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Executive summary

On 21 February 2024, the Supreme Court of Kenya issued a decision affirming the jurisdiction of the Employment and Labour Relations Court (ELRC) to determine the constitutional validity of statutes in matters of employment and labor relations where the statutes are at the center of the dispute. This decision also emphasized that stripping the ELRC of such authority would leave the court judicially hamstrung, as it would be unable to determine disputes comprehensively with finality in instances where the question of the constitutional validity of a statute or a provision thereof arose.

The implication of this judgment is that the decision of the ELRC declaring the NSSF Act, 2013 unconstitutional was reinstated, as the ELRC acted within its mandate in hearing and determining the matter.

Detailed discussion

The National Social Security Fund Act, 2013 (hereinafter the NSSF Act, 2013) came into operation in January 2014. Organizations representing employees in a consolidated Constitutional Petition challenged the constitutionality of the Act before the Constitutional and Human Rights division of the High Court. The High Court, however, was of the view that because the matter pertained to issues relating to social security and employment, it was within the mandate of the ELRC to hear and determine the suit.

After hearing the matter, the ELRC held that the NSSF Act, 2013 was unconstitutional for various reasons. Specifically, the ELRC found the Act was unconstitutional because it:

• Should have been tabled before the Senate prior to its enactment because its provisions have implications for County finances (citing Articles 205(1) and 110 of the Constitution)
• Creates a monopoly by providing pension and social security services in the country to the Fund (contrary to provisions of Article 10(1)(b) and (c) of the Constitution as read with section 3 of the Competition Act)
• Requires that the Board's payment of allowances and fees be approved by the Cabinet Secretary for Labour, but this mandate is reserved for the Salaries and Remuneration Commission (conflicting with Article 230(4) of the Constitution)
• Predicates access to public services on NSSF membership (inconsistent with Articles 21(1), 47(1) and 232(1) of the Constitution)
• Makes contributing to the Fund mandatory and requires employees with adequate alternative pension or social security schemes to join those operated by the NSSF Board (violating the rights of employees and employers to make their own choices)

Following this judgment, the matter was appealed to the Court of Appeal on grounds that the ELRC lacked jurisdiction to make a declaration on the constitutionality of the NSSF Act, 2013. The Court of Appeal held that the mandate to determine the question of whether a law is inconsistent with the Constitution falls within the domain of the High Court and therefore aside the ELRC's decision and all consequential orders in its entirety.

It is against this backdrop that the matter was further appealed to the Supreme Court.

Appellants' arguments

The Appellants asserted that the Court of Appeal erred by nullifying the proceedings and judgment of the ELRC on grounds that it lacked the competent jurisdiction to entertain the suit. They posited that the constitutionality of a law fundamentally altering obligations of employers and employees clearly relates to employment and labor relations within the meaning of Article 162(2)(a) of the Constitution.

Additionally, the Appellants contended that the Senate should have been consulted on the enactment of the NSSF Act, 2013 because its provisions relate to matters that fall directly within the Senate's mandate, especially in light of the fact that County Governments have their own pension schemes, Laptrust, and the County Pension Fund. They added that the NSSF contributions affected County finances because these had to be budgeted for and financed.

Finally, the Appellants argued that the Court of Appeal's proceedings, beyond determining whether the ELRC had jurisdiction, were conducted devoid of jurisdiction and were null and void. The Appellants submitted that the Court of Appeal was duty bound to remit the consolidated petition to the High Court for determination, as the lower court lacked original jurisdiction over the matter.

Respondents' arguments

The Respondents argued that because the dominant purpose of the present action was to adjudicate the constitutionality of a Statute, the matter was beyond the purview of the ELRC. The Respondents relied on Article 165(3), which confers upon the High Court jurisdiction to determine the constitutionality of any law, and argued that Article 165(5) precludes the High Court from determining matters falling within the jurisdiction of specialized courts, and vice versa.

The Respondents countered the Appellants' other arguments, including by contending that the retirement program established under the NSSF Act, 2013 is a primary program that acts as a safety net, fosters healthy competition among retirement plans, and does not deter employees and businesses from negotiating better programs.

Supreme Court determination

The Supreme Court, having considered the Appeal, established the following issues for determination:

1. Whether the Employment and Labour Relations Court lacked jurisdiction to determine the constitutional validity of the NSSF Act, 2013

The Supreme Court noted that there is nothing in the Constitution, or the ELRC Act, to suggest that in exercising its jurisdiction over disputes emanating from employment and labor relations the ELRC Court is precluded from determining the constitutional validity of a statute — especially if the statute in question lies at the center of the dispute. The Court underscored that the extensive provisions of the NSSF Act, 2013 requiring employers and employees to contribute specific amounts of money to a Social Security Fund cannot be said to have nothing to do with an employer-employee relationship. It also considered the parties to the dispute, who included trade unions, workers associations, employers and employees, and concluded that these were among the disputants contemplated under Section 12(2) of the ELRC Act.

2. Whether the Court of Appeal exercised original jurisdiction in partially determining the constitutionality of the NSSF Act, 2013

The Supreme Court concluded that where the Court of Appeal determines that a trial court has acted without jurisdiction in determining a matter, it cannot assume original jurisdiction over the same. In such as a case, the Appellate Court must remit the case to the court that is clothed with jurisdiction to dispose of the issue without going into the merits of the dispute, because doing so may prejudice the fair determination of the case by the court with jurisdiction. The High Court acknowledged the fact that, generally, it bears original jurisdiction to interpret the Constitution.

3. Whether the case should be remitted to the High Court for determination

The Supreme Court cited Section 22 of the Supreme Court Act, 2011, which empowers the Court to remit proceedings that began in a court or tribunal to any court that has jurisdiction to deal with the matter.

4. Whether any relief is available to the parties

The Supreme Court pointed out that as a general rule, costs follow the event. In this instance, it was the Court's view that there was no justification to direct the Respondents to bear the costs of the litigation, because the case has yet to be substantively determined by the Court of Appeal and a further appeal may still lie to the Supreme Court.

Findings

In allowing the appeal, the Supreme Court affirmed the jurisdiction of the ELRC to determine the constitutional validity of the NSSF Act, 2013. It agreed with the Appellants that the provision of social security benefits, including pensions, is an integral component of employment and labor relations both domestically and internationally. Consequently, the NSSF Act, 2013 falls within that sphere. Pension rights cannot exist outside of employment and the drafters of the Constitution intended that the ELRC should have jurisdiction on all matters relating to employment and labor relations.

Nonetheless, the Supreme Court highlighted that it retains the residual jurisdiction to determine whether any law is inconsistent with the Constitution. The Court restated that it has the original and exclusive jurisdiction (without exception) to hear and determine applications for redress of denial, violation, or infringement of rights and fundamental freedoms in the Bill of Rights under Articles 22 and 23 of the Constitution.

In view of this, the Supreme Court ordered that the matter be remitted to the Court of Appeal to determine the substantive merits of the ELRC decision on a priority basis. The parties to the suit were also directed to bear their own costs.

Implications

This decision reinstates the validity of the ELRC judgment that found the NSSF Act, 2013 to be unconstitutional. This implies that the NSSF rates that employers should apply should be those applicable prior to the enactment of the NSSF Act, 2013.

Note, however, that an NSSF notice issued on 22 February 2024 advised employers to continue making contributions to the fund as per the NSSF Act, 2013 because, in the NSSF's view, the Supreme Court did not lift the Court of Appeal's orders issued on 3 February 2023 (which had declared invalid the ELRC decision finding the NSSF Act, 2013 unconstitutional) and thus the NSSF is empowered to continue receiving contributions.

Employers should look out for any further guidance from the Attorney General.