The Implications of the Supreme Court’s Ruling on the NSSF Act 2013

With the enactment of the National Social Security Fund (NSSF) Act, 2013, the Act sought to increase the contribution rates from Kshs. 400 to 12% of an employee’s monthly earnings, with a 6% deduction from the employee and an equivalent 6% deduction from the employer. Furthermore, the Act sought to impose mandatory registration and contribution by any employer of one or more employees. With the said provisions in place, several petitions were filed at the High Court in Nakuru and Nairobi challenging the constitutionality of the NSSF Act which were consolidated into one for determination by the Employment and Labor Relations Court (ELRC) in Nairobi. On 19th September 2022, in Petition No. 38 of 2014, Kenya Tea Growers Association & 8 others v. National Social Security Fund Board & Others, a three Judge Bench of the Employment and Labor Relations Court (ELRC) held that the National Social Security Fund Act, 2013 was unconstitutional citing it did not align with the principles outlined in the Constitution, primarily due to several reasons which included inconsistency and contravention with the Competition Act, mandatory contributions to the National Social Security Fund for both employees and employers, regardless of membership in other social security schemes and improper enactment procedures that disregarded legislative protocols. The NSSF Board of Trustees filed Nairobi Civil Appeal No. 656 of 2022 challenging the Court’s decision. The main issue was whether the ELRC wrongfully assumed jurisdiction over a matter falling within the High Court’s jurisdiction under Article 165(3)(d)(i) of the Constitution. The Court of Appeal overturned the ELRC Judgment on grounds that the dispute at the ELRC concerned the constitutionality of the NSSF Act 2013 and did not disclose any employer-employee relationship to trigger the jurisdiction of the ELRC.

The Supreme Court’s Ruling

The matter was further appealed to the Supreme Court by various Trade Unions where the main issue for determination was whether the ELRC had jurisdiction to determine the constitutionality of the NSSF Act. The petitioners argued that the ELRC’s jurisdiction extended to employment and labor matters, emphasizing that its jurisdiction was not strictly limited by the provisions outlined in Section 12 of the ELRC Act. They contended that the ELRC’s role was crucial in resolving disputes related to employment obligations, even those involving constitutional questions, and highlighted Kenya’s obligation to adhere to international labor standards. Additionally, they pointed out that the ELRC, as stated by the Chief Justice, had a specialized division for judicial review and labor rights enforcement, further supporting its jurisdiction in handling constitutional matters. The petitioners also reiterated their commitment to NSSF contributions but opposed simultaneous contributions to pension and gratuity. Conversely, the respondents argued that the High Court, under Article 165(3)(d) of the Constitution, held the authority to determine the constitutionality of laws and that specialized courts like the ELRC were limited to specific areas of jurisdiction to maintain legal integrity. They contended that the ELRC’s jurisdiction did not encompass matters regarding the constitutionality of statutes like the NSSF Act, as such disputes were beyond its purview. Additionally, they emphasized that the dispute was primarily related to pension matters, not employment, thereby falling outside the ELRC’s mandate.

Analysis of the Supreme Court’s Ruling

The Supreme Court examined several critical issues arising from the legal dispute over the NSSF Act’s constitutionality. Firstly, it scrutinized whether the third appellant had the right to participate in the appeal as per Article 163(4)(a) of the Constitution, ultimately ruling in favor of the appellant’s admissibility despite objections raised by the respondents regarding their capacity. Additionally, the court evaluated whether the ELRC had jurisdiction to decide on the constitutional validity of the NSSF Act, emphasizing the ELRC’s role in handling employment and labor disputes under Article 162(2)(a) of the Constitution and Section 12(1) of the ELRC Act. The Supreme Court determined that the ELRC indeed possessed the jurisdiction to adjudicate on constitutional matters related to employment and labor. Furthermore, the court clarified that the Court of Appeal could not exercise original jurisdiction in such cases and ordered the case to be remitted to the appropriate court. Accordingly, in line with Section 22 of the Supreme Court Act 2011, the Supreme Court directed the Court of Appeal to reconsider the ELRC judgment, recognizing the case’s significance as a matter of public interest.

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Impact of the Judgement

The Supreme Court’s judgment overturns the Court of Appeal judgment on the basis that the ELRC had jurisdiction to declare the NSSF Act unconstitutional. This means that the unconstitutional status of the Act as initially declared by the ELRC remains until the redetermination of the case by the Court of Appeal. This also halts the mandatory contribution at the 12% rate as envisaged under the NSSF Act. Furthermore, no employer or employee should be compelled to register with or contribute to the NSSF under the provisions of the 2013 Act, neither can anyone be denied public services for refusing or failing to enrol with NSSF. The implication of the Supreme Court’s judgement is that since the Supreme Court found that Employment and Labour Relations Court (ELRC) had jurisdiction to determine the constitutional validity of the NSSF Act, 2013. It therefore means that the decision of the ELRC rendered on the on 19th September 2022, is the current position in law as far as contributions to the NSSF are concerned.

On September 19th, 2022, the ELRC issued several orders, including an injunction, which restrained the respondents—the Attorney General and the NSSF Board of Trustees—from mandating or compelling employers or employees to register, enroll, or contribute earnings under the NSSF Act No. 45 of 2013. This injunction aimed to prevent the enforcement of mandatory registration and contribution requirements imposed by the NSSF Act, protecting employers and employees from being obligated to participate in the scheme outlined in the Act. The order amongst other orders of the ELRC have not been stayed by the Supreme Court or the Court of Appeal where this matter was remitted by the Supreme Court for the Court of Appeal to determine the substantive merits of the ELRC judgment on an urgent basis since this matter was deemed to be a matter of public interest.

In light of the above cited Order of the ELRC, no deductions should be made under the NSSF Act of 2013 until the Court of Appeal renders its decision since there was no stay of the ELRC decision granted by Supreme Court when it recently rendered its decision on 21st February 2024. Therefore, deductions under the NSSF Act No, 45 of 2013 will only be made if the Court of Appeal stays or sets aside the decision of the ELRC.  As such, the current law in force as far as matters deduction and remission of NSSF contributions are concerned is the NSSF Act, CAP 258 Laws of Kenya.

For more information on the NSSF Act, 2013 or any other related concern or query, please reach out to Stella Ojango at sojango@gvalawfirm.com or to Simon Muinde at smuinde@gvalawfirm.com.

 

 

 

 

 

 

 

 

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