Tanzania employment update: handling deadlock during retrenchment

In our previous employment law update, we discussed various ways of handling employment issues during the COVID-19 pandemic. Among other things, we highlighted the procedures for implementing unpaid leave, salary reduction and retrenchment. We concluded with the following basic principle in handling employment matters: Engage, Agree, Record and then Implement.

Click here to read our previous employment law update.

Where businesses are no longer viable and alternative working arrangements (unpaid leave, salary reduction, working from home among others) fail, or a technological advancement requires a reduction in employees, an employer may consider terminating an employment agreement by way of operational requirements/retrenchment. It is imperative that the employer adheres to the retrenchment procedure as provided in the employment and labour legislation in Tanzania

This briefing focuses on how to handle a stalemate during the retrenchment process. A successful retrenchment is premised on the employer and the employees reaching a consensus on the retrenchment 'agenda'. The agenda may include the reason for the retrenchment, the formula for selection of the employee(s) to be retrenched and payment of the retrenchment package to the affected employees.

It is not uncommon for the employer and the employee to reach a deadlock during the consultation stage, leading to a delay in concluding the retrenchment process. The deadlock may be caused by the following reasons:

1. mistrust on the part of the employee(s);
2. lack of clarity of the reasons for the proposed retrenchment;
3. fear of the future post retrenchment; and
4. the employees may be under the impression they could get a better deal if they prolong the negotiations.

A stalemate can lead to an increased financial burden on the employer, as the employer would be required to continue paying salaries to all the employees. It can also lead to disruption at the work place, as the prospect of retrenchment may lead to lower productivity on the part of the employees.

How to minimize the risk of a deadlock

Subject to the circumstances of the employer, some or all of the measures set out below may be applied to mitigate the risk of a deadlock during the retrenchment process:

1. the employer should initiate the retrenchment process when there is a valid and genuine justification for doing so;
2. the retrenchment process should be initiated as soon as possible to avoid a last minute rush;
3. the reasons for the proposed retrenchment must be communicated to the employees in simple and clear terms to ensure they are well understood;
4. all relevant documents and evidence supporting the need for retrenchment should be availed to the employees; and
5. the employer should consider a reasonable, but bearable retrenchment package.

Legal procedure for handling a deadlock

Section 38(2) and (3) of the Employment and Labour Relations Act, Cap. 366 [R.E. 2019] (the ELRA) provides that:

1. where in the consultations held for the purpose of retrenchment, no agreement is reached between the parties, the employer or the employees shall refer the matter to the Commission for Mediation and Arbitration (CMA) for mediation;
2. where the mediation has failed, the dispute shall be referred for arbitration which shall be concluded within 30 days during which period the employer shall not implement the retrenchment;
3. upon the arbitrator issuing the arbitral award, the employer may proceed with the retrenchment in accordance with the terms of the arbitral award; and
4. where the employees are dissatisfied with the arbitral award issued by the arbitrator, they may apply for revision of the arbitral award to the High Court (Labour Division).

Please note that the Employment and Labour Relations (Code of Good Practice) Rules, 2007 (the Code of Good Practice) provides for a slightly different procedure for handling a deadlock during the retrenchment process. Rule 23(8) and (9) of the Code of Good Practice provides that:

1. either party to refer the matter to the CMA for mediation if the parties are not able to reach an agreement during the consultation meeting; and
2. the mediation must be finalised within 30 days and the employer may not implement the retrenchment whilst the mediation is ongoing, unless otherwise agreed between the parties; and
3. once the 30 days have lapsed, the employer may proceed with the retrenchment unilaterally. The fairness of the employer's actions may be disputed and referred to arbitration, once the mediation fails.

The ELRA restricts the employer from implementing the retrenchment when the mediation fails. The employer may only retrench upon the arbitrator issuing an arbitral award, which must be issued within 30 days of the referral of the dispute for arbitration. On the other hand, the Code of Good Practice allows the employer to proceed with the retrenchment immediately after the failure of mediation.

It is our view that the discrepancy on the procedures set out in the ELRA and the Code of Good Practice is an anomaly in the legislation. However, the rules of interpretation provide that where there is a conflict between the principal legislation (in this case the ELRA) and the subsidiary legislation (in this case the Code of Good Practice) the principal legislation prevails. Accordingly, where there is a deadlock, it is advisable for employers to proceed with retrenchment only after the issuance of the arbitral award.

This briefing is prepared for clients and contacts of Clyde & Co Tanzania. We aim to keep our clients abreast of developments in Tanzania as they happen and if you have any questions on the issues raised above please contact us directly.

Further advice should be taken before relying on the contents of this summary. Clyde & Co Tanzania accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary. No part of this summary may be used, reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, reading or otherwise without the prior permission of Clyde & Co Tanzania.