- Meaning of Retrenchment and Redundancy
- What is to be considered on retrenchment
- The importance of Consultation
- Method of selection
- Employee’s terminal benefits
During economic hardships Employers must find ways to balance the situation. Financial hardships may be handled by exploring cost-cutting options available for the company. These include reduction in number of workers.
The Tanzanian law allows termination for operational requirements based on the economic, technological, structural or similar needs of the employer. It is a termination based on reasons beyond the control of the employer or unforeseeable by the employer (meaning no fault on the part of the employer).
The above option is legally termed and categorized into Retrenchment. In other jurisdiction, the process is also referred to as, and akin to, Redundancy. Our Employment and Labour law department at Breakthrough Attorneys has prepared this publication as a general guideline on the procedures and things to be considered on retrenchment.
2.0 Meaning of Retrenchment
Retrenchment is the termination of employment based on the ground of superfluity of workers due to economic downturn or to cut down. This simply means that employees are terminated due to circumstances beyond employer’s control. (Section 38 of the Employment and Labour Relations Act, 2004).
3.0 What to be considered before 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 provides for the procedures to be followed on retrenchment. It is important for employers to consider the following procedures;
- A notice of intention to retrench.
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, the employer must disclose his reasons, timing and other relevant information; the purpose of which is to have a proper consultation with the employees. The requirement for notice is provided under Section 38(1) (a) of the Employment and Labour Relations Act.
An employer who is proposing to make retrench must consult with the employees who are at risk of being terminated. Here the employer should meet the employees, or if applicable, trade union leaders, in a way conducive to them at the work place or any other agreed place.The consultation should begin once an employer proposes to retrench as required under section 38(1) (b) of the Employment and Labour Relations Act. The consultations must focus on:
- Ways of avoiding the proposed retrenchment
- How the employer could reduce the number of proposed employees to be retrenched
- Mitigating the consequence of the retrenchment.
Generally, the purpose of consultation procedure is to ensure that the employer and affected employees do agree on the alternative ways/ways to minimize the intended retrenchment such as transfer to other jobs, voluntary retrenchment package, early retirement, and so forth.
Where no alternative measures are possible, the parties should agree as to terminal benefits such as severance pay, transport allowance and other statutory rights as per Section 44 of the Employment and Labour Relations Act. If an agreement is reached, then it will be binding on the parties as a collective agreement in terms of Section 71 (3) (c) of the Act.
- Method and criteria of selection
Rule 24(1) of the Employment and Labour Relations (Code of Good Practice) Rules provides 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) n any case the employer has carte blanche to retain key jobs, experience or special skills, affirmative action and qualifications. This is also provided under Rule 23(4) (c) of the Employment and Labour Relations (Code of Good Practice) Rules.
4.0 Benefits of the employees on retrenchment
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:
- Any remuneration for work done up to the time of termination.
- Any annual leave
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.
- 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 notice of termination (in accordance to 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.
- Severance pay
As per Section 38(c) (v) of the Employment and Labour Relations Act, 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. The calculation of severance payment is as follows:Gross Monthly Salary is divided by twenty-six (26) working days multiplied by seven (7) times the number of years of service up to a maximum of ten (10) years.
- Transport allowance (Repatriation)
The retrenched employee is entitled to transportation of himself and his personal effects to the place of recruitment, if the termination took place other than a place of recruitment of the employee as per Section 43 of the Act. It is important to note that 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.
- Prescribed certificate of services.
A retrenched employee is entitled to a certificate of service as per Section 44(2) of the Act. This is usually prescribed by the minister but employer may prepare their own certificate of services.
It is important that Employers follow the procedures set by the law for retrenchment to avoid legal actions by the employees. Breakthrough Attorneys insist that the procedures must be followed fairly, transparently and consultatively. In the same footing employers are urged to take all possible measures to avoid retrenchment and the effects of retrenchment to their employees. Further, retrenched employees expressing an interest in future re-employment shall be given preference in re-employment if the employer within two years of retrenchment seeks to re-recruit employees in comparable occupations.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.