Employment contracts are the foundation of any Employer-Employee relationship. For small and medium-sized enterprises (SME’s), which often operate with lean structures and limited resources, a clear, well-drafted employment contract is not just a legal formality; it is a critical tool for managing expectations, reducing disputes, and protecting the business from compliance risks.

Section 9 of the Employment Act provides that any contract existing for a period of 3 months or more must be in writing. Section 10 then provides for the essential clauses in an employment agreement. In this article we discuss ten essential clauses every SME should include in its employment contracts.

1. Job Title and Job Description

A clearly defined job title and description outlines the scope of the role, reporting lines, and expected deliverables. A job description also helps guide performance assessments and disciplinary actions.

Section 10(2)(a) of the Employment Act provides that every contract of service must include the name, age, permanent address, and sex of the employee, as well as their job description and designation. This clarity provides a benchmark for assessing whether an employee is fulfilling their duties.

2. Commencement Date and Nature of the Contract

The contract should clearly state when the employment begins and whether it is permanent, fixed-term, or casual in nature. This has direct implications for benefits eligibility, notice periods, and legal compliance.

Section 10(2)(d) and (e) of the Act provides that every employment contract must include the date the employment begins and specify the duration or conditions under which it may be terminated. For instance, fixed-term contracts should include a termination date.

3. Place of Work

Section 10(2)(f) of the Act requires the contract to indicate the place of work or, where the employee is required to work at various locations, an indication of this must be given. Including this clause helps manage employee expectations and logistical planning.

4. Working Hours

The contract should state the days of work and expected hours. Where flexible hours, shift work, or overtime may apply, these should be clearly defined.

Section 27(1) of the Act provides for at least one rest day in every period of seven days. The working week shall consist of not more than fifty-two (52) hours spread over six days.

5. Remuneration and Payment Terms

This clause should set out the employee’s salary or wage, payment intervals (e.g. monthly), and mode of payment (bank transfer, cheque, etc.). It should also explain statutory deductions such as PAYE, SHIF, Housing Levy and NSSF.

Section 10(2)(h) and (i) of the Act provides that the contract must contain details about the form and amount of remuneration, the intervals of payment, and any other benefits due to the employee. Clarity on remuneration reduces misunderstandings and potential wage disputes.

6. Leave Entitlements

Employees are entitled to various forms of leave including annual leave, sick leave, maternity/paternity leave, and public holidays. The contract should outline these entitlements and any additional leave policies the employer may offer.

Sections 27–30 of the Act provides for different categories of leave. Section 28 provides that every employee is entitled to at least 21 working days of annual leave after 12 consecutive months of service. Maternity leave is granted for a period of three months, while paternity leave is provided for two weeks. In the case of adoption, employees are entitled to pre-adoptive leave of one month. For sick leave, employees may take up to seven days with full pay and an additional seven days with half pay. However, it is important to note that relevant regulations provide for a maximum of 30 days of sick leave. Including leave entitlements in the contract not only ensures compliance but also promotes employee wellbeing.

7. Probation Period

Probation clauses allow employers to assess the suitability of new hires before confirming them. During probation, shorter notice periods typically apply.

Section 42(1) of the Act provides that a probation period must not exceed six months, although it may be extended for a further six months with the employee’s consent. A well-drafted probation clause ensures that both parties are aligned on expectations from the onset.

8. Termination and Notice Period

The contract should outline the process for terminating the employment relationship, the notice period required, and whether payment in lieu of notice is permitted. Grounds for termination such as poor performance, redundancy, or gross misconduct should also be described.

Section 35 of the Act provides for termination by notice or payment in lieu thereof, depending on the duration of employment. Further, Sections 41–45 outline the fair procedures that must be followed when terminating an employee. Including this clause protects the employer from wrongful termination claims and sets a fair process upon termination.

9. Confidentiality and Non-Disclosure

SME’s often handle sensitive client data, trade secrets, or proprietary processes. A confidentiality clause obliges employees not to disclose or misuse this information during or after employment.

It is also advisable to include a clause stating that any work-related inventions, designs, or content created by the employee belong to the employer. Including this clause helps SMEs safeguard innovations developed using company resources.

10. Dispute Resolution Mechanism

Conflicts are inevitable in any workplace. It is essential to have a clause that outlines how disputes will be handled, whether through mediation, arbitration or the Employment and Labour relations court.

Conclusion

Employment contracts are not just legal formalities, they are strategic documents that shape the Employer-Employee relationship. For SMEs, a properly structured contract provides clarity, reduces risk, and ensures compliance with Kenya’s Employment Act.

Need help drafting or reviewing your employment contracts? Reach out to law@cmsmeclub.com for legal support tailored to your business.

Written by: Rosario Kamuti (rkamuti@cmadvocates.com)

Published on May 5, 2025, 9:12 a.m.