A fixed-term contract is a contract of service for a specified period of time. The underlying understanding between the parties of fixed-term employment contracts is that once the fixed period has ended, the contract is automatically terminated without any further liability on the employer’s part on account of unfair termination or redundancy. However, despite this apparently clear intention, Kenyan jurisprudence is awash with claims lodged by employees on the grounds that the non-renewal of such contracts amounted to unfair termination.

Some employers prefer fixed-term to open-ended employment contracts for a variety of reasons, among them the need to avoid the complicated but mandatory termination procedure required under Kenyan law including the obligation to give valid reasons for the termination. Failure to do so results in an automatic finding of unfair termination for which the employer could be condemned to pay the employee damages equivalent to one year’s pay.

Where the contract provides that it may be renewed upon its expiry, it is incumbent on the employer to notify the employee prior to the expiry date that the contract will not be renewed. However, failure to give this notification does not amount to an automatic renewal because the renewal is a new contract which requires the parties’ agreement on the terms. This may not apply only where the contract provides that it will automatically renew on the same terms unless either party expresses a contrary intention to the other in writing. In such a case, the contract renews automatically unless either party has notified the other to the contrary.

How courts have interpreted fixed-term contracts

In the case of Rajab Barasa & 4 Others Vs Kenya Meat Commission (2016) eKLR, it was held that a fixed-term contract will not be renewed automatically, even when there exists a clause allowing for renewal.  The Court held that the expectation of the employees that their fixed-term contracts would be renewed, had no basis as there was no express, clear and unambiguous promise given by the employer on renewal.  The employer retains the discretion, even where there is a clause allowing for renewal.

The court went on to say that where at the time of expiry of the term of a fixed term contract the employee is on a journey, Section 39 of the Employment Act provides that the employer may, for the purpose of the completion of the journey, extend the period of service for a sufficient period.  But in any case, not exceeding one month, to enable the employee to complete the journey.

However, recent jurisprudence has diverted from this view. In the case of Transparency International-Kenya versus Teresa Carlo Omondi, the Employment & Labour Relations Court had found the employer liable for unfair termination by failing to renew the claimant’s contract upon its expiry without giving the employee notice or reasons for non-renewal. It proceeded to order the employer to pay the employee damages for unfair termination at the maximum rate of 12 months’ worth of salary plus interest.

Aggrieved, the employer challenged the judgment in the Court of Appeal.  The Court of Appeal unanimously overturned the judgment and made three landmark findings. On whether the expiry of a fixed-term contract amounts to a dismissal or termination, the court answered emphatically in the negative, stating that an automatically renewable fixed-term contract is a contradiction in terms since the contract has definite commencement and expiry dates. Holding otherwise would subject the parties to an indefinite-term contract and negate the very essence of a fixed-term contract which is expressly allowed under the Employment Act. 

As to whether an employee has a legitimate expectation of renewal, the court found that in the absence of evidence to that effect, the default position is that no such expectation exists in a fixed-term contract.  Renewal is always at the discretion of the employer.

Finally, on whether at the expiry of a fixed-term contract, the employer is required to justify the non-renewal by giving reasons as would be required in the case of normal termination or dismissal, the court found that no such obligation exists in the case of a fixed-term contract.

Conclusion

The above decision is a much-needed contribution to the development of Kenya’s labour jurisprudence. As a decision of the Court of Appeal, it is binding on the Employment & Labour Relations Court.