A Guide For Termination On Operational Requirements (Retrenchment) In Tanzania.

Key Points:

• Introduction to retrenchment (Redundancy)
• Grounds for retrenchment
• Procedural requirements for retrenchment
• Employees terminal benefits
• Consequences of unfair retrenchment.
• Conclusion

1.???? Introduction.

Retrenchment, also known as redundancy, is a form of termination of employment where an employer reduces the workforce due to economic, technological, structural or similar reasons that are unrelated to an individual employee’s conduct or performance. In Tanzania, retrenchment is governed by Labour laws, primarily the Employment and Labour Relations Act, 2004 which provides the foundation for retrenchment procedures in Tanzania, particularly Section 38, read together with Rules 23, 24, and 25 of the Employment and Labour Relations (Code of Good Practice) GN. 42/2007.

The Labour Institutions Act, 2004 establishes institutions such as the Commission for Mediation and Arbitration (CMA), which handles disputes arising from retrenchment while the Labour Institutions (Code of Good Practice) Rules, 2007, offer guidelines on fair labour practices, including the retrenchment process. Although not specific to retrenchment, the Constitution of the United Republic of Tanzania, 1977 provides for fundamental labour rights including the right to fair employment practices.

This article provides an overview of the legal framework governing retrenchment in Tanzania, employer obligations, employee rights and best practices to ensure compliance with labour laws.

2.???? Grounds for Retrenchment.

The provision of section 38 of the Employment and Labour Relations Act, 2004 mandates that Employers must have a valid reason and follow fair procedures before undertake retrenchment, and the following are the grounds for retrenchment: -

a)???? Economic reasons – Declining business performance, cost-cutting or financial crisis.

b)???? Technological changes – Automation or adoption of new technology that reduces the need for manual labour.

c)???? Structural changes – Organizational restructuring or mergers that result in redundancies.

d)???? Operational requirements – Business efficiency improvements leading to workforce reduction.

3.???? Procedural requirements for retrenchment

It is important that retrenchment, like any other form of termination, must be fair in terms of procedures. Section 38 of the Employment and Labour Relations Act, 2004 provides for the procedures to be followed by employers to ensure compliance with the law. For retrenchment to be lawful employers must consider the following procedures; -

(i)??????????? Fair selection criteria.

According to Rule 24(1) of the Employment and Labour Relations (Code of Good Practice) Rules,?provided that the employer and employees should agree as to the criteria for selection of employees to be retrenched. If not agreed upon, then the criteria used by the employer shall be fair and objective provided that it is not based on discriminatory grounds.

The International Labour Organization (ILO) proposes two ways of selecting employees up for retrenchment:?LIFO?(Last in First Out) and?FIFO?(First in First Out).This is also provided under?Rule 23(4) (c) of the Employment and Labour Relations (Code of Good Practice) Rules.?

(ii)?????????? Notice of intention to retrenchment.

The requirement for notice is provided under?Section 38(1) (a) of the Employment and Labour Relations Act. The employer is required to notify the employees on his intention to retrench as soon as he contemplates doing so. In notifying the employees about retrenchment, Employers must issue a retrenchment notice in writing, stating the reason for termination, the date on which termination will take effect, entitlements of the affected employees and any available assistance such as re-employment opportunities to employees.

(iii)???????? Consultation with employees and trade unions prior to retrenchment.

?Before retrenchment, employers must engage in a consultation process with affected employees, trade unions or employee representatives. The consultation should cover reasons for retrenchment, Possible alternatives to retrenchment, Criteria for selecting employees to be retrenched and the severance packages and benefits for affected employees.

Section 67 of the Employment and Labour Relations Act, mandates that consultation be conducted with a recognized trade union and any employees not represented by a recognized union. If consultation fails to reach mutual agreement, the employer must refer the matter for mediation before the Commission for Mediation and Arbitration (CMA). Should mediation fail, the dispute shall be referred to an arbitrator for compulsory arbitration, which must be concluded within a sixty-day period. If arbitration exceeds this timeframe, the employer may proceed with the retrenchment.

Generally,?the purpose of consultation procedure is to ensure that the employer and affected employees do agree on alternative ways/ways to minimize the intended retrenchment such as transfer to other jobs, voluntary retrenchment package, early retirement, and so forth.

4.???? Retrenched Employee’s Terminal Benefits

The benefits payable on retrenchment are provided for under Section 44 of the Employment and labour relations Act.?Section 44 of the Employment and Labour Relations Act?applies whenever a contract of employment is terminated by the employer; therefore, the employees are entitled to the following benefits: -?

a)???? Remuneration for work done before termination.

An employer is legally entitled to pay an employee for the work done before termination as per Section 44(1)(a) of the Employment and Labour Relations Act.

b)??? Payment in lieu of notice.

Ordinarily, an employer who has to instantly end an employment contract is obliged to pay at least one (1) month salary to employees whose employment contracts are terminated. Should the employer issue a notice of termination (in accordance with Section 41 and 38 of the Employment and Labour Relations Act) then this would not apply. It is, however, that during retrenchment employers are expected to issue a notice of retrenchment and as such if the notice is issued the employer is not subject to this payment.

c)???? Severance pay

As per?Section 38(c) (v)?of the Employment and Labour Relations Act, 2004 the employer is required to pay the employee severance payment. Severance pay is calculated from at least seven (7) days’ basic wage for each completed year of continuous service up to a maximum of ten (10) years.

d)??? Leave accrued but not taken

A retrenched employee is entitled to any annual leave pay due to an employee for leave that the employee hasn’t taken, and any annual leave pay which has accrued before the date of termination (that is for the days worked in the leave circle on prorate basis). This depends on how the employee’s wage is calculated whether on hourly, weekly or monthly basis.

e)???? Repatriation cost

The retrenched employee is entitled to transportation of himself and his personal effects to the place of recruitment, if the termination takes place other than the place of recruitment of the employee as per Section 43 of the Employment and Labour Relations Act. It is important to note that the transport allowance shall be equal to at least a bus fare to the bus station nearest to the place of recruitment or as bargained between the employer and the employee at the time of employment.?

f)????? Certificate of service

A retrenched employee is entitled to a certificate of service as per Section 44(2) of the Employment and Labour Relations Act. This is usually prescribed by the minister, but employers may prepare their own certificate of services.

5.???? Consequences of unfair retrenchment.

Failure to adhere to the correct retrenchment procedure could lead to claims of unfair termination being filed in the Commission for Mediation and Arbitration. The employer may be ordered to either reinstate or compensate the impacted employees. Additionally, this could harm the company's reputation and strain industrial relations.

6.???? Conclusion

Retrenchment in Tanzania is a sensitive issue that requires compliance with legal requirements to ensure fairness and minimize disputes. Employers must follow due process, engage in consultations and provide appropriate compensation to employees. Employees, on the other hand, should be aware of their rights and seek legal redress in case of unfair retrenchment. By adhering to best practices, both employers and employees can navigate retrenchment in a lawful and respectful manner.

Written by - Rebecca N. Manoti

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