that there is no evidence the Claimant worked continuously. The Claimant produced a contract engaging him effective 1st December 2014 and letter to proceed on 3 months leave by a director of the Respondent dated 11th December 2018. The Respondent did not produce evidence to show there was a breach or that he was a casual worker fitting in the decision it cites of Festo Ndolo Muguru -vs- Board of governors St Georges primary School ( 2018) eKLR.Indeed the contract provided for notice period of 3 months meaning the Claimant was not a casual worker. The Claimant prayed for general damages for breach of contract. The court found there was constructive dismissal and this it finds was without procedural fairness. The Claimant is granted damages for 2 months equivalent of Kshs. 400,000/-.

CONCLUSION AND DISPOSTION

39. The court holds that the Claimant was an employee of the Respondent and their relationship was that of employee employer Judgement is entered form the Claimant as follows:-

(a) A declaration that the conduct of the Respondent in constructively dismissing the Claimant from employment was unlawful.

(b) The Respondent to pay the Claimant Kshs. 1,523,950/- as salary arrears as at 15th October, 2018.

(d) The Respondent to pay the Claimant Kshs. 93,333/- being salary arrears for days worked 1st to 14th December 2018.

(e) The Respondent to pay the Claimant kshs.600,000/- being unpaid salary while on leave for 3 months.

(f) The Respondent to pay Claimant Kshs. 108,000/- being unpaid fuel allowance for October 2018 to 1st week December 2018.

(g) The Respondent to pay Claimant Kshs. 41,000/- advanced to Respondent’s business.

(h) The Respondent to pay Claimant Kshs. 400,000 for unprocedural termination of employment.

( All the above amounts A- H subject to statutory declaration of PAYE only).

(i) The Respondent to issue the Claimant with certificate of service.

(j) The Respondent to bear costs of the suit.

(k) Interest is awarded on the award amount and cost at court rates from date of Judgement

DATED, SIGNED AND DELIVERED AT BUNGOMA THIS 24TH DAY OF MARCH, 2022.

J.W KELI,

JUDGE.

IN THE PRESENCE OF:

Court Assistant : Brenda Wesonga

Claimant : Firm of Gabriel Fwaya holding brief ro Ms Masakhwe

Respondent ; Boaz Agutu Advocate.