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19 Nov 2019
BY Phillip Karugaba AND Rachel Musoke
ENSight

 


Uganda – the proper remedy for wrongful dismissal: a review of DFCU Bank v Donna Kimuli (CACA 121 of 2016)

What is the proper remedy for an employee dismissed in violation of the terms of a contract of employment? This question has been answered in many disparate ways by our courts.

The Industrial Court has awarded general damages, aggravated damages, punitive damages, salary arrears from the date of dismissal until the date of the award, and also made orders prohibiting the recovery of staff loans from the dismissed employee. The large awards by the Industrial Court have caused wide concern among employers no longer able to properly assess their liability in event of a claim for wrongful dismissal. The awards have also emboldened dismissed employees in contests over dismissals.

 The questions which arise are as follows;

  1. Is the Industrial Court bound by the prescriptions of the Employment Act for breach of its provisions such as the limitations on the awards for failure to hold a hearing and for unfair termination of employment?
  2. Can the Industrial Court award general, aggravated and punitive damages for breach of the contract of employment?
  3. Can the Industrial Court make awards for salary arrears and prohibit the recovery of loans advanced to a dismissed employee?

At the High Court, some judges have held that the remedy for unfair dismissal must be found strictly within the Employment Act, namely a maximum compensation of three months wages and one month’s wages for failure to hold a fair hearing. A counter and compelling argument to this is that owing to the express language of the Employment Act, these statutory remedies only apply to awards made by the labour officer and do not apply to awards made by the Industrial Court, which are entirely unrestricted. Other schools of thought contend that the common law remedies are still available despite the statutory prescription and that these remedies are limited only to monetary compensation for the necessary notice period that would have been required to make a dismissal lawful.

Unfortunately, the Supreme Court has been inconsistent in its approach to the troubling questions. In Bank of Uganda v Betty Tinkamanyire (SCCA No. 12 of 2006), the Supreme Court limited general damages to the notice period required to terminate the contract of employment, but awarded aggravated damages of UGX100 000 000 for the degrading and callous manner of the respondent’s dismissal. The Court declined to award exemplary or punitive damages. In Stanbic Bank v Kiyemba Mutale (SCCA No. 12 of 2007), the Court awarded both general and exemplary damages without reference to the termination notice period and citing defamation of the dismissed employee. In Omnyokol Johnson v Attorney General (SCCA No. 6 of 2012), the Supreme Court awarded general damages of UGX150 000 000 on the basis of injury, suffering and inconvenience caused to the appellant, without any reference to their decision in Tinkamanyire.

With respect to the awards of punitive or exemplary damages, the Supreme Court has again been inconsistent. In Esso Standard v Semu Amani Opio (SCCA No. 3 of 1993) the Court declined to award punitive or exemplary damages for breach of contract absent tortious liability. However in Ahmed Bholim v Car & General (SCCA No. 12 of 2002)(decided in 2004) the Court awarded UGX5 000 000 as punitive damages for the high-handed mistreatment of the appellant.

Aggravated damages are intended to compensate the plaintiff whereas exemplary (or punitive) damages are intended to punish the defendant.

The cited decisions of the Supreme Court all arose before the Employment Act 2006 came into force. The Supreme Court has therefore not had the opportunity to address the damages question in the context of the Employment Act.

The Court of Appeal in DFCU Bank v Donna Kimuli (CACA No. 121 of 2016) had a chance to address these troubling issues but unfortunately appears to have only stirred the murky waters. The employee, who earned UGX1 800 000 per month, sued for unlawful dismissal and was awarded by the Industrial Court UGX60 000 000  as general damages, UGX80 000 000 as “aggravated/punitive” damages, severance allowance, salary arrears from the date of the unlawful termination to the date of the award by the Court, and a prohibition of the recovery of her salary loan by the employer, among others.

The Court of Appeal highlighted the conflict between the Supreme Court decisions of Tinkamanyire and Ahmed Bholim on the award of punitive damages for breach of contract and opted to follow the Bholim decision on the ground that the particular issue had been dealt with by the majority of that court. The Court also cited their own decision in Uganda Revenue Authority v Wanume David Kitamirike (CACA 43 of 2010) permitting the award of punitive damages in employment disputes in exceptional cases. The Court however, reversed the award of the “aggravated/punitive damages” on the ground that the employee had not asked for aggravated damages. The Court was silent on why, as argued by the employee’s counsel, it did not ignore the word “aggravated” and award punitive damages, which had been pleaded, and which the Court had just agreed could be awarded in employment matters.

On the salary arrears, the Court of Appeal ruled that a hearing before dismissal under our Employment Act, did not require the employer to hold a mini-court but such hearing could be conducted through correspondence. The Court found that the employee had by correspondence, been given a proper hearing before termination and that therefore the Industrial Court erred in awarding salary arrears from the date of termination to the date of the award. The suggestion from the Court of Appeal here is that had the hearing not been properly done, the award of salary arrears to the date of the award would have been upheld. In Kiyemba Mutaale the Supreme Court held, that termination even though wrongful, takes effect and the employee is no longer in employment to demand benefits, let alone what is paid to those who remain in employment. In that case the employee was only entitled to what accrued to him under the contract of employment, payment in lieu of notice and his accrued pension.

With respect to the employee’s loan obligations to the employer, the Court dismissed this claim on the ground that such relief had not been prayed for by the employee before the Industrial Court. Again the suggestion from the Court of Appeal is that had the employee pleaded and proved the terms of the loan, then the remedy would have been available had the dismissal been found to be unlawful. This position would however be contrary to the Supreme Court decisions cited above.

The Industrial Court award for severance pay was not challenged in the Court of Appeal. Under the Employment Act, severance pay is to be negotiated between the employer and the union representing the workers. The Industrial Court ordered that the employee be paid severance pay calculated under a negotiated system between the employer and the employees or between the employer and a workers union representing the employees. The Court added that absent such a system, the severance pay would be fixed at one month’s salary for each month of the employee’s service. Respectfully, the order of the Industrial Court did great violence to the clear language of the Employment Act. The Industrial Court cannot substitute itself for the mechanism mandated by Parliament. Fortunately, the Employment (Amendment) Bill 2019, has picked this up and now proposes a severance pay formula of one month’s gross pay per year of service, repealing the existing provision.

A few days prior to this decision, the Court of Appeal passed judgment in African Field Epidemiology Network v Peter Waswa (CACA 124 of 2017). In this case, the Court of Appeal ruled that under the Constitution, the Industrial Court has power to award adequate compensation to a victim of wrongs. It omitted to mention that the particular provision is made “subject to the law” and therefore does not give free reign to the Industrial Court to ignore the special common law rules relating to remedies for breach of the employment contract. The Court also ruled that the Employment Act provisions on compensation for breach of the employment contract, only apply to the Labour Officer and not the Industrial Court. In this latter finding, we agree with the Court.

It is apparent that the Court of Appeal and the Supreme Court before it have not fully addressed the questions on the proper remedy for breach of the contract of employment. The questions still remain unanswered and the inconsistencies in approach across the Courts, unresolved. It is not a tenable state of affairs. The resolution of these questions is important for both employees and employers. Unfortunately, a call by the Uganda Law Society for issuance of a practice direction by the Chief Justice was declined as amounting to interfering with the independence of the judiciary.

An amendment of the Employment Act to make statutory prescriptions for the awards by the Industrial Court, is recommended. The same limitations on awards by labour officers should be applicable to awards of the Industrial Court namely, one month’s wages for failure to hold a hearing and a maximum of 3 month’s wages for unfair termination. Aggravated and punitive damages should remain in the realm of tortious claims. While the recently gazetted Employment (Amendment) Bill 2019 does not address these issues on damages, the Bill presents great opportunity to include the issues.

 

Phillip Karugaba

Head of ENSafrica Advocates | Uganda

pkarugaba@ENSafrica.com

+256 772 785 332

 

Rachel Musoke

Partner | ENSafrica Advocates | Uganda

rmusoke@ENSafrica.com

+256 772 778 822