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Navigating a tough economy: Consultation is vital to retrenchment process

2017-03-09 12:30:10

By Paul Kibuuka

IN JUNE 2012, the rich and powerful congregated in Davos in the scenic Swiss Alps for the 42nd annual meeting of the World Economic Forum to discuss, among other issues, the bitter fact that the world economy was not creating enough jobs. 

And yet in both developed and developing countries, today, five years since that meeting was held, unemployment is still one of the biggest issues we are facing.

According to the IMF’s October 2016 World Economic Outlook, developing countries are hardest hit by unemployment.

Tanzania is certainly no exception.

Although latest figures are difficult to come by, the November 2015 Integrated Labour Force Survey (ILFS) conducted by the National Bureau of Statistics (NBS) shows that the number of unemployed people aged 15 years and above in 2014 was approximately 2.3 million and overall unemployment rate in the same year hit 10.3 percent in which Dar es Salaam had the highest unemployment rate of 21.5 percent.

Not surprising, when the Fifth-Phase Government led by Dr. John Magufuli took over power at a time the NBS released the ILFS survey results, the Government proposed in its first 2015/16 National Budget to spend 50.9bn/- to implement Industrial Growth for Job Creation strategies in an effort to tackle the daunting unemployment challenge.

Despite this well-intentioned effort, the liquidity squeeze being experienced across Tanzania has had an adverse effect on the country’s labour market, with a wave of retrenchments which started two years ago (see: “Tanzania mining industry cuts jobs as gold price slumps” - The East African et al, Dec 12, 2015; “Gemstone firm sheds 600 jobs to cut costs” - The Citizen et al, Jan 11, 2016; “Job cuts as Fastjet Airlines incurs loss” - The Citizen et al, Oct 6, 2016; “600 set to lose jobs at Sao Hills” - The Citizen et al, Nov 26, 2016) expected to continue into 2017 (see also: “Job losses as telecoms plan cuts” - The Citizen et al, Jan 27, 2017).

According to some media reports quoting sector analysts, manufacturing, construction, real estate, hotel, telecoms as well as transportation and logistics, including shipping, trucking, and air travel have seen the most retrenchments or voluntary separation programs being implemented.

Since the consequences of losing a job are calamitous, especially for low-skilled employees, ideally, an employer may retrench employees as a last resort. Moreover, the hidden costs of retrenchment (e.g. severance, notice and leave pay; and time taken up by the consultations) are substantial and cannot just be ignored.

Even so, due to the uneven balance of power, some employers singly retrench employees in contrariety to the letter and spirit of Tanzania’s Employment and Labour Relations Act No. 6 of 2004 (the “ELRA Act”) and others may do so oblivious to employee rights.

That’s why employees must acquaint themselves with the specific provisions of the ELRA Act in order to safeguard against unfair retrenchment practices which their employers may, knowingly or ignorantly, implement.

According to section 38 of the ELRA Act, an employer may retrench one or more of its employees based on the following grounds: financial constraints, technological changes, restructuring of the business, mergers and acquisition, and closing of business.

It should be underscored, nevertheless, that the Commission for Mediation and Arbitration has taken a firm attitude when arbitrating unfair retrenchment disputes, and so the employer must demonstrate that it did not have any other alternative, except retrenchment based on any of the above-mentioned grounds.  

In terms of section 38(1)(c) of the ELRA Act, if an employer intends to retrench, the employer is under an obligation to consult, prior to any retrenchment, with a trade union or employees who are not represented by a trade union. 

The question then arises: When’s the obligation to consult set in motion?

The answer to this question may be found by referring to section 38(1) (a) of the ELRA Act. By virtue of this provision, in any retrenchment, the employer is required to give notice of any intention to retrench as soon as it is “contemplated”.

Unfortunately, the ELRA Act does not define the crucial word “contemplated”. But we may construe its meaning by looking to the raison d’etre of the consultation process.

The consultation process is aimed at assisting both the employer and the employees to reach consensus--not necessarily actual consensus--on the possible ways to avoid the planned retrenchments and, if they cannot be avoided, minimize the number of employees to be retrenched, assuage any adverse impact of the retrenchments, choose objective criterion for the selection of potential retrenchees, and negotiate severance pay and other payments for retrenched employees.

Keeping this in mind, the consultation process must sensibly commence prior to taking an absolute decision to retrench employees, so that they present their views in an endavour to sway the retrenchment decision.

However, the precise moment in which an employer can be considered to have "contemplated" the intention to retrench, and thus when the obligation to consult with a trade union or employees would have been set in motion, is a matter of intense deliberation.  

The most likely approach to the timing of the consultation process is where the employer is obliged to begin consultations once the possible need for retrenchment is acknowledged and prior to taking an absolute decision to retrench.

This is what the Parliament of Tanzania almost certainly intended, so that the obligation to consult with a trade union or employees arises when an employer, having forecasted the need for retrenchment, contemplates it. Any other interpretation would, in my view, contravene the wishes of the Parliament.

Essentially, before acknowledging the possible need for retrenchment, the employer is expected to have admitted its business is sick or weak; looked into the root cause and potential solutions; embraced the need to take alleviative measures; and identified retrenchment as a likely alleviative measure.

When this position has been reached, consultation becomes a central part of the process culminating in the final determination on whether or not retrenchment is inevitable.

There’s also a view that the approach to the timing of the consultation must be in regard to either whether the reasons for retrenchment are within the employer’s control e.g. introduction of new technology, or outside the employer's control e.g. tight liquidity in the economy.

In step with this view, where the reason for retrenchment is within the employer’s control, fairness demands that employees should, before the employer introduces any technological or other changes, be allowed the chance to give views on whether their jobs may be affected by the changes and if so, the employer, then, assumes an obligation to consult with them prior to implementing the changes.

All the same, within the letter and spirit of the ELRA Act, an employer is obliged to consult with employees and get their feedback before an absolute decision to retrench is implemented.

To sum up, if an employer fails to start the consultation when it contemplates a retrenchment and prior to taking an absolute decision to retrench, this will affect the fairness of the retrenchment process—and likely lead to a pile up of labour disputes in Tanzania’s Commission for Mediation and Arbitration at a time when the economy is facing tight liquidity challenges.  

Paul Kibuuka is managing partner of Isidora & Company Advocates. Email: paul.kibuuka@isidoralaw.co.tz Twitter: @isidoralaw

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