Q&A with Isidora & Company: What Tanzanian law says about retrenchment

Saturday July 20 2019



PAUL KIBUUKA tax@paulkibuuka.com 

QUESTION: I have learnt that the company I am working for is about to retrench some of its employees because another company is acquiring it. I am worried about what my job status/position is going to be in the next few months. What does the Tanzanian law say about the retrenchment procedure and the payment of terminal benefits to retrenchees? Kind regards, Munyori.

ANSWER: Retrenchment is a specific legal process governed under section 38 of the Employment and Labour Relations Act (No. 6 of 2004) read together with Rules 23, 24 and 25 of the Employment and Labour Relations (Code of Good Practice) Government Notice No. 42 of 2007. These provisions are quite specific in terms of the procedure for retrenching employees. Consequently, a procedural error can result in an ostensibly benevolent action by the employer being overruled by the Commission for Mediation and Arbitration (CMA). In terms of section 38 (1), retrenchment is the termination of an employee, employees or a group of employees due to an operational requirement. The employer is required to have justifiable grounds for retrenching. These include financial constraints, technological changes, business restructuring, mergers and acquisitions and closing of business.

Retrenchment procedure

Faced with the likelihood of retrenchments, an employer’s first step is to give employees notice of the intention to retrench as soon as it is contemplated. This starts the consultation process in respect of which the employer should disclose all relevant information on the intended retrenchment. As to the question of when the obligation to consult is set in motion, please read: Kibuuka, Paul. “Consultation is vital to retrenchment process.” The Citizen. March 16, 2017). The consultation must be made with (a) a recognized trade union pursuant to section 67 of the Employment and Labour Relations Act No. 6 of 2004; (b) any registered trade union with members at the workplace who are not represented by a recognized trade union; or (c) any employees who are not represented by the recognized trade union or any registered trade union.

The point of the consultation is to allow the employer and the employees to undertake a joint problem solving exercise to try to avoid termination and attempt to reach consensus on the reasons for, and the measures to avoid or minimize, the intended retrenchment. Consensus should also be reached, if possible, on the criteria for selecting employees to be retrenchment, the timing of the retrenchment and on the severance and other conditions for terminating the employees’ contracts. If the parties to the consultation fail to reach a mutual agreement, an employer is required to refer the matter for mediation before the CMA. And if the mediation fails, the dispute must be referred to an arbitrator for compulsory arbitration to be conducted within a period of 6o days. During this period, the law states that no retrenchment shall take effect. However, in the event that the arbitration exceeds 60 days, the employer can proceed to retrench.

Terminal benefits


Any remuneration for work done before termination and owing to an employee who is terminated due to an operational requirement of the employer, is payable. Such employee is also entitled to severance pay, notice pay, leave accrued but not taken, repatriation cost and a certificate of service.

However, according to section 42(3)(b) of the Employment and Labour Relations Act of 2004, an employer shall not pay severance pay to an employee who is terminated on grounds of operational requirements of the employer but who unreasonably refuses to accept alternative employment with the employer or any other employer. If an employer decides to re-employ then preference must be given to retrenched employees.

Importance of documentation

Documentation about the retrenchment process is critical, especially in the context of legal proceedings.

Maintaining the notice issued to all employees, the invitation to the consultative meeting issued to the trade union and/or affected employees, the signed attendance lists, the signed minutes of meeting, the retrenchment agreement and the letter of termination allows the employer and the employees to preserve a written history of the happenings and discussions that occurred around the retrenchment.

It is very important for an employer to follow the procedures as prescribed under the Employment and Labour Relations Act of 2004, read together with Rules 23, 24 and 25 of the Employment and Labour Relations (Code of Good Practice) Government Notice No. 42 of 2007. A retrenchment cannot be fair if it is not both procedurally and substantively fair.

Therefore, an employer must participate in good-faith negotiations and not use retrenchment as a tactic to get rid of problematic employees or trade unions. Employees must be consulted thoroughly prior to taking the decision to retrench. And if the decision must be taken, then it must be based on justifiable grounds.

Please do send us your questions by e-mail to qa@isidoralaw.co.tz

Paul Kibuuka (tax@paulkibuuka.com) is a tax and corporate lawyer, tax policy analyst and chief executive of Isidora & Company.

DISCLAIMER: The purpose of this weekly Q&A column with Isidora & Company Advocates is intended to educate the public on Tanzanian law matters, and is not a substitute for the role of your legal counsel. For any legal issue you face, you are strongly encouraged to contact your legal counsel.