Controversy as Industrial Court insists employers must give reasons for terminating an employment contract
The Industrial Court has passed a controversial award insisting that employers must give reasons before an employment contract is terminated (Asiimwe Apollo v Law Development Centre). The award contradicts the Court of Appeal’s recent decision that an employer may terminate a contract of employment without giving reasons, provided that notice or payment in lieu of notice was given (Bank of Uganda v Joseph Kibuuka).
The Industrial Court was expected to follow the Court of Appeal decision in the Kibuuka case on the principle that a lower court is bound by the decision of a higher court.
This leaves a perplexing state of affairs for both employees and employers. Should an employer give reasons for termination? Should an employee insist on reasons for termination?
Termination of an employment contract on notice or payment in lieu of notice is a helpful option for employers and may also serve an employee in some circumstances. Where the employee/employer relationship has deteriorated and become unbearable, the option to terminate on notice may save both the employer and employee an acrimonious hearing process. It may serve all parties including the morale of the other employees if the objectionable employee is simply let go without inquiry.
The claimants sued for a declaration that the termination of their employment was unfair as the termination letters did not stipulate the reason for termination. However, each claimant received three months’ pay in lieu of notice.
The Industrial Court relied on the Supreme Court case of Hilda Musinguzi v Stanbic Bank Uganda to hold that reasons must be given before termination of an employee. The Supreme Court stated in the Hilda Musinguzi decision“…the right of an employer to terminate a contract cannot be fettered by the courts so long as the procedure for termination is followed to ensure that no employee’s contract is terminated at the whims of the employer and if it were to happen, the employee would be entitled to compensation.”
The Industrial Court concluded that the Court of Appeal in the Kibuuka decision had ignored the Supreme Court decision, and therefore held that there was a requirement to give reasons before termination. The Industrial Court also stated that the Hilda Musinguzi decision resonated with Article 4 of the International Labour Organisation (“ILO”) Termination of Employment Convention 1982, which requires reason be given before termination.
The reasons question
The award reignites the debate on whether reasons should or should not be given by the employer prior to termination of an employment contract. While we did not agree with the Kibuuka decision, it was expansive on reasons for not applying Article 4 of the ILO Convention. The Court of Appeal reasoned that while Uganda domesticated the ILO Convention, Article 4, in particular, was not re-enacted in the Employment Act and is therefore not applicable in Uganda. The Industrial Court, in choosing to depart from the Kibuuka decision, should have explained why it thought Article 4 still applied.
Perhaps the best approach to understanding this issue is to focus on the modes of ending a contract of employment by dismissal and termination by notice.
An employer may dismiss an employee for misconduct after a hearing. The employee is informed of the reasons for disciplinary action, the right to representation and the right to face the accusers.
The Hilda Musinguzi case was a situation of dismissal. The appellant had been accused of gross negligence leading to financial loss to the bank. She had been informed of her infractions, placed on investigative suspension, and subjected to disciplinary hearings which recommended her dismissal.
The Supreme Court observed that although the termination letter was titled “termination”, the nature and reasons for termination leaned more towards dismissal. This may explain why the Supreme Court emphasised the need to follow procedure before dismissing an employee to avoid the situation of an employee being terminated at the employer’s whims. Upon satisfaction that Hilda Musinguzi was given a fair hearing, the court held that the dismissal was lawful.
On the other hand, an employer’s right to terminate the contract of employment by notice or payment in lieu of notice does not relate to misconduct. This was the kind of termination that the Court of Appeal dealt with in the Kibuuka decision and the Industrial Court in the Asiimwe Apollo matter. In both cases, the termination arose out of the need for restructuring by the employer.
It is therefore wrong for the Industrial Court to interpret the words “procedure” and “whims” from the Hilda Musinguzi decision as signifying the requirement to give reasons for dismissal and applying it to the Asiimwe Apollo matter which did not arise from a dismissal. A dismissal requires procedures such as investigation and hearing to protect the employee from being discharged “at the whim” of the employer, Termination by notice, on the other hand, only requires giving the employee notice or payment in lieu of notice.
Both the Court of Appeal and Industrial Court referred to the Hilda Musinguzi decision in the Kibuuka and Asiimwe decisions respectively, although each court arrived at its own conclusion on the legal proposition of the Supreme Court. A careful reading of the Hilda Musinguzi decision shows that the Supreme Court set out the law and procedure on the two different modes of termination albeit in a not-so-clear fashion. Perhaps, this is where the confusion originates.
For instance, upon citing its previous decision in Barclays Bank v Godfrey Mubiru, the Supreme Court concluded that an employer cannot be forced to keep an employee against their will and that the Employment Act permitted termination on notice. However, since the matter arose from a dismissal (not a termination), the Supreme Court added that procedure should always be followed so that no employee is dismissed at the whim of the employer.
By glossing over the distinction between “termination” and “dismissal” the Industrial Court misapplied the principles in the Hilda Musinguzi decision.
The Court of Appeal is now the final appellate court in employment matters. There is no opportunity for the Supreme Court to clarify its decision in the Hilda Musinguzi matter.
The challenge now falls to the Court of Appeal to clarify its decision in the Joseph Kibuuka decision and perhaps also comment on the Hilda Musinguzi decision. Hopefully, clarification from the Court of Appeal will put this issue to bed and probably settle a number of “reasons-based” claims from employees who have been terminated (not dismissed).
Office Head | Uganda