Retrenchment: Meaning and Provisions
for Regulation
Meaning of Retrenchment
Retrenchment refers to the termination of the services of a workman by the
employer for any reason whatsoever, except:
1. As a punishment by way of disciplinary action,
2. Voluntary retirement,
3. Retirement on reaching the age of superannuation,
4. Termination due to continued ill-health,
5. Termination due to non-renewal of the contract.
Legal Definition:
Under Section 2(oo) of the Industrial Disputes Act, 1947, retrenchment means:
"The termination by the employer of the service of a workman for any reason
whatsoever, otherwise than as a punishment inflicted by way of disciplinary action."
Provisions as to Regulation of Retrenchment
The regulation of retrenchment is mainly governed by Sections 25F to 25N of the
Industrial Disputes Act, 1947.
1. Conditions Precedent to Retrenchment (Section 25F)
No workman who has been in continuous service for not less than one year shall be
retrenched unless:
1. Notice or Wages in lieu of notice:
- One month's notice in writing is given indicating the reasons for retrenchment or
wages in lieu of such notice.
2. Retrenchment Compensation:
- Compensation is paid equivalent to 15 days’ average pay for every completed
year of continuous service.
3. Notice to Government:
- A notice is served to the appropriate government or authority.
2. Procedure for Retrenchment (Section 25G)
- Retrenchment should follow the “last come, first go” principle.
- The employer must ordinarily retrench the last person employed in that category,
unless valid reasons exist to deviate from this.
3. Re-employment of Retrenched Workmen (Section 25H)
- If the employer proposes to re-employ persons, the retrenchment workmen shall
be given preference over others.
4. Retrenchment in Establishments with 100 or More Workmen (Section 25N)
Applicable to industrial establishments not of seasonal nature and employing 100 or
more workmen:
1. Prior permission must be obtained from the appropriate government.
2. Application must state clearly the reasons for retrenchment.
3. Government may grant or refuse permission within 60 days.
4. If no reply within 60 days, permission is deemed to be granted.
Important Case Law
Workmen of Meenakshi Mills Ltd. v. Meenakshi Mills Ltd. (1992)
The Supreme Court held that the definition of retrenchment under Section 2(oo) is
very broad and includes termination for any reason not specifically excluded.
Conclusion
Retrenchment is a legally regulated process to ensure that workers are not
arbitrarily removed from employment. The Industrial Disputes Act, 1947 provides a
balance between employer’s rights and protection of workmen by laying down
proper procedure and conditions, especially for large establishments.
Layoff under the Industrial Disputes
Act, 1947
1. Definition of Layoff [Section 2(kkk)]
Layoff means the failure, refusal or inability of an employer to give employment to a
workman whose name is on the muster rolls of the industrial establishment, due to
reasons such as:
- Shortage of coal, power or raw materials
- Accumulation of stock
- Breakdown of machinery
- Natural calamity
- Any other connected reason
Note: A workman is considered laid off only if he presents himself for work and is
not given employment within two hours.
2. Eligibility for Layoff Compensation [Section 25C]
To claim compensation, a workman must:
- Be a permanent workman (not casual or temporary).
- Have completed at least one year of continuous service.
- Not have been laid off due to a disciplinary reason.
3. Compensation for Layoff [Section 25C]
A laid-off workman is entitled to:
- 50% of total basic wages and dearness allowance for all layoff days (excluding
weekly holidays),
- For a maximum of 45 days during a 12-month period.
Note: If the layoff exceeds 45 days in a year, the employer may choose to retrench
the employee under Section 25F, after which layoff compensation is not required.
4. Conditions When Layoff Compensation is Not Payable
No layoff compensation is payable if:
- The workman refuses alternative employment offered by the employer (in the
same region and on the same wages).
- He does not present himself for work at the proper time.
- Layoff is due to a strike or slowdown by workmen.
5. Provisions for Large Industrial Establishments [Chapter V-B]
Applicable to industrial establishments with:
- 100 or more workmen (currently threshold may vary by State rules).
Section 25M lays down that:
- Prior permission from the appropriate government is required before laying off
workmen (except in case of power shortage or natural calamity).
- Failure to obtain permission makes the layoff illegal, and workers are entitled to
full wages.
6. Punishment for Illegal Layoff [Section 25Q]
If an employer lays off workmen without permission (where required under Section
25M), they are punishable with:
- Imprisonment up to one month, or
- Fine up to ₹1,000, or both.
7. Judicial Interpretation
In Workmen of Firestone Tyre & Rubber Co. v. Management, the Supreme Court held
that if a layoff is justified under Section 2(kkk), compensation under Section 25C
must be paid, and failure to do so amounts to unfair labor practice.
Conclusion
The Industrial Disputes Act, 1947 balances the interests of both employers and
employees during temporary industrial crises. The provisions relating to layoff
ensure that while employers may reduce labor temporarily due to uncontrollable
reasons, the rights of workmen are protected through fair compensation and
procedural safeguards.
Strike and Lockout – Definitions and
Illegality
1. Strike
Definition:
A strike is defined under Section 2(q) of the Industrial Disputes Act, 1947 as:
"A cessation of work by a body of persons employed in any industry acting in combination,
or a concerted refusal, or a refusal under a common understanding of any number of
persons who are or have been so employed, to continue to work or to accept employment."
When a Strike Becomes Illegal:
As per Section 24 of the Industrial Disputes Act, a strike becomes illegal in the following
circumstances:
1. During Conciliation Proceedings:
- If the strike is commenced during the pendency of conciliation proceedings before a
conciliation officer and seven days after their conclusion.
2. During Adjudication or Arbitration:
- If the strike is started during the pendency of proceedings before a Labour Court,
Tribunal, or National Tribunal and two months after the conclusion of such proceedings.
3. Violation of Notice Requirement:
- In the case of public utility services, if workers go on strike without giving 6 weeks'
notice, or
- Go on strike within 14 days of giving notice, or
- Before the expiry date specified in the strike notice.
4. Contravention of Government Orders:
- If the strike is carried out in contravention of an order made by the appropriate
Government under Section 10(3) or Section 10A(4A), which prohibits strikes in certain
situations.
2. Lockout
Definition:
A lockout is defined under Section 2(l) of the Industrial Disputes Act, 1947 as:
"The temporary closing of a place of employment or the suspension of work, or the refusal
by an employer to continue to employ any number of persons employed by him."
When a Lockout Becomes Illegal:
As per Section 24, a lockout becomes illegal in the following situations:
1. During Conciliation Proceedings:
- If the lockout is imposed during the pendency of conciliation proceedings and seven
days after their conclusion.
2. During Adjudication or Arbitration:
- If the lockout is enforced during the pendency of proceedings before a Labour Court,
Tribunal, or National Tribunal and two months after their conclusion.
3. Violation of Notice Requirement:
- In public utility services, if the employer fails to give notice of lockout 6 weeks in
advance, or
- Within 14 days of giving such notice, or
- Before the expiry date specified in the lockout notice.
4. Contravention of Government Orders:
- If the lockout is imposed in violation of government prohibitory orders under Section
10(3) or Section 10A(4A).
Conclusion:
Both strike and lockout are legal rights under industrial law but become illegal if not
conducted in accordance with the prescribed legal procedures, especially during dispute
resolution proceedings or when statutory notice is not served.
Layoff and Layoff Compensation under
Industrial Disputes Act, 1947
Definition of Layoff:
Under Section 2(kkk) of the Industrial Disputes Act, 1947, "layoff" means:
“The failure, refusal or inability of an employer to give employment to a workman whose
name is on the muster rolls of his industrial establishment and who has not been
retrenched.”
This usually happens due to:
- Shortage of raw materials
- Accumulation of stock
- Breakdown of machinery
- Natural calamities
- Any other reason beyond the employer's control
Important condition:
The worker must present himself for work at the establishment and be eligible and willing
to work, but is not given employment by the employer.
Provisions Relating to Layoff Compensation:
1. Eligibility for Compensation:
As per Section 25C of the Industrial Disputes Act:
- The worker must be a "workman" (as defined under the Act).
- Must have completed at least one year of continuous service.
- Must not have been retrenched.
- Must be on the muster roll of the industrial establishment.
- Must have reported for duty but not given employment.
2. Amount of Compensation:
A laid-off workman is entitled to:
50% of the total of basic wages + dearness allowance for each day during the period of
layoff.
3. Maximum Period for Compensation:
Compensation is payable for a maximum of 45 days during any period of 12 months.
If layoff extends beyond 45 days, the employer can choose retrenchment, after complying
with conditions under Section 25F.
4. Exceptions:
No layoff compensation is payable if:
- The workman refuses alternate employment in the same establishment or in another
within a 5-mile radius.
- The layoff is due to strike or slowdown by workmen in another part of the establishment.
- The workman does not present himself for work at the appointed time during normal
working hours.
Conclusion:
Layoff is a temporary situation where the employer is unable to provide employment for
reasons beyond control. The law ensures that workers affected by layoff receive fair
compensation, with limits and exceptions provided to balance the interests of both
employers and employees.
Short Note on Closure under Industrial
Disputes Act, 1947
Definition:
Under Section 2(cc) of the Industrial Disputes Act, 1947, closure means:
“The permanent closing down of a place of employment or part thereof.”
In simple terms, closure refers to the permanent shut down of a business or a part of it by
the employer. It is different from layoff or lockout, which are temporary in nature.
Legal Provisions Regarding Closure:
1. Intimation and Notice (Section 25FFA):
- An employer of an industrial establishment (not covered under Chapter V-B) must give 60
days’ prior notice to the appropriate government before closing an undertaking.
- This requirement does not apply to establishments with less than 50 workmen.
2. Permission for Closure (Section 25-O):
- Applicable to industrial establishments employing 100 or more workmen.
- Employers must apply for prior permission from the appropriate government at least 90
days before the intended closure.
- The government may grant or refuse permission based on reasons of public interest,
employment impact, etc.
3. Compensation to Workmen (Section 25FFF):
- Workmen employed immediately before closure are entitled to compensation equivalent
to 15 days' average pay for every completed year of continuous service.
- If closure is due to unavoidable circumstances beyond control, compensation may be
limited.
Conclusion:
Closure is a permanent end to business operations. The Industrial Disputes Act mandates
proper notice or permission and compensation to protect the interests of affected
workmen.