From Casual to Costly: Legal Lessons for Employers on the Rising Risk of Labour Misclassification in Kenya

Authored By: Ahmad Abdulrahim Parpia

Strathmore University

Abstract

This article explores the growing legal and financial risks faced by employers in Kenya who engage casual workers without adequate legal compliance. Several jurisprudence from the Employment and Labour Relations Court (ELRC) has emphasized employee protections under Section 37 of the Employment Act, which empowers the Court to transform a casual employment to a permanent employment. Upon such a transformation, the employer is then mandated to pay the employee all statutory entitlements, including service pay, accrued annual leave, sick leave, notice pay, and any other benefits due under the law to permanent employees. These benefits are not meant for casual labourers, who are solely paid a wage at the end of the day. Through this article, I argue that judicial trends demand proactive restructuring of employment models. The article examines the legal framework, emerging case law, and provides a strategic guide for employers to restructure their workforce in compliance with labour laws. It concludes with practical recommendations to avoid litigation and promote fair labour practices while preserving operational flexibility.

Introduction

Due to the inherent power disparity in labour relations in Kenya, both the Employment Act of 2007, as well as the Employment and Labour Relations Court, usually tend to adjudicate in favour of the potentially more vulnerable party, the employees.[1] However, not all employers act with malicious intent. Yet when they terminate the services of their employees, they inadvertently end up exposing themselves to legal liability.

Causal labour is a recognized feature of the Kenyan labour landscape, allowing employers to engage workers on a temporary basis, especially where there is a need for a short-term manpower, or in industries with a fluctuating labour demand.[2] Take the example of construction contractors. They may hire a team of personnel to do the tiling, a different team of personnel to carry out the electrical installations, without having any of those teams under their permanent payroll.[3] This flexibility significantly reduces costs associated with maintaining a full-time workforce. However, these contracts are almost never written down, and as such, they leave both employers as well as employees, unable to enforce their rights under their verbal agreement.[4]

Employers are under no obligation to give notice of termination to any casual labourers.[5] However, if that relationship is then found to one of contract labour, the employer, through a court order, would then be mandated to pay the employee notice pay amongst other statutory dues.[6]

While it is true that Courts should not involve themselves in the business of rewriting the terms of engagement between an employer and an employee[7], Section 37 of the Employment Act empowers the Employment and Labour Relations Court (ELRC) to transform a casual employment into a permanent contract employment.[8] However, this can only happen when certain conditions have been fulfilled as shall be explored in this paper.

The central point in this paper is that judicial interpretation of Section 37 of the Employment Act has significantly altered the landscape of casual employment and that businesses must restructure or risk liability. Such restructuring allows them to easily identify who forms part of their casual labour force, and, if at all such a relationship ends up meeting the threshold of a permanent employee, how such an employee should be treated under Kenyan employment law.

In this article, I shall firstly delineate the judicial practice emanating from the ELRC in reclassifying casual labourers to permanent employees. Secondly, we shall demonstrate that such a reclassification can have serious legal and financial ramifications for businesses. Finally, we shall look how businesses should restructure their labour force to ensure a balance between the legal standards and business needs.

Background

Section 2 of the Employment Act 2007 defines a casual employee as a person the terms of whose engagement provide for his payment at the end of each day and who is not engaged for a longer period than twenty-four hours at a time.[9] Section 37 then allows for such an engagement to be transformed to that of a permanent employee when that casual labourer has worked for a period or a number of continuous working days which amount in the aggregate to the equivalent of not less than one month; or was contracted to perform work which cannot reasonably be expected to be completed within a period, or a number of working days amounting in the aggregate to the equivalent of three months or more.[10]

On the face of it, these provisions are vague, and filled with uncertainties. As a result, it is difficult for an employer, during termination of the services of someone he had hired as a casual labourer, to identify whether they should give such a person notice. As such, it is important for us to dive into what is actually considered as a causal labourer and the parameters within which such an engagement can transform to that of permanent employment.

Judicial Reclassification of Casual Workers – A Growing Trend

The ELRC has heard a multitude of cases in which it has had an opportunity to interpret Section 37 of the Employment Act, 2007. In doing so, it has raised several elements that must be met in order to trigger S. 37. It is important to note that merely labelling an employee as a casual labourer is not enough to ascertain his status; and it must then be demonstrated by the employer that indeed the person was a casual labourer and not a permanent employee.[11] However, in some instances, the Courts have placed the burden on the employee to demonstrate that he worked for days amounting to an aggregate of more than one month.[12] In this section, the elements to distinguish a casual labourer from a permanent one shall be discussed in order to derive at a more certain standard.

The ELRC in the case of Silas Mutwiri v Haggai Multi-Cargo Handling Services Limited stipulated that an employment engagement where a casual employee is “not terminated at the end of the day and continues to work continuously for over a month up to and until over three months”, then such a relationship converts to that of permanency.[13] On what amounts to an aggregate of one month, the ELRC in Mombasa in the case of Kesi Mohamed Salim v Kwale International Sugar Co. Ltd considered the exhibit schedule of when the Claimant would come to work, where it was able to note that the Claimant had worked for 8 years on a casual basis. Since this amounted to about 36 weeks, it was found that by operation of the law, the Claimant should have then been considered as a permanent employee.[14]

In Bett & 27 others v County Government of Uasin Gishu & 2 others the Court held that since the employees, who had initially been engaged as casual workers had worked for more than 3 month from which they were engaged by the employer, their engagement had, by operation of the law, transformed into that of a permanent employee, and as such, they were entitled to all the rights a permanent employee enjoys.[15]

Another factor that the Courts in Kenya have considered is the frequency within which these persons are working. For instance, in the case of Rashid Mazuri Ramadhani & 10 others v Doshi & Company (Hardware) Limited & another the Appeals Court in Mombasa, in finding that the appellants were casual labourers and not permanent employees, considered the fact that the persons only worked when materials were available.[16] Similarly, in Perter Maundu Malonza v Frigoken Limited where the employee was working at a horticulture firm, with seasonal labour demand, it was found that since he only came to work on various days when he was needed, and that his pay, even though weekly, was paid depending on the days he worked. Thus, it was found that the the Claimant’s status as a casual labourer did not change.[17] Therefore, a defining factor of a casual labourer is that he/she is engaged on an as and when required basis.[18] At the same time, during the engagement of the services of a casual labourer, there should ideally be no assurance of a future re-engagement.[19]

As such, it can be inferred that 5 factors must be taken into consideration in transforming a casual contract into one of permanency. They are a.) duration of time worked, b.) the frequency of the work, c.) the payment terms, d.) the time of payment and e.) the nature of work done.

However, these elements are not absolute. As opined by Justice Abuodhan at paragraph 9 in the case of Josphat Njuguna v High Rise Self Group, “There could be logistical, circumstantial or even consensual reasons why payment cannot be made at the end of the day or make the hiring be for more than 24 hours.…The provisions of section 37 (1) therefore does not oblige an employer to absorb in his workforce casual employees merely because they have not been paid at the end of the day and have been hired for more than 24 hours.”.[20]

Legal and Financial Risks of Misclassification

The classification of an employee from a casual labourer to a permanent employee, in essence grants certain safeguards to the employee, that are only available to those on a regular employment contract, such as issuance of notice prior to termination or payment of salary in lieu of notice, protection from unfair termination, benefits such as leave, rest days and issuance of certificate of service.[21]

The recent case of Okello & 4 others v University of Nairobi highlighted the dangers of misclassifying the status of employees.[22] In addition to the other cases that have been cited throughout this paper, an order for proper classification of the employment relationship is only sought after termination.[23] At such a point, if a person is then found to actually be a permanent employer and not a casual employer, their termination, is also found to be unfair, both procedurally, as well as substantively. As a result, Courts then order the Employers to pay huge sums as damages, and compensation.

For instance, in the Silas Mutwiri v Haggai Multi-Cargo Handling Services Limited the Respondent was ordered to compensate the Claimant for Leave days, overtime, and service pay, even though the Claimant was initially engaged as a casual worker, not entitled to any of the dues stated above.[24] Similarly, in the Osore Sammy Mohan v Tononoka Rolling Mills Limited case, the Respondents were made to compensate the Claimant for notice pay, leave pay, and even the costs of the suit.[25]

Employers do not have to pay the NSSF scheme for persons they have engaged as casual workers.[26] However, in instances where the Courts have found that by operation of the law, a casual relationship had transformed into a permanent employment, then as part of the orders, courts tend to mandate employers to pay the sum of all NSSF payments and other statutory dues from the time the 3 months after the initial engagement had elapsed.[27]

Structuring Employment Legally – A Compliance Roadmap for Employers

In the first section, we looked at some cases that have been instrumental in delineating the elements whose existence transforms a casual employment into a permanent one. In each of those instances, the court stated that had the Respondent Employer demonstrated certain records, they would have been successful in making a claim that the employee’s status could not be reclassified. In this section, therefore, we shall speak to those specific records, as well as provide pointers on how businesses could restructure their labour force to ensure compliance with the statutory requirements of employment.

Section 10(7) of the Employment Act provides that if in any legal proceedings an employer fails to produce a written contract or the written particulars prescribed in subsection (1), the burden of proving or disproving an alleged term of employment stipulated in the contract shall be on the employer.[28] This essentially demonstrates that in any employment engagement, it is important to clarify the terms of that engagement.

When hiring persons as casuals, it is essential for all firms to ensure their terms of engagement are well stipulated and understood by both parties. This includes the nature of work, time and duration of tasks.

The County Government of Busia in Kenya, in 2019, released a “Casual Workers Engagement Manual”, wherein they stipulated that it shall be the duty of the hiring department of the County Government to maintain a muster roll.[29] Similarly, in the Samuel Mutuku Mutunga v Steel Makers Limited case, evidence was adduced to show payment slips and payment sheets for casual labourers, as well as muster roll register records to demonstrate that the Claimants were employed only when there was work.[30] In the Rashid Mazuri Ramadhani & 10 others v Doshi & Company (Hardware) Limited & another the Court looked to the petty cash analysis register that was produced in evidence to show the appellants were being paid per day and only 2 days a week[31].

In as much as this section provides means of which businesses could ensure they do not fall on the wrong side of the law in engaging casual labour, it is essential to note that if the elements to transform the employment relationship to a permanent one have been met, as enunciated in the first section, the HR divisions of business should exercise caution in terminating such engagements, and must ensure that the proper procedure is followed.[32].

Conclusion

This piece demonstrates the need for businesses to restructure their labour force to ensure that they have a clear understanding of what rights accrue to whom from their labour force. Additionally, as earlier stated, as a result of the inherent power disparity, the Employment Act is set to favour the vulnerable party. Therefore, ensuring that all engagements are well-recorded allows a bona fide employer to protect his rights under the employment engagement.

Reference(S):

Christopher Baraza Wasike v Pemco Agencies Limited [2018] KEELRC 1120 (KLR)

Kenyatta University v Thomas & 25 others [2024] KECA 843 (KLR)

Mutinda v Tononoka Rolling Mills Limited [2022] KEELRC 12998 (KLR)

Ogaro v Lavington Security; Kenya National Private Security Workers Union (Interested Party) [2017] KEELRC 2012 (KLR)

Okello & 4 others v University of Nairobi [2025] KEELRC 52 (KLR)

Olindo v Kenya Power and Lighting Company Ltd [2024] KEELRC 746 (KLR)

Osore Sammy Mohan v Tononoka Rolling Mills Limited [2018] KEELRC 1519 (KLR)

Perter Maundu Malonza v Frigoken Limited [2020] KEELRC 1175 (KLR)

Pius Kimaiyo Langat v Co-operative Bank of Kenya Limited [2017] KECA 152 (KLR)

Pride Inn Paradise Beach Resort & Spa v Rai & 6 others [2025] KEELRC 1100 (KLR)

Rashid Mazuri Ramadhani & 10 others v Doshi & Company (Hardware) Limited & another [2018] KECA 427 (KLR)

Rashid Odhiambo Allogoh & 245 others v Haco Industries Limited [2015] KECA 376 (KLR)

Ruth Nyasuguta Areimba v Conference Caterers Limited [2021] KEELRC 1640 (KLR)

Silas Mutwiri v Haggai Multi-Cargo Handling Services Limited [2013] KEELRC 939 (KLR)

“What Is Temporary Employment?” (International Labour Organization, November 11, 2016) https://www.ilo.org/resource/other/what-temporary-employment.

Employment Act 2007, Cap 226 of the Laws of Kenya.

https://www.busiacounty.go.ke/assets/documents/uploads/CASUAL%20WORKERS%20ENGAGEMENT%20MANUAL-Q1npT.pdf

International Labour Organization, “Non-Standard Employment Around The World: Understanding Challenges, Shaping Prospects” https://www.ilo.org/sites/default/files/wcmsp5/groups/public/@dgreports/@dcomm/@publ/documents/publication/wcms_534496.pdf.

Kituo Cha Sheria, “The Kenyan Worker and the Law: An Information Booklet on Labour Law” https://kituochasheria.or.ke/wp-content/uploads/2022/09/Kenyan-Worker-and-the-Law-final2.pdf

Ruth Levy, “The Power Imbalance in the Employment Relationship” (LinkedIn, January 3, 2019) https://www.linkedin.com/pulse/power-imbalance-employment-relationship-ruth-levy/.

[1] Levy R, “The Power Imbalance in the Employment Relationship” (LinkedIn, January 3, 2019) https://www.linkedin.com/pulse/power-imbalance-employment-relationship-ruth-levy/ accessed June 9, 2025

[2] “What Is Temporary Employment?” (International Labour Organization, November 11, 2016) https://www.ilo.org/resource/other/what-temporary-employment accessed June 7, 2025.

[3] “What Is Temporary Employment?” (International Labour Organization, November 11, 2016) https://www.ilo.org/resource/other/what-temporary-employment accessed June 7, 2025.

[4] [2022] KEELRC 12998 (KLR)

[5] Employment Act 2007, S.35(1)(a).

[6] [2019] KEELRC 2207 (KLR)

[7] [2017] KECA 152 (KLR); [2023] KEELRC 1527 (KLR).

[8] Employment Act 2007, S.37. See also: [2019] KEELRC 2207 (KLR); [2018] KECA 196 (KLR); and [2018] KEELRC 1120 (KLR).

[9] Employment Act 2007, S.2; International Labour Organization, “Non-Standard Employment Around The World: Understanding Challenges, Shaping Prospects” https://www.ilo.org/sites/default/files/wcmsp5/groups/public/@dgreports/@dcomm/@publ/documents/publication/wcms_534496.pdf accessed June 7, 2025

[10] [2018] KECA 427 (KLR); See also Employment Act 2007, S.2.

[11] [2017] KEELRC 2012 (KLR).

[12] [2020] KEELRC 1175 (KLR).

[13] [2013] KEELRC 939 (KLR).

[14] [2017] KEELRC 755 (KLR); [2021] KEELRC 1640 (KLR).

[15] [2023] KEELRC 1527 (KLR).