Labour Compliance

Lay-Off and Retrenchment under the Industrial Disputes Act, 1947

Lay-off and Retrenchment

Dispute resolution between employers and employees, especially in cases where an employer has to end an employee’s service, is an essential part of the Labour Laws in India. Therefore, the Central Government introduced the Industrial Dispute Act in 1947 to govern the same. The Act was enacted to facilitate the investigation and settlement of industrial disputes, prevent strikes and provide relief to the workmen during layoff and Retrenchment.

There are different employer compliance needs regarding layoff and Retrenchment, which the employer must know to ensure that the layoff and Retrenchment are carried on as per the Industrial Dispute Act of 1947. This article discusses employer compliance regarding Layoff and Retrenchment under the Industrial Dispute Act of 1947 to help employers avoid any risk of non-compliance regarding the same.

What Is Layoff And Retrenchment?

A layoff can be defined as the employer’s inability, refusal, or failure to employ the workman whose name is listed on the muster roll of his industrial establishment. Layoff may happen due to the shortage of coal, raw materials, power, breakdown of machinery, accumulation of stocks, natural calamity, or any other connected reason.

In simple terms, layoff refers to a situation where the employer is constrained to deny the work to the industry workers due to the temporary inability to continue the business operations.

On the other hand, Retrenchment is similar to downsizing. It is a way of terminating a workman for any reason, such as reducing operational expenses. However, Retrenchment should not be a punishment for disciplinary action against the worker. However, this would not be applicable in the case of –

  • Voluntary retirement by the workman.
  • Retirement of the workman on account of reaching the age of superannuation.
  • Termination of the workman’s services due to the non-renewal or expiry of the service contract.
  • Termination of the workman due to continued ill health.

Employer Compliance Regarding Layoff

The compliance requirements that employers must consider while laying off their workers men include the following:

  • Essential Conditions for Layoff: Only firms that are still operating utilize layoffs. Layoffs are useless if the company decides to permanently close its manufacturing facility. Layoffs that do not comply with the requirements in Section 2(a) of the Industrial Disputes Act, 1947 will not be regarded as legal under the law. It must be impossible or unwilling for the employer to hire the workers. Such incapacity, failure, or refusal must result from a lack of electricity, coal, raw materials, stockpiling, broken machinery, or any other pertinent cause. The employee’s name must appear on the muster roll of the employer’s industrial facility. The employee must not have experienced Retrenchment.
  • Providing Compensation to the Laid-Off Workmen:- The compliance related to the compensation of laid-off workers includes the following:
  • The employer must provide compensation equal to half of the wages and allowances during the layoff of the workers.
    • The workers must ensure that the following conditions are fulfilled before providing the compensation:
      • The workers must not be bad or casual.
      • The must roll of the industrial establishment must mention the worker’s name.
      • The workmen must have rendered one year of continued services for the employer.
  • The employer must be aware of the circumstances where the laid-off workmen are not entitled to compensation for the layoff period. The circumstances are mentioned in Section 25E of the Industrial Dispute Act 19471, which are as follows:
  • If the workmen are absent from the establishment during working hours at least once a day
  • If the workmen are laid off due to the reason of slowing down the efficiency of other workmen in another establishment
  • In case the workmen refuse to take the alternative employment, which is being offered to him, provided that:
  • The employment is being provided in the same establishment from which he has been laid off.
  • The employment is provided in a different establishment; however, the employer remains the same, and the premises are within a radius of 5 miles from his prior establishment.
  • If the employer believes that the employment in the new establishment doesn’t need any separate skill set or previous experience compared to the work the workmen already do.

Procedure for Layoff

Chapter V-B of the Industrial Disputes Act of 1947 defines the special provisions regarding layoff and Section 25M deals with the prohibition of layoff by the employer. An employer must mandatorily comply with the provisions of Section 25M. It is to be noted that this applies to industrial establishments that are not seasonal and consist of more than 100 workmen.

  1. The employer must take permission from the appropriate government or any special authority before laying off any workman (other than badli or casual workers) whose name is listed on the muster roll. However, this requirement is not applicable when the layoff is due to natural calamity or shortage of power in the establishment or flood, fire, excess of combustible gas, or explosion.
  2. The employer must prepare an application per the format, stating the reason for the layoff, and supply a copy to the workman.
  3. Suppose a workman working in a mine is laid off due to flood, fire, excess flammable gas, or explosion. In that case, the employer must apply with the appropriate government or the special authority concerning continuing the lay within 30 days from the commencement date of that particular layoff.
  4. The appropriate authority may either grant or refuse the application for layoff. However, such a decision is taken only after an inquiry to check the accuracy and genuineness of layoff and other factors deemed fit by the authority. The authority must also provide a reasonable opportunity to be heard to the workmen, employer, or any other person interested in the layoff and record the same in writing.
  5. A copy of the permission must be supplied to the employer and the workmen by the Government/ Authority.
  6. In case the government/authority fails to communicate the status of the application of permission, i.e., granted or refused to the employer, within 60 days from the day of applying, the application for permission would be deemed to be granted after the expiration of the said period of sixty days.
  7. The order of the Government / Authority for such permission is considered final and binding on all the concerned parties. It remains in force for one year from the date of the order.
  8. The appropriate authority can review the order either by its motion or through an application by the employer. It can even refer the matter to the tribunal for adjudication.
  9. The tribunal must pass the award within 30 days from the reference date.
  10. If the employer fails to apply for permission for layoff, or if the application is refused by the authority/ government and the workmen are still laid off, such layoff will be considered illegal. The employer is obligated to provide all the benefits to the workman in the same way as if the workman had not been laid off.
  11. The compliance related to applying for permission to layoff in case of an industrial establishment or mine can be waived off by the government through an order under exceptional circumstances such as the death of the employer or an accident in the establishment, and such wavier would be valid till the subsistence of the order.
  12. The employer must compensate the workmen during such layoff as per section 25C of the Act, except during certain specific cases.
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What are Muster Rolls?

According to section 25D of the IDA 1947, the employer must maintain the muster rolls and ensure that the workmen make entries in the muster roll daily to avoid any confusion regarding the compensation of the workmen.

Prescribed Procedure for Layoff

Chapter V-B of the Industrial Disputes Act of 1947 defines the special provisions regarding layoff and Section 25M deals with the prohibition of layoff by the employer. An employer must mandatorily comply with the provisions of Section 25M. It is to be noted that this applies to industrial establishments that are not seasonal and consist of more than 100 workmen.

  1. The employer must take prior permission from the appropriate government or any special authority before laying off any workman (other than badli or casual workers) whose name is listed on the muster roll. However, this requirement is not applicable when the layoff is due to natural calamity or shortage of power in the establishment or flood, fire, excess of combustible gas, or explosion.
  2. The employer must prepare an application as per the format, stating the reason for the layoff, and supply a copy to the workman.
  3. In case a workman working in a mine is laid off due to flood, fire, excess of flammable gas, or explosion, the employer must apply with the appropriate government or the special authority concerning continuing the lay within 30 days from the date of commencement of that particular layoff.
  4. The appropriate authority may either grant or refuse the application for layoff. However, such a decision is taken only after an inquiry to check the accuracy and genuineness of layoff and other factors deemed fit by the authority. The authority must also provide a reasonable opportunity to be heard to the workmen, employer, or any other person interested in the layoff and record the same in writing.
  5. A copy of the permission must be supplied to the employer and the workmen by the Government/ Authority.
  6. In case the government/authority fails to communicate the status of the application of permission, i.e., granted or refused to the employer, within 60 days from the day of applying, the application for permission would be deemed to be granted after the expiration of the said period of sixty days.
  7. The order of the Government / Authority for such permission is considered final and binding on all the concerned parties. It remains in force for one year from the date of the order.
  8. The appropriate authority can review the order either by its motion or through an application by the employer. It can even refer the matter to the tribunal for adjudication.
  9. The tribunal must pass the award within 30 days from the reference date.
  10. If the employer fails to apply for permission off layoff, or if the application is refused by the authority/ government and the workmen are still laid off, such layoff will be considered illegal. The employer is obligated to provide all the benefits to the workman in the same way as if the workman had not been laid off.
  11. The compliance related to applying for permission of layoff in case of an industrial establishment or the government can waive off mine through an order under exceptional circumstances such as the death of the employer or an accident in the establishment, and such wavier would be valid till the subsistence of the order.
  12. The employer must compensate the workmen during such layoff as per section 25C of the Act, except during certain specific cases.

Prohibition regarding layoffs the Industrial Disputes Act, 1947

Employers are only permitted to lay off employees at industrial companies with more than 100 workers that are not seasonal, according to Section 25M of the Industrial Disputes Act of 1947. Employers are only permitted to lay off employees in the event of a power outage, a natural disaster, a fire, an explosion, an excess of combustible gas, or a flood. Employers must get approval from the appropriate authorities and submit an application outlining the grounds for the layoff. The appropriate body or the government will then inquire about the layoff and inform the company and those being laid off of their decision.

The application will be deemed approved if the decision is not conveyed within 60 days. The laid-off employees are entitled to legal benefits if authorization is denied but the layoff occurs. The employees will not be regarded as having been laid off if the firm offers them other employment. The involved authority’s or the government’s order may be appealed or referred to a tribunal for adjudication on its initiative or in response to a request filed by an employer or employee.

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Remedies Available to Laid-off Employees under the Industrial Disputes Act, 1947

The relevant laws take effect if an employment contract does not address a matter. The Industrial Disputes Act of 1947 and the Shops and Establishments Act are the two legislation that often apply. The Industrial Disputes Act is a national statute with uniform regulations. An employee must fit the criteria of a “workman,” which roughly refers to anyone not working in an administrative or management position, to be covered by this legislation. Other requirements pertaining to the sector and kind of employment must also be satisfied. Employees covered by this statute who are fired are entitled to retrenchment benefits. For each complete year of service, you will receive 15 days of your most recent basic wage as compensation.

Government approval is needed to fire employees from businesses that have employed 100 or more workers every working day during the previous 12 months. Although the statute mandates that employers give notice of termination, it does not apply to non-workmen’s employees or businesses that are not qualified industrial enterprises.

Legality of Layoffs

Employee layoffs in India might be lawful or illegal, depending on the situation’s specifics. The Industrial Disputes Act of 1947 mainly regulates the legality of layoffs in India. This statute lays forth the guidelines and requirements that businesses must adhere to when dismissing workers. Employers may fire workers in accordance with the Industrial Disputes Act of 1947 if there is a labor shortage, a company restructuring, or a business closure. However, there are specific steps that companies must take, such as giving notice to the staff, paying compensation, and adhering to other legal obligations.

The layoff may be declared unlawful, and the company may face legal repercussions if they don’t follow the guidelines outlined in the Industrial Disputes Act of 1947. Additionally, a layoff may be considered unlawful if an employer carries it out for legal violations like discrimination or retribution. The legality of layoffs in India can be complicated. Thus, it is advised that companies get legal counsel before executing any layoffs to guarantee compliance with the necessary laws and regulations.

Landmark Judgement Regarding Layoff

Papnasam Labour Union V. Madhura Coats Ltd 1995 AIR 2200, 1995 SCC (1) 50

This case provides a landmark judgment for layoffs. The case was regarding the constitutional validity of Section 25M of the Act, which talks about the prohibition of layoff by the employer. The constitutionality of this section was challenged on the ground that the imposed unreasonable restriction as it mandated the employer to obtain the prior permission of the government or special authority before lying off the workmen, which was considered void and ultra vires.

It was held by the apex court that the main objective of the introduction of Section 25M is to prevent avoidable hardships to the employees as a result of lay –off and maintain higher productivity and production through preserving the peace and harmony of the industries; it was further mentioned that the legislature had taken care by exempting the need of prior permission for layoff in case the layoff is necessary due to natural calamities or power failure as these situations are explicit, grave and sudden. Therefore, there is no need for any further scrutiny in these situations. The employer must take the prior permission of the government rather than deciding as per his assessment.

Hence, to maintain industrial peace and harmony and avoid unemployment due to unjust causes, Section 25M cannot be considered arbitrary or unreasonable, and the constitutional validity was upheld.

Employer Compliance Regarding Retrenchment

The employer needs to fulfil the following compliances with regard to the Retrenchment of workmen:

Notice to the Workmen before Retrenchment

  • The employer must provide written notice of at least one month of the employee’s Retrenchment. The notice must include the reasons for such Retrenchment, and the employer must pay the wages entitled to the worker during the notice period.
  • The employer must pay the wages of Retrenchment equivalent to the average pay of a period of 15 days for each year of continuous service provided by the workmen.
  • The employer needs to serve the notice to the appropriate government as well.

Compliance with the Prescribed Procedure of Retrenchment

The employer is required to adhere to the prescribed procedure of Retrenchment, which is as follows:

Suppose the employers decide to retrench the employer that belongs to a certain class of workmen. Then, he must retrench the workmen who are the last candidates to be employed for that work at the time of the employment. The most common rule of Retrenchment is that the retrenchment procedure should start with the beginners, i.e., the person who just joined the establishment, and then move to the senior workmen.

However, the rule is not applicable if there is a contract specifying different stipulations and the same is consented to by the workman and employer.

The employer can continue the employment of the workmen who, in his opinion, possess the required skill set, which can benefit the establishment. Then, he can choose not to retrench that person, irrespective of the time of joining the establishment.

Conditions for Retrenchment of Workmen

Numerous conditions must be fulfilled before the Retrenchment of workmen, including the following. The employer must fulfil these certain conditions before retrenching workmen who have been in continuous service for one year under the employer.

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The employer must provide written notice of at least three months to the workmen stating the reason for such Retrenchment, or the employer must pay prescribed wages to the workmen instead of the notice.

The employer must obtain prior permission regarding such Retrenchment from the appropriate Government 0r special authority by drafting an application.

The rest of the procedure is the same as the procedure of layoff, and the employer must follow that procedure to ensure the systematic Retrenchment of the workmen.

The management needs to prove that the copies of the application, as required by section 25N r/w section 76A of the Industrial Disputes Rules, 1957, were served to the concerned workman.

Constitutional Validity Of Section 25N

The following case laws discuss the constitutional validity of section 25N:

Workmen of Meenakshi Mills Ltd., etc. V. Meenakshi Mills Ltd.&Anr

Here, the apex court upheld the constitutional validity of Section 25N, stating that the restrictions imposed on the employer regarding the Retrenchment of the workmen were absolutely in the interest of the general public. It in no way infringes Article 19(1)(g) and the duty of passing a speaking order and allows the parties concerned with judicial power while functioning under Section 25N(2).

Uttaranchal Forest Development Corporation and Anr v. Jabar Singh and Ors

In this case, the respondent was retrenched from his services by notices under Section 6N of the U.P Industrial Disputes Act 1947, and the Retrenchment was held valid by the concerned labor court. The award of the labour court was challenged in the High Court of Uttar Pradesh, and the court directed the reinstatement of back wages for the workmen.

The central question was if the corporation fell in the ambit of industrial establishment as per Section 25L of the Industrial Dispute Act 1947 and if the Retrenchment was invalid due to the non-compliance with Section 25N of the IDA 1947.

The Apex Court held that the establishment could be considered an industrial establishment under section 25 L as the process of cutting trees by axe and changing the shape by saw and conversion of trees into logs for sale and disposal fell in the ambit of the manufacturing process under Section 2-K of the Factories Act, 1948. The provisions of section 25 N apply to this establishment.

Further, the court observed that the appellant didn’t comply with two requirements 25N of the Act, such as providing notice for at least three months or wages in place of the same and taking the prior permission of the appropriate authority.

Hence, the Retrenchment was declared illegal, and the apex court held that the workmen were entitled to reinstatement, wages, and continuity of services.

The judgments related to layoff and Retrenchment portray the vigilance of the Indian judicial system towards Layoff and Retrenchment, along with its efforts to safeguard the interest of the workmen.

How Are Layoff And Retrenchment Different?

Layoff and Retrenchment can be differentiated on the following basis

BasisLayoffRetrenchment
MeaningA layoff can be defined as the inability, refusal, or failure of the employer to provide employment to the workman whose name is borne on the muster roll of his industrial establishment due to the shortage of coal, raw materials, power, and breakdown of machinery or accumulation of stocks, natural calamity or any other connected reason and not retrenched. Retrenchment can be defined as the termination of the services of the workman by the employer due to any reason other than punishment as a result of any disciplinary action against the worker.
SectionSection 2(kkk) of the Industrial Dispute Act 1947Section 2(oo) of the Industrial Dispute Act 1947
Impact  on Operations of Industrial EstablishmentThe Industrial establishment ceases to operate.The operations of the Industrial establishment continue.
Effect on the employer-employee relationshipHere, the employer-employee relationship continuesThe employee-employer relationship ends
Employment of WorkmenThe workmen are appointed back after the end of the layoff periodThis results in the immediate termination of the workmen  
MotiveAction StepBusiness Strategy

Conclusion

The Industrial Disputes Act of 1947 lays down various employer compliance requirements regarding the layoff and Retrenchment of workmen. The employer needs to be aware of such compliances to ensure peace and harmony within the industrial establishment and avoid any non-compliance adversities.

FAQS

What is the concept of Retrenchment in Labour law?

The Industrial Disputes Act, 1947’s Section 2(oo) defines Retrenchment. It involves the dismissal of a segment of the workforce owing to excess. Any factor might lead to Retrenchment.

What is Retrenchment an example?

For instance, a retailer with several locations and several stores may decide to shut some of the underperforming sites in favour of concentrating on the lucrative ones. This will enable the business to lower expenses and boost overall profitability.

What is Retrenchment also known as?

It is also known as reduction or curtailment. Specifically: a cutting of expenses.

What is the difference between layoff and Retrenchment under the Industrial Dispute Act of 1947?

A layoff is the temporary dismissal of a worker at the employer’s discretion. Retrenchment results in a permanent termination as opposed to a layoff, which results in a temporary termination.

What is Retrenchment under the Industrial Disputes Act of 1947?

Retrenchment is defined as the termination of employment by an employer for any cause other than as a form of discipline, according to Section 2(oo) of the Industrial Dispute Act, 1947, which governs employment-related issues in India.

What is the difference between Retrenchment and closure?

The 1947 Industrial Disputes Act mentions layoffs, layoffs, and closure. Retrenchment is permanent unemployment, whereas layoffs are temporary. On the other hand, closure results in the establishment being permanently closed.

What is Section 25 of the Industrial Dispute Act 1947?

Financial assistance for unlawful strikes and lockouts is prohibited. No one may knowingly spend or apply money directly supporting an illegal strike or lockout.

Who is not entitled to layoff compensation under the Industrial Disputes Act of 1947?

If an employer offers an employee alternative employment in a town within a five-mile radius and the worker rejects it, he will not be eligible to receive layoff pay.

In which circumstances the laid-off workmen are not entitled to layoff compensation?

If the worker declines the alternative job because it doesn’t require any more training or experience, he will not be eligible for layoff benefits. If the workman still declines it and it pays the same as his previous job, he will not be eligible for layoff benefits.

What is Section 25E of the industrial dispute Act 1947?

The Act’s Section 25E describes circumstances in which a worker is not entitled to compensation even after being laid off.

Read our Article: Industrial Relations Code Bill 2019: an overview

References

  1. https://en.wikipedia.org/wiki/Industrial_Disputes_Act,_1947

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