Why You Must Update Employment Contracts in Kenya

The Hidden Liabilities Inside Old Templates — And Why Every Employer Must Act Now

By William Karoki Advocates (WKA Advocates) | wakilihub.co.ke/

If your organisation is still using employment contracts in Kenya drafted before March 2024, those documents are no longer simply outdated—they have become high-risk legal liabilities. Over the last 18 months, Kenya’s labour and compliance environment has been reshaped by new statutory deductions, updated labour laws, aggressive ELRC rulings, the introduction of SHIF, the abolition of NHIF, and strict enforcement by the Office of the Data Protection Commissioner (ODPC).

Across sectors including banking, manufacturing, logistics, technology, agriculture, hospitality, NGOs and professional services, WKA Advocates has repeatedly encountered the same pattern: employers discover contract defects only when facing a termination, redundancy, salary dispute, or unfair labour practice claim. By that stage, the financial and legal exposure is already unavoidable.

Updating employment contracts is no longer a routine HR task—it is a 2025 risk-management requirement that protects employers from litigation, KRA audits, payroll disputes, and data protection penalties.

1. The “Net Pay Clause” – A Silent Financial Time Bomb

Before 2024, many employers used net salary contracts, especially for expatriates, senior staff, and sales executives. This practice became dangerous after the introduction of the Affordable Housing Levy, uncapped SHIF contributions, and stricter enforcement of PAYE and NSSF Tier II deductions.

For example, a clause such as:

“Your salary is KSh 200,000 Net of taxes.”

now forces the employer to absorb additional statutory deductions every time Parliament introduces a change. In contract reviews conducted by WKA Advocates, some employers unknowingly absorbed millions due to outdated net-pay structures.

2025 Contract Requirement

Employment contracts must now:

• use gross salary as the basis of remuneration

• authorize all statutory deductions including PAYE, SHIF, Housing Levy, NSSF, and any deductions introduced by Parliament

This prevents payroll disputes, unlawful deduction claims, and KRA enforcement actions.

2. NHIF Is Dead — And Contracts That Mention It Are Legally Defective

The Social Health Insurance Act (2023) abolished NHIF and replaced it with SHIF. Yet thousands of employment contracts in Kenya still reference NHIF, creating legal and payroll complications.

The Legal Problem

Section 19 of the Employment Act prohibits salary deductions that are not expressly authorized. Employees have successfully argued that:

• SHIF cannot be deducted if the contract only mentions NHIF

• the employer must refund deductions made without authority

Updated contracts must include language authorizing deductions for current and future statutory obligations, ensuring compliance with Kenya’s evolving payroll system.

3. Rolling Fixed-Term Contracts Are Now a Litigation Trap

A major shift occurred in Gichuki v Kenya Power (2025), where the ELRC ruled that repeatedly renewing fixed-term contracts for ongoing, core roles constitutes unlawful casualisation.

Consequences for Employers

Workers on rolling short-term contracts can be declared:

• permanent employees

• entitled to full historical benefits

• protected under unfair termination laws

This exposes employers to significant financial liability.

2025 Contract Requirement

Modern fixed-term contracts must:

• avoid implying automatic renewal

• be used only for genuinely time-bound roles

• ensure that long-term functions are placed under permanent contracts

This eliminates the risk of employees being reclassified as permanent through litigation.

4. Data Protection, Biometrics & Image Rights — The New Litigation Frontier

Most contracts drafted before 2024 fail to address Kenya’s strict data protection regime under the Data Protection Act, 2019. ODPC rulings in 2024–2025 have expanded employer liability in areas such as:

• use of employee photographs in marketing

• biometric timekeeping systems

• CCTV surveillance

• WhatsApp and email monitoring

• GPS tracking for field workers

• cloud storage of employee data

These activities legally constitute personal data processing.

Why Employers Are Being Sued

Former employees have challenged:

• use of their image without consent

• biometric data collection policies

• unauthorized surveillance

• unclear data retention practices

Contracts lacking explicit data-processing consent, biometric consent, and image rights provisions are now exposed to penalties, damages and ODPC enforcement.

2025 Contract Requirement

Contracts must include:

• clear data-processing notices

• explicit consent for biometrics and CCTV

• image rights clauses

• cross-border data transfer conditions

• data retention and deletion obligations

This ensures compliance and reduces the risk of data-related litigation.

5. Remote Work & “Place of Work” Ambiguity — A Growing Legal Threat

Although the pandemic ended, remote and hybrid work environments remain common in Kenya. However, most pre-2024 contracts still list the Nairobi office as the sole workplace, causing two serious legal risks:

Risk 1: WIBA Liability for Home Injuries

Employees injured at home during remote work may claim that home is an authorized workplace, exposing employers to workplace injury compensation.

Risk 2: Refusal to Return to Office

Employees argue that remote work has become an implied contractual term under custom and practice.

WKA Advocates has handled multiple disputes in these areas, especially in technology, consulting, and professional services sectors.

2025 Contract Requirement

Modern employment contracts must:

• define remote work conditions

• reserve the employer’s right to recall employees

• limit employer liability for off-site injuries

• clarify work tools, monitoring, and supervision requirements

This eliminates ambiguity and strengthens employer control.

6. Constructive Dismissal Risks from Unilateral Contract Changes

Employers often attempt to “fix” outdated contracts through internal memos or policy updates—especially to address SHIF deductions, Housing Levy, remote work rules, or new job duties. This is legally dangerous.

In Gatuma v Kenya Breweries (2024), the Supreme Court held that unilaterally changing employment terms is a breach of contract.

If the employee resigns because of such changes, they can claim Constructive Dismissal, attracting compensation of up to twelve months’ salary.

2025 Legal Requirement

Employers must:

• consult employees before varying contracts

• document consent properly

• issue lawful Deeds of Variation

• follow Employment Act procedures during changes

WKA Advocates regularly guides employers through formal contract variation processes to prevent constructive dismissal claims.

How WKA Advocates Helps Employers Protect Themselves

From hundreds of contract reviews conducted in 2024–2025, we identified recurring risks including outdated statutory references, non-compliant payroll structures, weak termination clauses, unlawful deductions, insufficient data protection language, and ambiguous workplace definitions.

Employers rely on us for:

• comprehensive contract audits

• redesigning compliant contract templates

• lawful staff transition processes

• defensible addendums and Deeds of Variation

• risk-aligned HR documentation

• alignment with the Employment Act, SHIF regulations, WIBA standards, ODPC guidelines, and evolving ELRC jurisprudence

Our goal is not merely to update documents, but to create legally defensible employment contracts that anticipate emerging risks in Kenya’s evolving labour ecosystem.

Final Thought: Every Month You Delay Increases Your Legal Exposure

In 2025, Kenyan employers are being sued—and losing—over issues that did not exist two years ago. Outdated contracts now expose organisations to:

• constructive dismissal claims

• unlawful deduction disputes

• data protection penalties

• payroll compliance issues

• wrongful casualisation findings

• WIBA liabilities

• remote-work controversies

Modernising your employment contracts is no longer optional. It is a critical compliance, governance, and risk-mitigation step.

Request a Confidential Contract Audit

William Karoki Advocates (WKA Advocates)
📞 +254 798 035 580
📧 info@wka.co.ke
📍 Valley View Business Park, 6th Floor, Suite 35, City Park Drive, Parklands, Nairobi
🌐 wakilihub.co.ke/