Executive Directors are not Employees: The Court Of Appeal Holds

Published on June 20, 2022, 4:41 p.m. | Category: Corporate Law

Last week, the Court of Appeal, in a precedent-setting case, has decided that executive directors are not employees within the Employment Act revised 2021 (2007). The Court's decision delivered on 10^thJune 2022 by the Honourable Justices, D. K. Musinga, (P), L A. K. Murgor; and Dr K. I. Laibuta reversed an earlier decision of the Industrial Court in Industrial Cause Petition No. 4 of 2014 made by the Honourable Justice Byram Ongaya, who had ruled that executive directors were in fact company employees. Following the decision by the Industrial Court, the Appellants, The Rift Valley Water Service Board, and the County Government of Nakuru moved to the Court of Appeal to appeal against the judgment that had found in favour of the 1^st Respondent, a former Director of the Nakuru Water and Sanitation Service Company . The 1^st Respondent had served as a director of the Company until 2014, when the Company moved to amend its Memorandum and Articles of Association, in line with change of the constitution and subsequent legislation that had devolved the provision of water services to the County Government. The 1^st Respondent had, consequently, failed to be nominated as a director of the Company. Agrieved by his removal from the board of directors,the 1^st Respondent challenged the decision at the Industrial court in Industrial Cause Petition No. 4 of 2014 "The question as to whether the 1st Respondent was an employee of the 2nd Respondent with the right of claim as such in the Industrial Court has a simple answer to it. He was not." The Court of Appeal assessed the meaning of the words "employer" and "employee" as defined by the Employment Act and concluded that the 1^st Respondent was not a Company employee. The Court relied on the decision in McMillan v Guest AC p.561, where it was held that a company director is an office-holder who is not, without more, an employee of the Company. In the absence of a contract of service, a director cannot be held out to be an employee of the Company, states the Court; and in this case, where the 1^st Respondent's only evidence was a letter extending his term of service, the Court of Appeal found that the letter was no evidence of a contract of service. The Court's decision is a big blow to former directors currently seeking redress in the Employment and Labour Courts and further puts current Directors on notice as to what contract documents they hold as proof of their employment.Written by: Susan MWANGO AGWATA