LAY OFF
MEANING
Section 2 (kkk) 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 ESSENTIAL FOR A LAY-OFF
A layoff is a measure that is used only in continuing businesses. If the employer decides to permanently shut down his industrial establishment then layoff is of no use. Layoff must adhere to the conditions provided in Section 2 (kkk) of the Industrial Disputes Act, 1947 or else it will not be considered right as per the law.
- There must exist an inability, failure or refusal from the employer’s side to provide employment to the workmen.
- Such inability, failure or refusal must be due to lack of power, coal, raw materials, accumulation of stocks, breakdown of machinery or natural calamity for any other relevant reason.
- The name of the workman must be mentioned in the muster roll of the employer’s industrial establishment.
- The workman must not have been subjected to retrenchment.
COMPENSATION
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.
As per Section 25A, the compensation accrued from the layoff provisions mentioned in the said Act shall not apply to the following kinds of industrial establishments :
- Such industrial establishments where less than 50 workmen worked on an average during each working day in the preceding calendar month.
- An industrial establishment where work is done seasonally or occasionally.
- An industrial establishment that comes under the aegis of chapter V-B as included by the Industrial Disputes Amendment Act of 1976.
DIFFERENCE BETWEEN LAY-OFF, RETRENCHMENT AND CLOSURE
In India, the terms lay-off, retrenchment, and closure have different meanings under the law, and they are governed by different legal provisions. Here are the differences between these three terms as per Indian laws:
1. Lay-off: A lay-off refers to the temporary suspension of work or employment of an employee due to reasons beyond the control of the employer, such as a shortage of raw materials, power supply, or a natural calamity.1 During a lay-off, the employer is not liable to pay wages to the employees. However, the employees are entitled to a compensation of 50% of their basic wages and dearness allowance for the period of the lay-off, subject to certain conditions under the Industrial Disputes Act, 1947.
2. Retrenchment: Retrenchment refers to the termination of the services of an employee by the employer for any reason other than misconduct, voluntary retirement, or superannuation. Retrenchment can be done for various reasons such as a decline in business, financial difficulties, or technological changes.2 The employer is required to give notice of retrenchment to the employee or to the appropriate government authority, as per the Industrial Disputes Act, 1947. The employee is entitled to compensation equivalent to 15 days’ average pay for every completed year of service or any part thereof in excess of six months.
3. Closure: Closure refers to the permanent closure of the establishment or a part thereof, either due to financial difficulties or any other reason.3 The employer is required to give notice of closure to the employees and the appropriate government authority at least 60 days before the intended date of closure, as per the Industrial Disputes Act, 1947. The employees are entitled to compensation equivalent to 15 days’ average pay for every completed year of service or any part thereof in excess of six months.
In summary, a lay-off is a temporary suspension of work, retrenchment is a permanent termination of services, and closure refers to the permanent closure of an establishment or a part thereof. The legal requirements for each of these actions are different under Indian laws, and employers must comply with the relevant legal provisions when taking any of these actions.
PROHIBITION OF LAY-OFF UNDER INDUSTRIAL DISPUTES ACT, 1947
According to Section 25M of the Industrial Disputes Act of 1947, employers are limited in their ability to lay off workers in industrial establishments with over 100 workmen and that are not seasonal in nature. Employers can only lay off workers if there is a lack of power, a natural calamity, fire, explosion, excess of inflammable gas, or a flood. Employers must obtain permission from the relevant authorities, and an application must be made stating the reasons for the layoff. The concerned authority or the government will then inquire about the layoff and communicate their decision to the employer and employees being laid off. If the decision is not communicated within 60 days, the application will be considered granted. If the permission is refused and the layoff still occurs, the workers laid off are entitled to legal benefits. However, if the employer provides alternative employment to the laid-off workers, they will not be considered to have been laid off. The order of the concerned authority or the government can be referred to a tribunal for adjudication or reviewed either on its own motion or through an application made by an employer or any workman.
REMEDIES AVAILABLE TO FIRED EMPLOYEES
Industrial Disputes Act, 1947
In case an employment contract doesn’t address an issue, the applicable laws come into play. The two acts that usually apply are the Industrial Disputes Act, 1947, and the Shops and Establishments Act. The Industrial Disputes Act is a central law that has the same rules across the country. To be governed by this act, an employee must satisfy the definition of a ‘workman,’ which broadly refers to individuals not working in an administrative or managerial capacity. However, other parameters related to nature of work and industry must also be met. If an employee covered under this act is terminated, they are eligible for retrenchment compensation. The compensation is 15 days of the last drawn basic salary for each completed year of service. For establishments employing 100 or more workmen a working day for the past 12 months, government permission is required to terminate employees. The act requires employers to provide reasons for termination, but it does not apply to non-workmen employees or non-qualifying industrial establishments.
The Shops and Establishments Act
If an employee is not protected by the Industrial Disputes Act, then the rules of the Shops and Establishments Act will take priority over the terms of their employment contract if there are any inconsistencies between the two. However, the establishment where the employee works must be within the scope of this act. The Shops and Establishments Act varies by state, so the situation depends on where the employee’s workplace is located. For instance, if an employee works for a multinational company with several offices in India in Hyderabad, they will be governed by Telangana’s Shops and Establishments Act.
The Employment contract
As the current laws are old and archaic, individuals need to read their employment contracts first. Jain says, “An individual joining a firm must carefully read and understand the terms of the employment contract. There may be areas in the contracts (apart from salary) that can be negotiated
WHEN DOES LAY OFF BECOME ILLEGAL
In India, the layoff of employees can be illegal or legal depending on the circumstances surrounding the layoff. The legality of layoffs in India is primarily governed by the Industrial Disputes Act, 1947. This act lays down the rules and regulations that employers must follow when laying off employees.
Under the Industrial Disputes Act, 1947, employers can lay off employees for reasons such as shortage of work, restructuring, or closure of the business. However, employers must follow certain procedures when doing so, including providing notice to the employees, paying compensation, and complying with other legal requirements.4
If an employer fails to comply with the procedures set out in the Industrial Disputes Act, 1947, the layoff can be deemed illegal, and the employer may be subject to legal action. Additionally, if an employer lays off employees for reasons that are not permitted under the law, such as discrimination or retaliation, the layoff can be deemed illegal.
It is important to note that the legality of layoffs in India can be complex, and it is recommended that employers seek legal advice before implementing any layoffs to ensure compliance with the relevant laws and regulations.
PROBLEMS WITH THIS AS A CONCEPT
Layoffs, also known as redundancies or terminations, are a common business practice in which an employer reduces its workforce for various reasons, such as economic downturns, organizational restructuring, or poor performance. While layoffs can be a necessary step to ensure the long-term viability of a business, there are several problems associated with the concept:
1. Negative impact on employees: Research has shown that layoffs can have detrimental effects on the well-being and mental health of employees who are laid off. A study by Paul Kivimaki et al. published in the British Medical Journal found that individuals who experienced job loss through layoffs had an increased risk of developing mental health issues such as depression and anxiety compared to those who did not experience job loss5. Furthermore, the financial strain of losing a job can lead to financial difficulties, including difficulty paying bills, maintaining housing, and providing for basic needs, which can have a lasting impact on employees and their families.6
For example, during the 2008 global financial crisis, many companies implemented widespread layoffs as a response to economic challenges. This resulted in a significant negative impact on employees, with millions of workers losing their jobs and facing financial and emotional challenges as a result.
2. Negative impact on the community: Layoffs can also have a broader impact on the community in which a company operates. When a large number of employees are laid off, it can result in reduced consumer spending as individuals cut back on discretionary spending due to financial uncertainties. This, in turn, can impact local businesses, leading to decreased revenue, potential closures, and job losses in the community.
Additionally, when a company lays off employees, it may result in decreased tax revenue for local governments, as fewer people are paying income taxes and contributing to the local economy. This can put a strain on local government budgets and limit their ability to provide essential services to the community.7
3. Short-term thinking: Layoffs are often seen as a quick solution to address immediate financial challenges, but they may not address the underlying issues that led to the need for layoffs in the first place.8
4. Legal considerations: Layoffs can also expose companies to legal risks. For example, employees who are laid off may file claims of discrimination, alleging that the selection criteria for layoffs were biased or unfair. In some cases, employees may also claim wrongful termination if they believe their layoff was not conducted in accordance with applicable employment laws or the terms of their employment contracts. This can result in costly legal battles, damage to the company’s reputation, and financial liabilities.
For instance, in 2018, Verizon Communications Inc. faced a lawsuit filed by former employees who alleged that the company violated federal age discrimination laws by using layoffs to target older workers disproportionately. The lawsuit resulted in a $20 million settlement, highlighting the legal risks associated with layoffs.9
HOW DOES GLOBAL LAYOFF SITUATION AFFECT INDIA
The global layoff situation refers to the trend of companies laying off employees due to various reasons, such as economic uncertainty, technological advancements, or changes in consumer behavior. This trend has been particularly evident in recent years, as the COVID- 19 pandemic and the resultant economic slowdown have led to widespread job losses across the world. Following is how this trend could affect India:
Positive effects:
1. Increased job opportunities: If global companies decide to relocate their operations to India, it could create new job opportunities for Indian workers. India is known for its low labor costs, and this could be an attractive proposition for companies looking to cut costs.10 Additionally, if there is a demand for skilled workers in sectors like information technology, engineering, and healthcare, Indian professionals with relevant skills and experience could benefit from job opportunities in other countries.
2. Boost to Indian economy: If there is an increase in investment and job creation in India, it could lead to a boost to the Indian economy. This could lead to increased consumption, investment, and overall economic growth.
Negative effects:
1. Decline in exports: If the global economic slowdown leads to a decrease in demand for goods and services, it could lead to a decline in Indian exports.11 This could affect sectors like manufacturing, textile, and agriculture, which are major contributors to India’s exports. This could lead to job losses in these sectors.
2. Slowdown in Indian economy: If there is a reduction in investment in India due to the global economic uncertainty, it could lead to a slowdown in the Indian economy. This could affect job creation across various sectors, including IT, healthcare, and manufacturing.12
3. Social and economic impact: Job losses can have a significant social and economic impact on individuals, families, and communities. This could lead to increased poverty, unemployment, and other social problems.13
ALTERNATIVES
There are several alternatives to laying off employees that companies can consider:
1. Implement a hiring freeze: By not filling open positions, companies can reduce their workforce without having to let anyone go.14
2. Reduce work hours: Companies can implement reduced work hours for their employees. This allows employees to keep their jobs while reducing the company’s expenses.15
3. Implement furloughs: Furloughs involve temporarily laying off employees without pay. This can be a way to reduce costs while keeping employees on the payroll and maintaining the option to bring them back when business picks up.16
4. Offer voluntary retirement packages: Companies can offer retirement packages to older employees who are willing to retire early. This can help reduce the workforce and save costs.17
5. Implement job sharing: Job sharing involves two employees sharing one full-time job. This can be a way to reduce costs while keeping employees on the payroll.18
6. Reassign employees: Companies can consider reassigning employees to different roles or departments where their skills can be better utilized.19
Notes:-
1 Section 2(kkk) of the Industrial Disputes Act, 1947
2 Section 2(oo) and 2(ooa) of the Industrial Disputes Act, 1947
3 Section 2(1) of the Industrial Disputes Act, 1947
4 “When is a layoff illegal?” by Prerna Sharma, India Briefing, https://www.india-briefing.com/news/when-is-a-layoff-illegal-india-24361.html/. (last visited 24 Mar, 2023).
5 Kivimaki, M., Vahtera, J., Pentti, J., & Ferrie, J. E. (2000). Factors underlying the effect of organisational downsizing on health of employees: Longitudinal cohort study. BMJ, 320(7240), 971-975. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC27411/.
6 Kessler, R. C., Turner, J. B., & House, J. S. (1987). Effects of unemployment on health in a community survey: Main, modifying, and mediating effects. Journal of Social Issues, 43(4), 69-85. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-4560.1987.tb02200.x.
7 Saez, E., & Zucman, G. (2016). Wealth inequality in the United States since 1913: Evidence from capitalized income tax data. The Quarterly Journal of Economics, 131(2), 519-578. https://www.nber.org/system/files/working_papers/w22945/w22945.pdf.
8 Cutcher-Gershenfeld, J., Kochan, T. A., & Levi, M. (2018). From layoffs to payoffs: Alternatives to layoffs for organizational renewal. Journal of Organizational Behavior, 39(6), 733-748. https://onlinelibrary.wiley.com/doi/abs/10.1002/job.2233.
9 The New York Times, https://www.nytimes.com/2018/12/20/business/verizon-age-discrimination-lawsuit.html. (last visited Mar, 23, 2023).
10 IBEF, https://www.ibef.org/industry/indian-labour-market-presentation. (last visited Mar, 25, 2023).
11 IBEF, https://www.ibef.org/exports. (last visited Mar, 23, 2023).
12 INVESTOPEDIA, https://www.investopedia.com/terms/g/global-economic-slowdown.asp. (last visited Mar, 27, 2023).
13 US Chamber Foundation, https://www.uschamberfoundation.org/reports/social-and-economic-impact-job-loss. (last visited Mar, 27, 2023).
14 Forbes, https://www.forbes.com/sites/forbestechcouncil/2020/04/29/how-a-hiring-freeze-can-be-an-alternative-to-layoffs/?sh=56a91a4767ea. (last visited April, 23, 2023).
15 The Society for Human Resource Management https://www.shrm.org/resourcesandtools/tools-and-samples/how-to-guides/pages/howtoimplementreducedworkhours.aspx. (last visited Mar, 25, 2023).
16 The U.S. Department of Labor https://www.dol.gov/agencies/whd/fact-sheets/70-flsa-furloughs. (last visited Mar, 25, 2023).
17 Harvard Business Review, https://hbr.org/2020/05/when-voluntary-retirement-offers-are-as-good-as-layoffs. (last visited Mar, 25, 2023).
18 The U.S. Department of Labor, https://www.dol.gov/general/topic/workhours/jobsharing. (last visited Mar, 25, 2023).
19 This article by the Society for Human Resource Management (SHRM) provides more information on how to effectively reassign employees: https://www.shrm.org/resourcesandtools/hr-topics/employee-relations/pages/reass igningemployees.aspx.
Author Bio
During layoff time can company have rights to include Sunday or not