Under the Employment and Labour Relations Act, No. 6 of 2004, an employer may lawfully reduce the workforce for valid reasons, including economic hardship. However, the law sets out a specific procedure that must be followed to ensure that the rights of employees are protected.
1. Valid Grounds for Retrenchment
According to Section 38(1) of the Employment and Labour Relations Act:
“An employer may terminate the employment of an employee if there is a valid reason such as misconduct, poor performance, or operational requirements of the business including economic, technological or structural needs.”
This means that retrenching employees due to financial difficulty is lawful if there is sufficient evidence that the company can no longer sustain its current wage obligations.
2. Employee Involvement and Consultation
Before any retrenchment takes place, the employer is required by Section 38(1)(a)-(d) to:
- Communicate with the employees’ representatives or recognized trade union;
- Provide a written notice explaining the intention to retrench, which must include:
- The reasons for retrenchment;
- The number and categories of employees likely to be affected;
- The proposed method of selection;
- Allow employees to present their views with the aim of avoiding or minimizing retrenchment;
- Engage in good faith consultations to reach an agreement.
Section 38(1)(c) specifically states:
“The employer shall consult in good faith with the trade union or employees’ representatives with the objective of minimizing the adverse effects of retrenchment on employees and the enterprise.”
3. Criteria for Selecting Employees to be Retrenched
According to Rule 23 of the Employment and Labour Relations (Code of Good Practice) Rules, 2007 – GN No. 42, the employer must use fair and non-discriminatory criteria when selecting employees for retrenchment. These criteria may include:
- Work experience;
- Job performance;
- Disciplinary record;
- Needs of the department or company;
- The “last in, first out” (LIFO) principle, where other criteria are not sufficient.
4. Payment of Terminal Benefits
As per Section 44 of the Act and Rule 26 of GN No. 42 of 2007, employees who are retrenched are entitled to the following:
- All salary dues up to the date of termination;
- Accrued but unused leave days;
- Severance pay, if the employee has served for at least 12 consecutive months – minimum of 7 days’ wages for each completed year of service; Any other benefits provided by contract or law.
5. Notice and Certificate of Service
The employer must provide a written termination letter and a Certificate of Service as required under Section 44(2) of the Act.
6. Right to Appeal and Dispute Resolution
If the employee believes that the retrenchment was unfair, they have the right to lodge a complaint with the Commission for Mediation and Arbitration (CMA) within 30 days from the date of termination, in accordance with Section 86(1).
This document is prepared to guide employers and employees on the legal retrenchment process in Tanzania, ensuring compliance with statutory obligations and protection of workers’ rights.