Conversion of Permanent Employment Contracts to Fixed Term Employment Contracts: Why, How, and other questions in-between

by: David Angwenyi

1. I got the idea to do this short write up from a press conference held by the Kenyan Cabinet Secretary for Public Service, Hon. Moses Kuria. Now, before you stop reading this or find something else to do, I want to assure you that you might learn something from it. Hon. Kuria is a fascinating character and has said several things in various press conferences over the years. However, the discussion he ignited this time might one day affect some of us, either as employers or employees.
2. A few days ago, Hon. Kuria announced a plan to convert employment contracts in the public service from permanent contracts to fixed term contracts. The true motives of the plan are not very clear at this point, although the setting of the announcement gives us a clue. The Cabinet Secretary was saying this in a press conference where he was expressing his frustration with the negotiations currently taking place between the Government and the Kenya Medical Practitioners, Pharmacists and Dentists Union.
3. The announcement must have startled many civil servants. Job security is one of the standout advantages of working for the government in addition, of course, to having the privilege to serve your country. Most of them are assured that they will have a job until retirement, their employer will not go bust before then and they will have a pension when they call it a day. The Cabinet Secretary was proposing to take this away. A message was being sent to the striking doctors.
4. Now various questions naturally arise from the Cabinet Secretary’s message. What is the difference between a permanent contract and a fixed term contract? Why would an employer favour a fixed term contract over a permanent one? Can an employer convert a permanent employment contract into a fixed term one? I believe most employers and employees are interested to know the answers to these questions and I hope this write up will be of some assistance.

Permanent vs Fixed Term Employment Contracts

1. Employment contracts come in different forms. They can be casual, fixed term or permanent. Although this paper is not concerned with casual employment, it arises where the employee is paid every day and is not engaged for more than 24 hours at a time^[1]. The Employment Act, 2007 is the starting point when discussing employment law in Kenya. It defines a fixed term contract as one which is not intended to continue for an indefinite period and whose last date is indicated in the contract.^[2]
2. The Act does not specifically define what a permanent contract is, but it does mention permanent type of work^[3] and a contract for service for an indefinite period^[4] which we should take to mean what is commonly referred to as a permanent employment contract. Such a contract is intended to last until an employee reaches the age of retirement of the organisation which employs them.
3. The decision to engage an employee on either a permanent or fixed term contract is made at the point of contracting. It has traditionally been guided by several factors, for example, the financial capacity of the employer, company policy, the employee’s role in the business etc. There is however a new factor which came into play in the last few years – the rigidity of employment contracts and how they are interpreted by the Courts.
4. Previously, some employers have, when engaging an employee, believed that they can terminate an employment contract by simply giving notice under the contract. It therefore did not matter to them whether the employment was fixed term or permanent since they believed the notice period (or payment in lieu of notice) gave them an out. Both the Court of Appeal and the Employment and Labour Relations Court have been clear that this is not the case. An employer is required to demonstrate the reason for termination and the reason should relate to the employee’s conduct, capacity, or the employer’s operational requirements in cases of redundancy.^[5]
5. The consequences of unfairly or unlawfully terminating an employment contract are grave. An employer can face damages up to the equivalent of twelve months of the employee’s salary. They not only have to have valid reasons for termination, but they also must take the employee through a fair disciplinary process.
6. What about situations where the employer can no longer afford to pay the employee or the employee’s position is no longer necessary in the organisation? Can they not just declare the employee redundant and move on? Redundancy may seem an easy choice, but its process is even more elaborate. Various notices must be sent in advance to all employees and the labour officer, a town hall meeting should be organised, a fair selection criteria identified, and a statutory pay-out made.^[6] It is far from easy and can be very expensive if not delicately handled.
7. Once employers realised the difficulties of disengaging with an employee, they explored the option of entering fixed term contracts. In cases of fixed term contracts, they could wait out an employee they want to disengage with and elect not to extend their contract. There was a temporary setback when some decisions of the Employment Court suggested that a legitimate expectation to extend a fixed term contract could be created.^[7] This seemed to be a step too far in protecting employees. Both parties had agreed that the employment relationship would last for a specific period, but the Court was varying this term of the contract.
8. The Court of Appeal had to come out clearly and state the law on fixed term contracts. The Bench in Transparency International – Kenya v Omondi (Civil Appeal 81 of 2018) [2023] KECA 174 (KLR) (17 February 2023) (Judgment) did so when it held:

“We dare say that an automatically renewable fixed-term contract is a contradiction in terms, as it would subject the parties to an indeterminate employment contract. The respondent was under a fixed-term contract with a definite commencement date and termination date. There was no ambiguity created to create an expectation of contract renewal by the appellant’s issuance of a fixed-term contract. The contract terminated automatically when the termination date arrived…”

1. A fixed term contract was just that – a contract for a fixed period. An employer had no obligations to give reasons or have a sit down with an employee before electing not to renew a fixed term contract. Following the Court of Appeal decision, more and more employers decided to engage their employees on fixed term contracts. However, old employees were still on permanent employment contracts. What to do about them? Could their contracts be converted to fixed term contracts? If so, how?

Conversion of Permanent Employment Contracts to Fixed Term Contracts

1. The answer to the conversion question may seem obvious at first, but the deeper one goes in their research, the less clear it becomes. Instinctively, the answer seems to lie in the definition of a contract. A contract is an agreement between two or more parties creating obligations that are enforceable and recognisable at law. The parties must agree to the terms of the contract and in case of employment contracts, these terms can only be varied by agreement of both the employer and the employee. The position in common law is that an employer cannot unilaterally change the terms of an employment and if they do, this will be breaching the contract.^[8]
2. The Employment Act, 2007 seems to set a lower threshold than the common law. Section 10(5) provides that an employer can only revise terms of an employment contract in consultation with the employee. Consultation only means that the employer should discuss the proposed variation with the employee and not necessarily that they should both agree to it. Dr. Gakeri, a notable Judge of the Employment Court has held that, ‘In a nutshell, the law requires the employer to consult the employee before the changes are effected. Instructively, the law does not provide that the employees consent is required.’^[9]
3. The common law says that consent is needed while the Employment Act sets a lower threshold of consultations. So where does the answer lie? Justice Radido, another distinguished Judge, tries to strike a balance and holds:

The common law principle that a unilateral variation of an employment contract is unlawful and amounts to repudiation and or breach of contract, and the statutory requirement to consult with an employee where there is a variation to the employment contract, and more specifically to essentials of the contract such as duration and remuneration where the employee would be adversely affected are ingredients of and are subsumed in the fair labour practice principle. ^[10]

1. I believe that the answer will depend on the terms of the employment contract and the facts of the case. There are some employment contracts which make it clear that their terms can only be varied where both parties expressly agree to the variation. In this case, the facts tilt more to the common law position of mutual consent. An employer cannot use section 10(5) to lower the threshold set by the contract. On the other hand, the employment contract may lack a clause on variation, the employer may have legitimate reasons for variation, and they may in good faith, consult and engage their employees on the conversion. In such cases, consultation may be found to be sufficient to support the conversion of permanent contracts to fixed term contracts.
2. Due to the different positions taken on the threshold, the Court of Appeal may have to clarify the position in law when it comes to the proper method of converting a permanent employment contract to a fixed term one – mutual agreement or consultation – or in the alternative, confirm that this is a fact sensitive inquiry.

Concluding Thoughts

1. I must apologise to the reader if this write up went further than they expected. It extended beyond answering the question – can an employment contract be converted from permanent to fixed term? It is important for any write up on Kenyan employment law to discuss the jurisprudence emanating from the Court, how employers are reacting to it and how all this leads to the decisions which are currently being made.
2. I hoped to clarify the Kenyan position on conversion of permanent employment contracts to fixed term contracts, but I fear this write up has given you more questions than answers. Until the Court of Appeal clarifies the position, an employer must at the very least, in good faith, consult an employee before converting employment contracts from permanent to fixed term. To be on the safe side, they should obtain their consent. What is however clear is that an employer – whether it is the government, a private entity or an individual – cannot forcefully, without consent or consultation, convert a permanent contract to a fixed term one. On my part, I propose an approach similar to courtship; they should woo and charm rather than threaten and force.

1. Section 2 of the Employment Act, 2007. ↑
2. Section 10(3)(c) of the Employment Act, 2007 ↑
3. Section 76 of the Employment Act, 2007. ↑
4. Section 10(3)(c) and 18(2)(d) of the Employment Act, 2007. ↑
5. Section 40 and 43 of the Employment Act, 2007 and Kenfreight (E.A.) Limited v Benson K.Nguti [2016] eKLR. ↑
6. Kenya Airways Limited v Aviation & Allied Workers Union Kenya & 3 others [2014] eKLR. ↑
7. For example, Ruth Gathoni Ngotho- Kariuki v. the Presbytery Church of East Africa & Anor [2012] eKLR and Teresa Carlo Omondi v Transparency International- Kenya [2017] eKLR. ↑
8. Rigby v Ferodo Ltd [1987] IRLR 516, HL. ↑
9. Wekesa v Multimedia University of Kenya (Cause 1682 of 2016) [2022] KEELRC 1507 (KLR) (13 June 2022) (Judgment). ↑
10. James Ang’awa Atanda & 10 others v Judicial Service Commission [2017] eKLR. ↑