Common legal issues that sink Kenyan enterprises

Besides the various operational aspects of keeping a business running smoothly, a business owner’s chief task is ensuring the business stays out of trouble with the law.  Fidel Mwaki, a lawyer who deals with real estate and corporate law in Kenya, discusses some of the common problems businesses in Kenya face. 

1. Hiring and firing of employees

Letting an employee go is not as easy as saying ‘you’re fired.’ Yet many businesses do it because the partnership began with a handshake and a word-of-mouth agreement. This exposes you to serious litigation.

Also, as a company grows it requires a working human resource policy. 

“Usually in Kenya, the court makes decisions in favour of employees. Many of these issues arise because employers do not set up a proper HR structure. First, your contracts should align with the employment laws and secondly, at a certain size say 20-plus employees, there should be a human resource policy in place. You have to follow specific procedures when firing people. These include issuing notices, and allowing the employee to argue their case,” says Mwaki.

Other things to keep in mind include: 

While a small business with few employees may not require a HR department, every employee needs a contract that specifies the employee rights, roles, duties, salary, benefits, contract date and possible reasons for termination. 

With business expansion comes new products or revenue streams and new contracts. See a lawyer who can tell you which areas need to be covered to protect your business. “If your business has grown, contract a corporate or commercial lawyer who will be at hand at every stage of your business.” 

2. Agreements

Take for example occupation leases. If you do not understand the provisions of the lease you are taking on, it may create problems with the landlord. Many businesses fall into the trap of one-sided agreements because the other party sneaked in some clauses that present problems later on.

“It is imperative to understand the lease contract before signing it. Do not agree to anything without reading it. You can get a lawyer to go through it for red flags,” advises Mwaki.

Also, supplier agreements are another mine-field. 

“We see this when a business gets into contracts with the big supermarkets. Many businesses are eager to get into business with the big entities that they sign any contracts presented to them. “

These contracts, Mwaki says, often favour the big chains, especially when it comes to payments.

“You may not change much on the terms but getting a lawyer to read through the contract may help you understand the risks. Being well informed helps you decide what revisions of the contract you could ask for before signing it. Do not let fear of losing the business force you into bad contracts.”

3. Protecting your brand

Intellectual property theft has been on the rise in recent years and business sense dictates that if you have developed a product, been in business for some time or have a logo, you need to copyright your work and products. This way, you can seek legal recourse should imitators arise.

For instance, a consumer recently caused a stir on the internet when they pointed out that some manufacturer has not been in business since 1998, yet there exists a company in Nairobi’s Baba Dogo that has been profiting off people’s nostalgia.

“There are many people looking to take advantage of your product. Some are going by aliases that you will probably never find. The only way to mitigate this is legally to protect yourself. Such people can set up fake websites and fake products and profit off your name. If you have not set up trademarks for your business or products, or copyrights for your books or music, then you have left yourself open for your brand to be misused,” adds Mwaki.

Patents are best explained by the giant Coca-Cola. The taste of Coca-Cola is very unique and cannot be successfully duplicated. If your product or idea is very unique and likely to be profitable, patent it immediately. Coca-Cola’s original formula was patented in 1893. Usually, a patent is only good for 20 years, which means that after that, the recipe becomes available to the public.

Another example is M-Pesa. M-Pesa is indeed patented although it is not Kenyan as presumed. It is in fact British and patented in 2007 under Vodafone. It still remains a great example of when to protect your intellectual property.

4. Litigation

A business can be sued for one of three reasons. That it has infringed rights, breached obligations or caused harm. The bigger the company, the harder it is to avoid litigation.

“Smaller businesses can put in place systems to avoid litigation. A small business will often get bankrupted by a drawn-out case whereas a big business has the scale and financial muscle with strong, clever lawyers to deal with the cases, in and out of court,” says Mwaki.

One way small businesses can avoid being sued or having to sue people, both of which cost money, is by having contracts in place. 

“Think of the collapse of Nakumatt. They had so much debt, it was unlikely that they would recover. They are a test case on how to not assume anything in any business transactions,” adds Mwaki.

Another way to avoid litigation is by terminating a contract if you know the business cannot deliver on its part. 

“If you cannot deliver a contract for any reason, find a way to get out of it as soon as possible. For example, if you have rented space and due to the pandemic you can’t pay for the space; instead of waiting to be served a demand notice for months of unpaid rent, reach out to the landlord for a different solution. Always have an agreement with your landlord on what will happen if you cannot perform and whether you can break your lease.”  

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