Lay-Off and Retrenchment under Industrial Dispute Act, 1947

Introduction

The Industrial Dispute Act came into force in 1947 with the goal to encourage industrial peace by making it easier to investigate and negotiate a resolution to problems in the workplace. The purpose of labour legislation is to safeguard employees against victimisation by employers and to uphold social justice for both parties. The Act’s special goal is to support collective bargaining and keep workplaces calm by preventing unauthorised strikes and lockouts. Additionally, it contains guidelines for regulating layoffs and retrenchments.

Lay-off

Section 2 (kkk) of the act defines lay-off. The essential conditions for lay-off are as follows:

1. failure, inability and refusal by employer due to following reasons:

• Shortage of raw material
• Accumulation of stock
• Machinery not working

2. The establishment’s muster rolls must always include the names of the laid-off employees.

3. The aforementioned employees shouldn’t have been retrenched.

Compensation for laid-off period

According to section 25C which states that the worker who has been laid off has the right to compensation for laid-off period. This compensation will be equivalent to half of the total of basic and dearness allowance.   

However, such compensation is conditional compensation and following conditions must be fulfilled:

• The workman should not be a badli worker.
• The worker’s name must be there on the muster roll of the establishment.
• The worker must have worked at least 1 year of continuous service. 

Continuous service (Section 25B): Accidents, authorised leaves of absence, illnesses, lawful strikes, locks, and terminations of employment that are not the workers’ fault do not impair the continuity of such service.

There are two exceptions where a worker will still be considered to be in continuous service even though they are not:

• if the worker has been employed for the past 12 months as of the date the calculation is being performed.
• if the worker had worked for 190 or more days in the case of a mine employment and 240 days in any other employment during such a 12-month period.

Conditions for non-applicability of compensation on workmen

A worker is not eligible to layoff pay, according to Section 25E, is when:

• if the employee misses at least one day each week of the mandatory working hours at the company.
• if the worker is fired because their actions are causing other employees to work less efficiently or because of a strike.
• if the employee indicates a desire to decline the alternative employment offered to him, it must be in the same organisation where he was previously employed.
• within a 5-mile radius of the establishment where he belonged, such work is provided in any other establishment run by the same employer.
• when compared to the work that the employee can do, the employer claims that such employment does not require any prior experience or particular talents.
• the worker receives the same pay from this job as from his prior one.

Retrenchment

According to Section 3(1) of the Industrial Disputes Act of 1947, businesses in India with more than 100 employees are required to seek government approval before implementing redundancies or retrenchments, and they are required to give their staff three months’ notice before doing so. The technique protects workers who might be let go by companies without cause or justification and also acts as a cost-cutting measure for employers. The goal of passing such legislation is to safeguard employees’ rights and advance the welfare of the workforce, however this objective has the unintended effect of making the Indian economy less flexible.

Retrenchment is defined under Section 2(oo) of the Industrial Disputes Act, 1947. It is the termination of a portion of staff or labour force due to surplusage. Retrenchment could be for any reason. Retrenchment does not include the following:

• Voluntary retirement.
• Retirement due to age factors and terms of the contract.
• Termination due to continued sickness of the workman.

Section 25F lays about essential conditions to be fulfilled prior to retrenchment. These are:

• The workmen have to be given one month’s written notice stating reasons for retrenchment and wages for the notice period.
• At the time of retrenchment, the worker has to be paid with compensation of fifteen days’ wages.
• The notice should also be served on the appropriate government

Compliance Requirements as Per Retrenchment Compensation

The employer is expected to compulsorily adhere to the following regulations in the case of a retrenchment compensation process:

• The employee should be given about the retrenchment decision with the help of a notice.
• The notice should be issued one month prior and brought into action.
• The notice should strictly mention the grounds behind the failure of compliance.
• The employee should be compensated well at the time of the reduction process and not beyond the passage of time.

Requisites For a Valid Reduction Process Are

• Within 30 days, the manager should provide a written notification that should contain the reduction process’s basis; the retrenchment should only be put into force when the employee has been given the notice.
• If the manager cannot send a note to the workmen within the specified period, they are eligible to pay an amount in compensation for such an act.
• The employee must be reimbursed with a sum of money equal to their wages of 15 days for one full year of continuous service in the company or any portion of their service exceeding 6 months or half-year.

A notice is delivered to the appropriate government agency following a certain format that is specified in the allowed device. Rule 76, which governs the warnings of the retrenchment process, must be followed by the regulations stated in the notification. The requirements for compensating an employee are a necessary prerequisite before an employee can be laid off. As a result, failure to comply with the provisions will render the retrenchment procedure illegitimate. For instance, if the retrenchment process is found to be unlawful or is rejected by government officials, the employee has the right to return to work and receive his back pay for the time he was laid off.

Procedure of retrenchment

1. The person seeking protection must qualify the definition of a worker as defined in Section 2(S) of the Act.

2. The workman should be a citizen of India

3. The employee should have been employed in the establishment, which, according to Section 2 (J) of the Act, is classified as an industry.

4. The employee must belong to a specific category of a workforce in the industry

5. There should not be any kind of agreement between the employer and the employee regarding the principle of last come first go

LAYOFF	RETRENCHMENT
Layoff refers back to the temporary suspension of the employee, at the instance of the employer	Retrenchment refers back to the permanent termination of an individual’s employment because of the closing of a branch or alternative of labor.
It is typically caused by a temporary downturn in business or other economic issues.	It is typically caused by a long-term restructuring, cost-cutting, or downsizing.
In the case of a layoff, employees may be rehired once business improves.	In this case, employees will not be rehired
It is temporary in nature.	It is permanent in nature.
The notice period may or may not be required by the law, in the case of layoff.	The notice period is required here.
The operation may stop during the layoff period.	In the case of retrenchment, the operation continues after the declaration.
In a layoff, the employer may provide severance pay or benefits.	In the case of retrenchment, the employer may not provide severance pay or benefits.

Conclusion

Layoffs and downsizing are difficult issues that affect both employers and employees. Employers may argue that such measures are necessary for the company’s survival, but workers argue that it results in loss of livelihood and insecurity. The Industrial Disputes Act 1947 provides workers with some protections in such cases, but these protections are often ignored or abused. Every company doing business relies on different aspects to do business, make profits and reduce losses. It is also necessary to value employees in order to work efficiently for the development of such a company. However, to survive in the market, these companies need to make accurate and timely decisions.