Employment agreement after Corporate sale

 By Emmanuel K.Mwesiga, Esq.

This legal brief intends to provide proper legal guidance on how employment issues are handled after the corporate transfer, restructure or reorganization by either corporate sale, mergers, acquisitions, joint ventures, or company splitting. 

Corporate restructure in Tanzania

In countries with growing economies such as Tanzania which is currently classified as a lower-middle-income country; due to economic needs practices of corporate restructuring and reorganization such as transfers, Mergers, takeovers, Joint Ventures, and splitting of companies are prevalent.

Based on operation requirements, some companies acquire other companies, merge with each other, split between the two or conduct many other forms of corporate restructuring and or reorganizations for various reasons.

Some of the reasons are the need for attaining strong financial muscles, as well as for obtaining new technologies and sharing or getting more expertise in their respective sectors. On the other hand, companies conduct mergers and acquisitions due to the requirements of the laws in a particular country.

A good example in the banking sector in Tanzania, most mergers in this sectors are due to Capital adequacy requirements as per regulations by the Central Bank of Tanzania (BOT).

Also, in the mining sector, some restructuring are inspired by the mining legal regimes for mineral rights holders.

How to handle employment issues during company transfer of restructuring in Tanzania

Unlike many In other countries, in Tanzania, less has been written on how to handle employment concerns that might occur during Company transfer, restructuring, and/or reorganizations.

It should be noted that except for amalgamation of companies which is not popular in Tanzania; Mergers and Acquisitions attracts serious employment concerns when the acquiring party has enough work force hence cannot be able to accommodate some of the employee from the target or acquired company.

In this regards before a transaction takes place there have to be some formalities on how to handle these remaining number of employees of the target company.

Generally, once a company has been acquired by another company, in absence of an agreement to that effect, it is not an obligation of the acquiring company to take over its employee as well. The acquired company has to handle employment concerns through a process known as retrenchment before even the said transaction has taken place.

These employees may, however, be hired by the acquiring company after the retrenchment process has taken place. With regards to the agreement in place on hiring employees of the acquired company by an acquiring company, this is not automatic as well.

It requires a consultative meeting and consent of the said employees and they have a right to refuse or to accept the offer. 

Alternatively, whenever an employer wishes to take a retrenchment path has to comply with the following mandatory conditions or procedures stipulated in the Tanzanian Employment laws;

  1. Notice of any intention to retrench as soon as it is contemplated;
  2. Disclosure of all relevant information on the intended retrenchment for the purpose of proper consultation;
  3. Consult prior to retrenchment or redundancy on:-

  •  The reasons for the intended retrenchment;
  • Any measures to avoid or minimize the intended retrenchment;
  • The method of selection of the employees to be retrenched;
  • The timing of the retrenchments;
  • Severance pay in respect of the retrenchments

Conclusion

It must be noted that, in all these procedures and processes proper documentation are very important. For the purpose of records and as a matter of good practice an employer must have in hand a proper dossier, containing sequences of events and process.

This should help in case there is a future dispute by the said employees alleging unfair termination of employment.

Hope you have found this legal brief useful. In case of any query please feel free to ask.

Kindly share this brief to spread the knowledge.

Disclaimer: This legal brief is intended for informational purposes only. The contents in this brief are not intended to be, nor should they be interpreted as, legal advice or legal opinion. The reader should not consider this information to be an invitation to an attorney/client relationship, should not rely on the information presented here for any purpose, and should always seek the legal advice of counsel in the appropriate jurisdiction.

Emmanuel K.Mwesiga, Esq is an advocate of the High Court of Tanzania. He currently works with JURISolutions & Associates Attorneys as a Legal Associates and Consultant. Emmanuel is well versed in the Areas of Corporate & Commercial Laws, Oil and Gas, Mining, Banking Laws, Corporate M&A, Employment and Taxation Laws. You can reach him via: [email protected] | +255 784772108

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