A Legal Opinion on Workforce Downsizing under Bangladesh Labour Act, 2006
To: Fast Value Global (BD) Ltd.From: Tokyo Consulting Firm Limited.Date: 25 March 2025
1. Background:
Fast Value Global (BD) Ltd. is experiencing a significant business downturn due to the loss of a major buyer. To maintain operational efficiency and financial stability, the company must realign its workforce. In this context, it is crucial to adopt a legally compliant and risk-minimized approach to employee termination.
2. Purpose of the Report:
• Outline the reasons for workforce downsizing.
• Summarize key activities needed for compliance and execution.
• Provide an overview of legal adherence and risk mitigation.
• Recommending the best applicable law reference based on the current situation and client’s preferences.
3. Scope of Work:
• Compensation and benefits calculation.
• Preparation of legal and compliance documents
4. Analysis:
Given the constraints outlined, we strongly advise the Company to proceed with termination of employment under Section 26 of the Bangladesh Labour Act, 2006, rather than Section 20 (retrenchment).
5. Rationale:
Mitigation of Risk:
Section 20 (retrenchment) requires demonstrable proof of redundancy. Without adequate internal justification reports, the Company faces significant risk of legal challenge. Employees may contest the validity of the redundancy claim, potentially leading to costly litigation.
Section 26 (termination of employment) provides a clearer and less contentious framework for termination, particularly when detailed justification for redundancy is unavailable.
Financial and Non-Financial Risks:
Pursuing Section 20 without proper documentation exposes the Company to substantial financial risks, including potential court-ordered compensation, fines, and legal fees.
Non-financial risks include damage to the Company's goodwill and reputation, as well as unnecessary intervention from government labor authorities, which could disrupt business operations.
Simplicity and Clarity:
Section 26 provides a more straightforward process for termination, with clearly defined notice periods and compensation requirements. This minimizes ambiguity and reduces the likelihood of disputes.
Section 26 removes the need to prove that the job itself has been removed.
6. Legal Consideration: Section 20 vs. Section 26
Under the Bangladesh Labour Act, 2006, two legal provisions apply to workforce downsizing:
(A) Section 20 – Retrenchment:
Section 20 applies to redundancy-based termination, requiring the company to:
Provide one month’s notice or payment in lieu of notice to affected employees.
Notify the Inspector General of Factories and Establishments and the Collective Bargaining Agent (CBA), if applicable.
Pay 30 days’ wages for each completed year of service or gratuity, whichever is higher.
Follow the Last In, First Out (LIFO) principle unless otherwise agreed.
Risks of Section 20:
Possible reputational damage if retrenchment is perceived negatively by employees and stakeholders.
Government intervention, requiring official notification to labor authorities.
Potential legal challenges from employees, particularly if selection criteria are disputed.
High financial burden due to mandatory severance payments. (if employee disagreed and file case against company).
Merits of Section 20:
Lower amount of compensation due to shorter notice period.
Compensation & Final Settlement Calculation Methodology
Compensation (Retrenchment) Pay: As per Section 20(2)(C) of Bangladesh Labor Act, 2006.
Compensation (lieu of Notice) Pay: As per Section 20(2)(a) of Bangladesh Labor Act, 2006.
Gratuity Payment: Not Applicable
Provident Fund Contribution: Not Applicable
Leave Encashment: [No Information]
Other Benefits: [No Information]
Compensation Calculation Summary
Employee ID
Name
Designation
Years of Service
Severance Pay (BDT)
-
Tarikul Hasan Chowdhury
Manager (Production, Sourcing & Supply chain Control)
4.84
342,000
000006
Md. Imam Hossain
Executive (Accounting & General Affairs)
8.03
206,400
(Full list in Annexure A)
*** Notice of 1 (One) month should be provided each employee. Failure to provide such notice or in case of immediate termination, the employee will receive 1 month’s latest basic salary as compensation in lieu of notice.
(B) Section 26 – Termination of Employment (Recommended):
Section 26 allows termination of a permanent worker’s employment through standard procedures, requiring:
120 days’ notice (for monthly-rated workers) or 60 days’ notice (for other workers).
Compensation of 30 days’ wages per completed year of service or gratuity, whichever is higher.
Marites of Section 26:
No mandatory notification to Government authorities, avoiding unnecessary intervention.
Greater flexibility in employee selection, eliminating strict LIFO requirements.
Lower risk of labor disputes, as termination follows standard employment conditions.
Protection against reputational risks, as termination appears as a routine business decision rather than mass layoffs.
Reduces compliance risks, eliminating additional legal scrutiny.
Demaris of Section 26:
The company needs to pay high amount of compensation to the employee.
Communicate the termination decision clearly and respectfully to affected employees.
7. Legal Recommendation
We acknowledge the post termination/retrenchment concerns of the company. Sometimes, employees feel exploited by the employer and sue against the employer in the labor court and ask for more compensation. In such a scenario, the employer must face court hassle and additional expenditures (court fees, lawyer or professional fees, compensation if case lost etc.).
Although, Section 20 is the relevant reference of law which exactly matches with the termination background of Fast Value Global (BD) Ltd. However, if the company wants to reduce/avoid the possibility of being sued or avoid any future hassle, expenditure or compensation then it is recommended to follow Section 26 of the Labor Act 2006. Given the financial and legal risks associated with Section 20, it is in the best interest of Fast Value Global (BD) Ltd. to implement Section 26 for workforce downsizing. This approach ensures:
Legal compliance with Bangladesh Labour Act, 2006.
Lower risk of disputes and reputational damage by adhering to standard termination procedures.
Reduced government and union involvement, preventing unnecessary regulatory scrutiny.
Minimized future financial liability by avoiding redundancy-related severance complexities.
8. Conclusion
To mitigate financial and regulatory risks, Fast Value Global (BD) Ltd. should proceed with terminations under Section 26 instead of retrenchment under Section 20. This approach provides a legally sound, cost-effective, and reputationally secure method for workforce downsizing.
9. Disclaimer:
This legal opinion is based on the information provided to us and is intended for the Company's internal use only. This opinion should not be considered a substitute for comprehensive legal advice. Whichever law reference, Fast Value Global (BD) Ltd. chooses (Section 20 or Section 26 of the Labor Act 2006) Tokyo Consulting Firm Limited doesn’t bear any responsibility.
Yours sincerely,
____________
Fumihiro Abe
Director
Tokyo Consulting Firm Limited.
Annexures & Attachment
Annexure A: Employee Compensation Details (Detailed Compensation Calculation per employee as per Section 20).
Annexure B: Employee Compensation Details (Detailed Compensation Calculation per employee as per Section 26).
Annexure C: Lawyer’s Opinion (Detailed Compensation Calculation and opinion by Mr. Shaleh Akram Somrat, Barrister-at-Law).
Annexure D: Calculation review by TCF (Schedule of Compensation for Termination Employees.
Annexure E: Answer to other queries raised in the meeting.