A Consultancy can mutate into an Employer-Employee Relationship

On 15 March 2023 the Claimant received a consultancy agreement (the Agreement) appointing him as a consultant in the position of General Manager for the 1st Respondent. The Claimant asserted that he discharged his duties as a consultant General Manager (GM) and additionally served in the same capacity in four other companies including the 2nd Respondent, Wanderjoy Partyworld Limited.

Further, on instructions of the Director of the 1st Respondent, he undertook roles and responsibilities outside the scope of his consultancy, including signing appointment, dismissal, and redundancy letters as well as local purchase orders and other documents ordinarily outside the scope of a consultancy. He asserts that by virtue of the extended responsibilities, he effectively transitioned into an employee in the position of a GM thereby converting his consultancy agreement to a de facto contract of employment. On 21 May 2024, the Claimant tendered his resignation on grounds of a difficult working environment and irregular salary payments – upon receiving his terminal dues, he identified discrepancies including underpayments, unjustified deductions and unpaid leave prompting the present case with the Claimant citing the Respondents for constructive dismissal.

The Respondents opposed the claim and stated that the consultancy agreement was for a 12-month term, renewable on new terms and conditions. They denied the claim that the Claimant was constructively dismissed contending instead that he voluntarily resigned by issuing a one month notice to the 1st Respondent. 

Submissions

The Claimant submitted that he undertook to provide labour and skills in offering services to the Respondents in exchange of wages. He argued that it was an express term of their engagement that, in performing his duties, he would be subject to the Respondents’ control – which according to the Claimant would encompass the authority to determine the tasks to be performed, the manner and means of performing them and the time and place of their execution. He argued that the Respondents’ deviation from key terms of the Agreement created an intolerable working environment effectively compelling him to resign. He maintained that the termination of his employment, which was precipitated by the Respondents’ conduct, amounted to constructive dismissal which was unlawful, unfair and procedurally wanting.

On the other hand, the Respondent submitted that the Claimant was an independent contractor who determined the manner in which he rendered services to the 1st Respondent. The Respondents maintained that the relationship between the parties was governed by a job engagement agreement and payment based on invoicing for completed work. 

Analysis and determination

The Court singled out three issues for determination, including: whether the Claimant was engaged under a contract of service or a contract for service. 

Contract of service or contract for service 

A contact of service is one which establishes an employer-employee relationship under the Employment Act. On the other hand, a contract for service, it is one which creates a client-contractor relationship. 

The central dispute between the parties concerned the nature of their relationship – the Claimant asserted that his engagement evolved into an employer-employee relationship whereas the 1st Respondent employer maintained that he was engaged under a contract for service, with responsibilities unchanged as outlined in the Agreement. From the Court’s analysis, it was evident that while the Agreement was classified as a Consultancy Agreement, there was compelling indication that the nature of engagement between the parties was that of an employment relationship. While the Claimant was engaged as a consultant, uncontroverted evidence showed that he undertook roles and responsibilities outside the scope of his consultancy, including signing appointment, dismissal, and redundancy letters as well as local purchase orders and other documents.

The Court was persuaded that notwithstanding the descriptive terms and labels used in the Consultancy Agreement, by dint of the additional roles, the engagement between the Claimant and the 1st Respondent morphed into an employer-employee relationship.

Why is this decision important?

This decision is important as it brings into picture the line between a contract of service and a contract for service and when a contract for service can be construed to have morphed into an employer-employee relationship. A contract for service can transition into a contract of service based on the factual analysis and circumstances of the work performed and remuneration paid. Therefore, employers are urged to be cautious in distinguishing a consultant’s duties and responsibilities from those of an employee.

Mathenge v Tokea Solutions Limited & another [2026] KEELRC 537 (KLR)