In the Kenyan Employment and Labour Relations Court (ELRC), the line between a “valid business decision” and an “unfair dismissal” is paper-thin. The confusion begins with terminology. Using “termination” when you mean “redundancy” or worse, using “redundancy” to get rid of a difficult employee, is a legal landmine.
In recent years, the ELRC has become increasingly protective of employee rights, with compensation awards often reaching the statutory maximum of 12 months’ gross salary for procedural or substantive lapses.
This article on termination vs redundancy in Kenya provides an explicit roadmap for employers to understand legal differences, comply with Sections 40 and 41 of the Employment Act 2007, and apply 2025–2026 judicial precedents.
The Core Distinction: Person vs. Position
The most fundamental difference in termination vs redundancy in Kenya lies in why the employment contract is ending. To avoid legal exposure, an employer must first diagnose the root cause of the exit.
- Termination (Section 41): This is about the person. It is triggered by the employee’s conduct (misconduct), capacity (poor performance or ill health), or compatibility with the team.
- Redundancy (Section 40): This is about the position. It occurs when a role becomes “superfluous” due to restructuring, automation, or financial distress. In a true redundancy, the employee is personally at “no fault.”
Here’s a useful rule of thumb: if you intend to hire someone else to do the exact same job immediately after letting an employee go, it is not a redundancy. Labeling it as such is a “sham redundancy” that courts routinely overturn with heavy penalties.
Applying the Distinction: A Decision Framework for Kenyan Employers
Once the conceptual difference is clear, the real work begins in the application. At Bridge Talent Group, we always advise our partners to pause and run through a systematic assessment before issuing any notices.
Asking these four questions early can save you from a multi-million shilling judgment in the ELRC.
Is the role itself being eliminated or materially altered?
Redundancy is about the vacancy, not the person. If the position will continue to exist in substantially the same form, declaring a redundancy is likely a legal error. However, if a role genuinely disappears due to a merger, automation, or a pivot in business strategy, redundancy may be the appropriate route.
Is the exit driven by “Fault” or “Function”?
Be honest about the root cause. If the exit is driven by poor performance, persistent misconduct, or behavioral misalignment, you must follow the disciplinary procedures under Section 41. Using redundancy as a “softer” way to exit a problematic employee is transparent to the courts and is often labeled a “sham redundancy.”
What is the immediate plan after the exit?
This is the “litmus test” used by Labor Officers. If your business intends to recruit another person, or even engage a “consultant”, to perform the same duties shortly after the exit, your redundancy claim is effectively void. Courts view this as a clear sign of unfair termination.
Have you documented the “Alternatives Search”?
Kenyan courts expect employers to prove they tried to save the job. Before moving to redundancy, can you show evidence that you considered:
- Redeployment: Moving the employee to a different department?
- Retraining: Upskilling them for a new technological shift?
- Voluntary separation: Offering an attractive exit package before forcing a redundancy?
By systematically assessing these points, you’ll make a legally defensible decision that aligns with the requirements of the Kenyan Employment Act.
Managing Termination and Redundancy in Kenya: How to Avoid Unfair Dismissal Claims
In Kenya, a “good reason” for let-go is only half the battle. If you have a valid reason but skip a single statutory step, the court will likely rule the termination “procedurally unfair.” This often results in the same 12-month compensation award as a case with no reason at all.
Termination Under Section 41: The Person-Based Checklist
Termination for misconduct or poor performance is the highest-risk area for local SMEs. To stay “court-proof,” you must follow the Three-Step Hearing Process:
- The show cause letter: You must explain the allegations in a language the employee understands. Be specific: cite dates, specific policy breaches, and previous warnings. Generic letters like “your performance is low” rarely hold up in court.
- The hearing & representation: The employee has a statutory right to a hearing. Crucially, they must be allowed to have a colleague or union representative present. Conducting a hearing without offering this right is a direct violation of Section 41.
- The reasoned decision: After the hearing, do not issue a termination letter on the spot. Take time to “deliberate” and then issue a written decision that clearly explains why the employee’s defense was not sufficient.
Performance-Based Termination: Navigating the High-Risk Zone
While misconduct is often black and white, poor performance is a grey area where many Kenyan employers falter in court. The ELRC consistently rules that performance is a “shared responsibility.”
To successfully defend a performance-based exit, you must move beyond verbal complaints and prove a systematic failure despite employer support. You must be able to demonstrate:
- Role clarity: The employee had a signed Job Description (JD) and clearly defined, measurable Key Performance Indicators (KPIs). You cannot penalize an employee for failing to meet standards they weren’t formally aware of.
- The PIP trail: A documented Performance Improvement Plan (PIP) is non-negotiable. This isn’t just a warning letter; it’s a structured period (usually 30–90 days) where specific gaps are identified and tracked.
- The “support test”: Did you provide the tools for success? Courts will look for evidence of documented coaching sessions, additional training, or resource allocation. If you simply “watched them fail,” the termination will likely be deemed unfair.
Even when performance issues are genuine, the lack of a documented “recovery path” makes the dismissal procedurally flawed in the eyes of a Labor Officer.
Redundancy Under Section 40: The Role-Based Path
Redundancy is a strictly regulated exit strategy for roles that have become “superfluous.” It is not a shortcut to avoid a disciplinary hearing. It involves:
- A 30-day mandatory notification: You must notify the local Area Labor Officer and the employee (or their union) in writing at least 30 days before the intended date of redundancy. The notice should clearly outline the reasons for redundancy, the positions affected, and the proposed timelines.
- Selection criteria: The selection must be based on objective factors, including seniority (last in, first out); skill, experience, and adaptability; and attendance and disciplinary records.
- Pro-Tip: Create a Selection Matrix. If you cannot produce a documented “score” for why Employee A was kept over Employee B, the court may view the choice as biased or discriminatory.
- Meaningful consultation: Notification is not consultation. You must hold meetings to discuss alternatives, such as pay cuts, redeployment to other departments, or even Voluntary Early Retirement (VER) packages. Documentation of these meetings (minutes signed by both parties) is your primary defense in the ELRC.
Only after completing these steps should the employer issue a formal redundancy termination notice and proceed with payment of statutory dues.
Comparison of Termination vs. Redundancy Procedural Steps
| Step | Termination | Redundancy |
| Primary document | Show cause later | Notice of intent to declare redundancy |
| Notice period | Per contract (1 month minimum) | 30 days minimum |
| External notification | Not mandatory | Mandatory (labour office) |
| Meeting focus | Disciplinary defense | Consultation and alternatives |
| Selection criteria | Direct (the individual at fault) | Objective matrix (LIFO, skills, etc.) |
Termination vs Redundancy During Probation
A common myth among Kenyan SMEs is that you can let anyone go for any reason during probation without a process.
The Legal Reality: While Section 42(1) of the Employment Act suggests that hearing rights (Section 41) do not apply to probation, the High Court and Court of Appeal (notably in the Kibuchi and Red Lands Roses cases) have declared this unconstitutional.
Judges now rule that Article 47 (Fair Administrative Action) of the Constitution requires employers to give a reason and a basic “opportunity to be heard” even for staff on probation.
The Price of Non-Compliance: What Happens When Employers Get it Wrong?
When an employer mishandles a termination or redundancy, the consequences often extend far beyond paying terminal dues. Kenyan labour law provides employees with multiple avenues to challenge dismissals they consider unfair.
Employees may raise complaints through:
- The Labour Office, which may attempt conciliation or refer the matter for further action
- The Employment and Labour Relations Court (ELRC), where claims of unfair termination and unlawful redundancy are formally adjudicated
Once a dispute reaches the ELRC, courts not only examine why the employment ended, but also how the decision was reached. Even where an employer had a genuine business reason, procedural lapses frequently tilt cases in favour of employees.
Potential Remedies and Financial Exposure
If the court finds that a termination or redundancy was unfair, they may order:
- Compensation (The 12-Month Rule): The most frequent award. The court may grant up to 12 months’ gross salary. Factors that push this award toward the maximum include long service, the employer’s bad faith, and failures in procedural fairness.
- Reinstatement or Re-engagement: While rare in the private sector due to “erosion of trust,” courts still order reinstatement where the termination violated constitutional rights (e.g., pregnancy, union activity, or whistleblowing).
- Terminal Dues & Arrears: Beyond compensation, you will be ordered to pay all unpaid notice pay, severance (for redundancy), and accrued leave days.
- Exemplary & Constitutional Damages: In cases of severe mistreatment or discrimination, the court may award additional damages to punish the employer’s conduct.
The “Procedural vs. Substantive” Trap
It is a common misconception that having a “good reason” (substantive fairness) protects you. In reality, procedural failures attract higher awards.
Also check out: Understanding Termination and Dismissal of Employees in Kenya
Strategic Workforce Transitions: Protecting Your Business and Your People
For instance, in Inchcape Kenya Limited (2025), the court found the redundancy justified by economic hardship. However, they still awarded heavy compensation because the employer failed to prove they used objective selection criteria like LIFO (Last-In, First-Out).
In Kenya, the law doesn’t just require a “good reason” to end employment; it requires a “perfect process.” Termination and redundancy are two distinct tools for two different problems. Confusing them is an expensive mistake that can drain company resources, damage your employer brand, and result in years of litigation.
Don’t wait for a demand letter to audit your exit procedures. At Bridge Talent Group, we specialize in helping Kenyan employers navigate the complexities of the Employment Act with confidence.
Whether you need a compliant Redundancy Selection Matrix, a defensible Performance Improvement Plan (PIP), or expert payroll management for terminal dues, we are here to ensure your transitions are handled with professional care and zero legal friction.
Protect your business today. Contact Bridge Talent Group for an HR Compliance Audit and let us handle the heavy lifting while you focus on growth.
FAQs
1. Is severance pay mandatory for all terminations?
No. In Kenya, severance is strictly for redundancy. You don’t owe it for resignations or terminations due to misconduct or poor performance.
2. Can I replace a redundant employee with a “consultant”?
Not safely. If the work still exists and you hire someone else (even a contractor) to do it, courts will likely view the redundancy as a “sham” and award the employee full compensation.
3. What happens if I forget to notify the Labour Officer?
You lose the case. Notifying the Area Labour Officer in writing 30 days before a redundancy is a mandatory statutory requirement. Skipping this makes the process automatically unfair.
4. Are redundancy payouts tax-free?
Partially. While final salary and leave are taxed normally, severance pay currently enjoys a tax-free threshold of up to KSh 600,000. Anything above that is taxed at the standard PAYE rates.
Contact Bridge Talent Group today to speak with one of our HR experts.
