Termination of Employment Contracts for Poor Performance

James WaNjeri - Employment Lawyer

Does your organisation have a policy that guides the employment termination process based on poor performance? A study of Employment and Labour Relations Court decisions on that subject shows that many employers fail to get this process right and they often end up paying the price in compensation costs.

Section 41 of the Employment Act, makes it mandatory for an employer before terminating the employment of an employee on grounds of misconduct, poor performance or physical incapacity to explain to the employee in a language that the employee understands the reasons for which the employer is considering to terminate the employee’s employment with them. The employer is also enjoined to ensure that the employee receives the reasons in the presence of a fellow employee or a shop floor union representative of their own choice and to hear and consider any representations that the employee may advance in response to allegations leveled against him by the employer.

To actualize the realisation of this requirement, Employers have the discretion to develop internal policies to guide the performance management process. The lack of such a policy means that the decision-making will be guided by individual personnel discretion which can often result in errors that create adverse risk for the business.

On 2nd August 2024, the Employment and Labour Relations Court issued judgment in a case where performance concerns led to employment termination. In Employment Cause No. E425 of 2023 Otiende vs Penda Health (k) limited the Claimant employee was employed on 29th March 2018 first as a Clinical Officer and later on by a letter dated 7th  May 2021, promoted to Branch Manager. Her case is that on 10th March 2023, she was served with a Notice to Show Cause and/or Invitation to a Disciplinary Hearing on the performance of her role as Branch Manager. The disciplinary hearing took place on 15th March 2023 but she did not have a representative at the meeting and she was subsequently issued with a Termination Letter on the same day. According to the termination letter, the reason for the termination of her services was poor performance yet according to her, no performance appraisal had been conducted to justify the termination. Therefore, she stated that the termination of her employment was unfair and unlawful for lacking substantive justification and procedural fairness and that she was a victim of unfair labour practices. She sought to be paid her notice pay and 12 months' salary compensation.

In Response, the Respondent Employer filed a Statement of Response stating that the Claimant was the Branch Manager in the Company's Umoja II Branch. She was then transferred to its Githurai 45 Branch in July 2021, barely two months into her role, after complaints regarding the ineffective execution of her duties arose. This transfer was informed by the fact that the Githurai 45 Branch had fewer staff and would therefore have afforded her a new environment with a lighter workload for her to adapt to her new role as a Branch Manager. The reasons leading to her transfer were the same as those that led to the termination of her employment contract. Previously, in 2022, she had been the subject of disciplinary action culminating in a Verbal Warning and a 1st Written Warning Letter. In summary, she had consistently executed her duties in a negligent and discriminatory manner leading to her subordinates raising complaints regarding her conduct and causing the work environment to be untenable.

The Employer denied that the cause for termination was for poor performance but instead, it was for gross negligence of duty. In their defence, they stated that they not only adhered to fair procedure in terminating the Claimant's employment contract but it also afforded her every opportunity to remedy her conduct, which she however failed and/or refused to do. It stated that the Claimant was made aware of her right to have a representative of her choice at the disciplinary hearing but she elected not to have one and that she was made aware of the reasons for the disciplinary action taken against her and for the termination of her employment contract. To them, termination of the Claimant's employment contract was justified as she admitted culpability for her negligent conduct during the disciplinary hearing.

The Claimant, in her Reply to Defence, maintained that she was subjected to a disciplinary hearing on account of poor performance in her role as a Branch Manager, as seen in the two letters dated 10th March 2023 that were issued to her. The Claimant averred that after the Respondent promoted her, it neither trained nor conducted an induction for her to appraise herself of the new role. She noted that the disciplinary process was unfair also, because the Respondent did not have a policy in place on how to handle cases of poor performance and that it did not allow her time to improve. Further, the Respondent did not consider another role in the organization for her after noting there was no improvement

Poor performance is a recognised reason for employment termination. However, before an employer terminates for this reason, they have an obligation to satisfy the requirements of sections 41, 43 and 45 of the Employment Act.

The employer bears the overall obligation of establishing poor performance as a ground for terminating an employee's contract of service and is placed at a high level of proof. For starters, they are obligated to show that in arriving at the decision of noting the poor performance of an employee, they had put in place an employment policy or practice on how to measure good performance as against poor performance.

Secondly, evaluation of an employee's performance can only be conducted against pre-set goals that had been discussed and agreed upon between the employer and the employee. The pre-set goals must be capable of objective evaluation using agreed instruments of measurement and the goals must be reasonably attainable. Courts have held that it is imperative for the employer to show what measures were in place to enable them to assess each employee's performance and, further, what measures they have taken to address poor performance once the policy or evaluation system has been put in place. It is not enough to just say that one has been terminated for poor performance as the effort leading to this decision must be established. The employer is only entitled to hold an employee as having underperformed if the employee has failed to meet the pre-set goals.

Thirdly, beyond having such an evaluation measure, and before termination on the grounds of poor performance, an employee must be called and an explanation on their poor performance shared where they would in essence be allowed to defend themselves or given an opportunity to address their weaknesses. There must be evidence that before the employer took the decision to terminate the employee, the employer had allowed the employee the opportunity to improve to no avail. Such improvement must also be capable of being measured.

In the event a decision is made to terminate an employee on the reasons for poor performance, the employee must be called again and in the presence of an employee of their choice, the reasons for termination shared with the employee. The employee must be notified of the accusation of poor performance leveled against her and given an opportunity to respond to it. At this point, the employer can then proceed to terminate the employment on grounds of poor performance, having established a proper basis for it.

Applying these requirements to this case, the judge of the Employment and Labour Relations Court, Justice Nzioki Wa Makau found that:

“Although the Respondent in this case accused the Claimant of poor performance, there was no evidence indicating that there were performance targets agreed upon. There also was no evidence adduced before me, of the performance measuring instruments agreed on between the parties. If any such instruments existed, there was no evidence that they were developed in consultation with the Claimant or that such tools mutually agreed to, were used to evaluate her. In the premises, I find and hold that the Respondent failed to justify poor performance as a ground for terminating the Claimant's employment. This is contrary to the requirements of sections 43 and 45 of the Employment Act and I do so find.”

The employee won her suit and was awarded notice pay and 5 months salary as compensation.

One of the common questions I have received is, can the employer terminate an employee on probation based on the notice period provided in the probation contract without a process? In our next article, we will discuss whether there is a procedure to be undertaken when terminating a probation contract on grounds of performance.

Some news from us. We are continuing to expand our capabilities in civic education and engaging the public on matters to do with Kenyan Law. We have created a YouTube channel called V for Verdict where we discuss some key cases from Kenyan courts and their impact on society. If you are interested in stories of courtroom battles and a deeper understanding of how courts evaluate cases and evidence, you should subscribe to the channel. Here is a link to our first story on Death by 25 Stabs: Ruth Kamande’s Murder Trial.

The contents of this newsletter do not constitute legal advice and are provided for general information purposes only.

James Njeri and Company Advocates

4th Floor, Ngong Lane Plaza,

Ngong Lane off Ngong Rd. Nairobi, Kenya

Tel: 0719494083

Email: legal@jnadvocates.com