1. Labour Law - I
Lay Off And Retrenchment
Saumya Verma
BBA LLB - 3B
07151103519
2. INTRODUCTION
The Industrial Disputes Act of 1947 addresses layoffs and retrenchments. The
dismissal of employees by the company for reasons other than the employee's fault is
referred to as layoff. A layoff is a temporary situation in which an employer is unable
to continue employing people for a short period of time. Retrenchment is a
circumstance in which an employer fires his staff in order to boost revenues and
reduce losses. Even in retrenchment, the employee's fault does not lead in the loss of
employment.
• Section 2 (k) of the Industrial Disputes Act, 1947 defines the term ‘Layoff’’ as the
inability, failure, or refusal of the employer to provide employment to a workman
whose name is mentioned in the muster roll of his industrial establishment and
who is not retrenched due to the lack of power, coal, raw materials, accumulation
of stocks, breakdown of machinery or natural calamity for any other relevant
reason.
Conditions required for a layoff
There must be an incapacity, failure, or unwillingness on the part of the employer to
give employment to the workers. Such incapacity, failure, or refusal must be owing to
a shortage of electricity, coal, raw materials, stockpiling, machinery malfunction, or
any other relevant reason. The worker's name must appear on the muster roll of the
employer's industrial facility. Retrenchment must not have been imposed on the
worker.
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A layoff is a measure that is only used in ongoing firms. Layoffs are useless if the
employer decides to permanently close his industrial enterprise. Layoffs must
correspond to the requirements outlined in Section 2 (kkk) of the Industrial Disputes
Act of 1947, otherwise they will not be deemed legal. Layoff indicates that
employees will be removed immediately; nevertheless, such unemployment is
temporary in nature, thus it does not result in the termination of the already existing
employer-employee relationship and does not result in any changes to the conditions
of such employment.
A workman whose name is mentioned in the muster roll of the employer’s industrial
establishment and who is present for work during the working hours of any day is
not employed within two hours of him being present for work is said to be laid-off
for that particular day. Similarly, if the workman is asked to work during the second
half of his shift and is employed then he is said to be laid off for half of the day. In
case he is not employed even after being present for work during the second half of
the day, then he is considered to be laid-off for the whole day.
Section 25A of the Industrial Disputes Act of 1947: compensation not
applicable to industries
According to Section 25A, the compensation resulting from the Act's layoff rules
does not apply to the following types of industrial establishments:
• Such industrial enterprises have less than 50 employees on average on each
working day of the preceding calendar month.
• An industrial enterprise where work is done seasonally or on an as-needed basis.
An industrial establishment subject to the provisions of Chapter V-B of the
Industrial Disputes Amendment Act of 1976.
4. Section 25B of the Industrial Disputes Act, 1947: Continuous Service
A worker is deemed to have rendered continuous service if he has worked for at least
one year without interruption, according to Section 25B. He will be entitled for
remuneration if he has served for at least one year in a row. Accidents, allowed leave,
sickness, legal strikes, a lock, and the discontinuation of work that is not the fault of
the workers do not impact the continuity of such service.There are two exceptions in
which a worker who is not in continuous service is considered to be in continuous
service - they are –
• If the worker has been employed for the previous 12 calendar months as of the date
of the calculation.
• If the worker worked in a mine for 190 days or more over the 12-month period, or
240 days in any other occupation.
Conditions precedent for providing compensation to a laid-off workman
As per Section 25C of the said Act, the workman who is laid off is entitled to
compensation that is equivalent to half of the total wages and allowance given for the
said period of lay-off.
However such compensation is subject to the following conditions –
• The workman is not a badli or a casual worker.
• The workman’s name must be mentioned in the muster roll of the industrial
establishment.
• The workman must have rendered at least one year of continuous service under
such an employer. 4
5. Conditions for non-applicability of compensation on workmen
Section 25E indicates that a worker is not eligible to layoff compensation
• If he or she is away from the workplace at least once a day during the
mandatory working hours.
• If the worker is laid off as a result of slowing the efficiency of workers in
another section of the firm or as a result of the cause for the strike.
• If the worker expresses his dissatisfaction with the alternative job offered to
him, provided that :
such employment is offered in the same firm from which he was laid off.
Such employment is provided in any other establishment under the same
employer within a 5-mile radius of the organization where he belonged.
According to the employer, such job does not require any prior experience
or particular talents in comparison to the task that the worker can
accomplish.
The worker receives the same pay as he did in his former job.
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6. An employer is subjected to certain restrictions while laying off workers as per
Section 25M (Chapter VB added to the Industrial Disputes Act of 1947 by the
Industrial Disputes Amendment Act of 1976). These restrictions apply to those
industrial establishments which are not seasonal in nature and where there more
than 100 workmen.
• An employer cannot lay off a workman whose name is mentioned in the muster
roll of his industrial establishment except when the reason for such layoff is
lack of power or a natural calamity.
• An employer can lay off the workmen after acquiring the permission of the
concerned authorities specified by the government or the government itself. For
this purpose, an application shall be made by the employer stating the reasons
for such lay-off and a copy of the same application shall be provided to the
workmen who are subjected to such lay-off.
• After receiving an application, the concerned authority or the government can
inquire about such lay off. After such inquiry, the order of the concerned
authority or the government must be communicated to the employer and the
employees being laid off. The order of the concerned authority or the
government shall be considered as final and will be binding for a period of one
year from the date of such order.
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7. • The order of the concerned authority or the government can be referred to a
tribunal for adjudication or reviewed either in its own motion or through an
application made by an employer or any workman.
• In case any lay off occurs even after the permission to do so is refused then
such lay off will be considered illegal and the workmen laid off will be entitled
to the benefits of the law.
• However, an employer will not be considered to have laid off a workman if he
provides alternative employment to such workman.
Understanding the Industrial Disputes Act of 1947's meaning of
Retrenchment
Retrenchment is discussed under Section 2(oo) of the Industrial Disputes Act of
1947. According to the clause, retrenchment refers to the dismissal of a worker for
any cause other than a kind of punishment in furtherance of taking disciplinary
measures. However, retrenchment does not include voluntary retirement of a
worker, retiring at the age of superannuation as specified in the employment
agreement, expulsion of a worker due to continued ill-health, and removal of a
worker because the recruitment contract ends or not revived after its expiry.
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8. Section 25F of the Industrial Disputes Act of 1947: Grounds to Retrenchment
According to this Clause, the employer must provide the employee with one month's
written notice that outlines the grounds for the retrenchment, or the employee must be
provided compensation for the duration of the notice.
At the point of retrenchment, the employer must pay the worker remuneration
equivalent to the average wage of 15 days for each year of uninterrupted work
rendered by such worker.
The notification of retrenchment must also be served to the appropriate government.
Section 25G of the Industrial Disputes Act, 1947: Procedure of Retrenchment
The procedure of retrenchment as per this Section is as follows:
If an employer intends to retrench a worker belonging to a certain class of workers
employed in the employer's firm, he must retrench the worker who was regarded the
last candidate to be hired for such work at the time of hiring. The general norm during
retrenchment is that it must begin with beginners or new workers and then continue to
experienced or senior workers. The above-mentioned procedure is subject to
exceptions if a contract exists between the employer and the workers that is opposed
to the rule or if the employer explains the grounds for retrenchment of any other
worker.
In good faith, the employer may continue to employ those employees who have
unique abilities and whose services are required for the establishment's effective
operation. 8
9. Landmark Judgements regarding Retrenchment
• Byram Pestonji Gariwala v Union Bank of India and Others
In this case, the Apex court restricted the definition of ‘retrenchment’ as defined
under Section 2(oo) (bb) of the Industrial Disputes Act, 1947. It held that only
when ‘discharge of excess of labour’ is done by the employer then retrenchment is
said to occur.
• G. Jagadishwar Reddy v Railways, Guntakal Division
In this case, it was held that retrenchment compensation can also be claimed by
casual workers under the provisions of Section 25F of the Industrial Disputes Act,
1947 if such casual worker had rendered continuous service for a period of one
year.
• Delhi Cloth and General Mills v Union of India
In this case, it was held by the Supreme Court that if the name of any workman is
removed from the muster roll of an industrial establishment then it would
automatically be deemed as the retrenchment of such workman.
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10. Lay-off and Retrenchment: A Comparative Study
A layoff is the temporary termination of a worker at the disposal of an employer,
whereas retrenchment is the removal of excess workers to improve the productivity
of an industrial firm, provided that such removal is done for any reason other than
punishment in furtherance of enacting disciplinary action.A layoff is a temporary
termination, but a retrenchment is a permanent termination. The employer-
employee relationship does not end in the former and does not end in the latter.In a
layoff, the industrial establishment ceases to function or operate following the
declaration. In retrenchment, however, the industrial unit maintains its tasks or
functions.
A laid-off employee is rehired as soon as the layoff term is over. In the event of
retrenchment, the worker's job is immediately ended, and there is no continuing
relationship between the employer and the worker.
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