In a landmark decision delivered on 15th November, 2023, the Court of Appeal, has provided an interpretation of Section 65 (1)(a) of the Employment Act of 2006, in a manner that will be welcomed by Employers. Section 65 (1)(a) of the Employment Act provides for a termination scenario where an employer ends the contract with notice.

The case in question, Stanbic Bank (Uganda) Limited vs. Nassanga Saphinah Kasule, (Civil Appeal No. 182 of 2021) centered on the termination, with three months’ notice pay, of an employment contract that had been running for over 10 years. The Appellant Bank, relying on a termination clause in the employment contract, terminated the employee’s contract and paid her three months in lieu of notice. The termination clause provided that either party had the right to terminate the contract with the issuance of the required notice or payment in lieu of notice.
The Industrial Court had ruled that the employee’s termination was a disguised dismissal without a hearing and awarded her damages in the sum of Ugx.65,000,000/=. The Bank appealed to the Court of Appeal against the decision and award of the Industrial Court. The Bank argued that, by complying with the three-month salary payment in lieu of notice, they had fulfilled their obligations under the law.

The Court of Appeal has upheld the bank’s argument and set aside the decision and award of the Industrial Court. The Justices have unanimously held that binding precedents from the Supreme Court have already established that where contracts allow termination with notice of a specified period, such contract can be terminated by giving the stipulated notice for the period. In default of such notice by the employer, the employee is entitled to receive payment in lieu of notice and where no period for notice is stipulated, compensation will be awarded for reasonable notice which should have been given, depending on the nature and duration of employment.

The Court of Appeal further held that employers are not obliged to provide reasons for termination under Section 65(1)(a) of the Employment Act, as long as the stipulated notice or payment in lieu of notice is provided. The necessity for a hearing is limited to cases involving dismissal based on misconduct or poor performance. Section 2 of the Employment Act distinguishes between dismissal and termination, with dismissal linked to employee misconduct and termination applicable for justifiable reasons other than misconduct.

This case highlights the critical importance of meticulously drafting employment contracts with a proper termination clause. Equally, termination letters for notice should not include any reasons that suggest dismissal.

CA 182 2021 STANBIC BANK LTD (1)