Legal Analysis on whether the existence of a long-term loan and previous renewal of an Employment Contract can create a reasonable expectation of renewal of an employment contract
It is a common practice, especially in financial institutions, for employees to take long
term loan, considering the interest rates are friendly.
This article intends to give a legal opinion on whether taking a long-term loan can create a reasonable expectation of renewal for an employee under a fixed-term contract and whether a previous renewal of an employment contract can also create a reasonable expectation of renewal.
Once or twice renewal of the employment contract cannot create a reasonable expectation of renewal when the employer does not intend to renew the contract. It is important to consider that if the renewal is conditional on serving notice on intention not to renew, then the employer must observe that the condition and issue notice accordingly. If the Contract explicitly says the contract itself serves as a notice, then the employer does not need to issue any prior notice.
The above Principle has been laid down by the Court of Appeal in the case of MSAFIRI SOBO Versus CRDB BANK PLC Civil Case No.34 of 2020. The Court in the above case has this to say regarding reasonable expectation of renewal of the employment contract.
“Regarding the Prior contract renewal, Mr.Msechu has convinced us that it is illogical for any rational individual to anticipate a subsequent renewal predicted on a solitary renewal. In Ibrahim S/O Mgunga (Supra), we determined that it was not reasonable to expect another renewal of an employment contract based on the evidence that it had been renewed once or twice.
Therefore, it is of considerable importance in that case, that the Employer duly notified the employees of impending expiration of their contracts and required them to return any Employer’s Property that was in their possession.”
On the second issue, on whether taking a long-term loan creates reasonable expectation, we opine as follows;
A loan is something personal, not connected to employment, and for that, it cannot bar the employer from issuing an intention not to renew the employment contract, and for that, it can not act as a basis for creating a reasonable expectation of renewal of the employment contract. The above position was well established again in the case of MSAFIRI SOBO Versus CRDB BANK PLC Civil Case No.34 of 2020, the Court held as follows;
Additionally, we agree with Mr. Msechu’s argument that the existence of the long-term loan to serve as a foundation for the anticipation of renewal. We concur with the High Court’s conclusion that the structured repayment of the borrowed funds beyond the appellant's term of the expiring contract was perilous and personal. His employment contract was not linked to the staff loan arrangement. His access to the loan was voluntary. It is not apparent how the fact his potential non renewal of employment could lead to non-repayment of the loan should compel the respondent to maintain him in his employment, at least, until June 2009, at which point the Loan would presumably be fully repaid.
Based on the above facts, employers are advised to refer to the employment contract if they do not intend to renew the contract. If the contract requires notice to be issued expressing the intention to renew, then that condition must be observed. Efforts must be made to ensure the employee is aware of such intention not to renew the contract.
Regarding the loan agreement, it is important for the agreement to contain a clause stating that the loan agreement does not form or create a reasonable expectation of the renewal of the employment Contract.