A commentary on Civil Appeal No. 656 Of 2022 The National Social Security Fund Board Of Trustees Versus Kenya Tea Growers Association & 14 Others.
On 3rd February 2023, the Court of Appeal set aside a judgement delivered on 19th September 2022 by a 3-judge bench of the Employment and Labour Relations Court [“the ELRC Bench”], declaring the National Social Security Act 2013 [“NSSF Act 2013”] unconstitutional.
The effect of the judgement is to make the NSSF Act 2013 the operative law with immediate effect. The Act has certain salient provisions that rattle the status quo, hence the great public interest it has aroused.
Background of the matter:
The National Social Security Fund Act No. 45 of 2013 was assented to by the President of the Republic of Kenya on 24th December 2013 and came into force on 10th January 2014.
Following its enactment, five petitions were filed to challenge its constitutionality. 3 out of the 5 five consolidated Petitions were initially filed at the Constitutional and Human Rights Division of the High Court at Nairobi, but the High Court transferred them to the ELRC.
On 5th August 2014, Petitions 34, 35, 38, 49 and 50, were consolidated with Petition 35 being the lead file
Issues canvassed at the ELRC
The consolidated petitions before the ELRC contended that:
- That the enactment of the National Social Security Act No. 45 of 2013 (NSSF Act) in its entirety violated the Constitution of Kenya; and
- In the alternative, some of the provisions of the new Act contravened the Constitution and the Competition Act.
On 19th September 2022, the ELRC found the National Social Security Act 2013 to be unconstitutional. The Court specifically found that the Act dealt with finance matters affecting county governments; therefore, the Senate ought to have been involved in its enactment. The Court went further to impugn specific provisions in the new Act as being unconstitutional.
At the Court of Appeal
Aggrieved by the decision, The National Social Security Fund Board of Trustees appealed to the Court of Appeal. It raised, among others, issues on the jurisdiction of the ELRC to entertain the matter. It also faulted the ELRC bench for failing to find that the disputes pleaded in the petitions did not relate to an existing employee-employer relationship. A similar challenge was raised by the Cabinet Secretary for Labour, Social Security and Services, The Competition Authority and the Attorney General in their Cross-Appeal dated 31st October 2022. To them, determining the constitutionality of an Act of Parliament is a preserve of the High Court under Article 165 (3) (d) (i) of the Constitution. The Court of Appeal held that the ELRC bench lacked jurisdiction and set aside the judgment of the ELRC delivered on 19th September 2022 in its entirety.
The Court of Appeal addressed yet another issue: whether the enactment of the NSSF Act 2013 required the participation of the Senate as provided under Article 110 of the Constitution. A Bill not concerning county government is considered only in the National Assembly. A Bill concerning county government may originate in the National Assembly or the Senate and is passed by both houses. The critical question was whether the Bill leading to the enactment of the NSSF Act 2013 was a Bill concerning county government as “a Bill containing provisions affecting the functions and powers of the county governments.”
The Court of Appeal found that the ELRC bench erred by holding the concurrence of the Senate, and the National Assembly was required to enact the legislation.
Implications of the NSSF Act 2013
The following are some of the implications of the NSSF Act 2013:
- Under Section 18 (1) there is established both the Provident Fund and Pension Fund. The pension fund is mandatory and will cover all workers in the formal economy. The Provident Fund is voluntary, and it will cover the self-employed. The pension fund will pay members monthly pensions, while the Provident Fund will now replace the old provident Fund and make lump sum payments.
- Section 18(3) requires members of the Provident Fund to migrate to Pension Fund subject to meeting the eligibility criteria for membership except voluntary members.
- Section 18(4) makes it mandatory for “all persons” including employers to be pension fund members.
- Section 19(2) has created a link between registration with the Fund and access to other government services. The requirement is that; (2) Any person who is registerable as an employer under this section shall produce proof of registration with the scheme as a precondition for dealing with or accessing public services.
- Section 20(1): The rates of contribution to the new Pension Fund will be at 12% of the pensionable earnings (gross earnings) split as follows:-
- Employer – 6%
- Employee – 6%
There will be a gradual increment in the first five years of the commencement of the New Act as per the third schedule.
- Under Section 23: The Self Employed Persons who are Members of the Provident Fund will pay Kshs. 200/= as the minimum amount of voluntary contribution to the Fund. The minimum aggregate contribution shall be Kshs. 4,800/= annually.
- Section 27 provides for charging of interest on late payment. Section 24(2) (d) and (4) states in mandatory terms that all interests charged should be credited into the individual member account.
- Section 35(4) gives the Board absolute power to decline to pay or vary payment to a nominated beneficiary.
One Reply to “Employers set to feel the pain of higher NSSF Deductions”
Hi hrfleek.com, Thanks for the well-structured and well-presented post!