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The Act is enacted in year 1947 by the parliament of India in order to make the provisions for the investigation and settlement of industrial disputes, and for certain other purposes. It is labour legislation to protect the workmen against victimization by employers and to ensure social justice to both employers and employees. It lays down the provisions related to lay offs in India.

Laying off employees is a way to deal with an employer’s temporary incapacity to provide them with employment while maintaining the viability of the business. Even though the unemployment is just temporary, it has an immediate impact. The relationship between the employer and the employee is not terminated, and the terms of employment are not changed.

Moreover, layoffs only happen in ongoing businesses. The issue of layoffs is irrelevant if the industrial establishment is permanently shut down or if the employer declares a lockout. Only when a layoff complies with the definition provided in Section 2(kkk) of the Industrial Disputes Act, it is justified.

Over the last few weeks, tens of thousands of tech workers have been laid off around the world. Over-hiring, cost concerns, and finance challenges have generated new hurdles for businesses as the world emerges from the epidemic era. Layoffs began last year and have only risen since the beginning of 2023.  India has also borne the impact of these cutbacks. The layoff season in India began in 2023, with Amazon India laying off 1000 people.


According to section 2 (kkk) of the Industrial Disputes Act, 1947, “lay-off” means the failure, refusal, or inability of an employer to provide employment to a worker whose name is listed on the muster rolls of his industrial establishment, who has not been retrenched, due to a shortage of coal, power, or raw materials, the accumulation of stocks, the breakdown of machinery, a natural disaster, or for any other unrelated reason.

Conditions for Lay Off

There must be an unwillingness, incapacity, or failure on the part of the employer to hire a worker. Failure, refusal, or inability must result from a lack of coal, power, or raw materials, from accumulation of stocks, from a malfunction of machinery, from a natural disaster, or from any other related cause. The name of the employee must appear on the industrial facility’s muster rolls. The workman should not be retrenched.

Compensation Against Lay Off

According to Section 25 C of the Industrial Disputes Act a worker who is laid off is entitled to compensation equal to 50% of his total basic wages and dearness allowance for the period of lay-off. However, it is subjected to certain conditions like; He is not a badli or a casual workman. His name should appear on the establishment’s muster rolls. He should have completed at least one year of continuous service with the company.

A badli workman is a worker who takes the place of another worker whose name appears on the establishment’s muster rolls. However, after one year of continuous service in the establishment, such a worker no longer qualifies as a badli worker.

A worker is entitled to lay-off compensation equal to 50% of the total of his basic wage and dearness allowance for the period of his lay-off, excluding any weekly holidays that may occur. Compensation is normally available for no more than 45 days in any twelve-month period. Even if a worker is laid off for more than 45 days in any twelve-month period, no compensation is required if the worker and the employer reach an agreement to that effect.

The right of workers to lay off compensation is intended to alleviate the hardship caused by unemployment due to circumstances beyond the control of employees. The provision for payment of lay-off compensation does not imply that the employer can pay lay-off compensation and declare lay-off. Payment of compensation is not a prerequisite for layoff.

When a layoff is justified and meets the requirements of Section 2(kkk), the only relief to which workers are entitled is the statutory relief prescribed by Section 25-C. If the lay-off is malafide in the sense that it was declared in order to victimise the workers, it is not justified under Section 2(kkk), and the relief provided to the laid-off workers under Section 25-C is not the only relief to which they are entitled.

Conditions where workman not entitled to lay off compensation

Section 25-E provides some exceptions to the general rule for the payment of layoff compensation. In other words, even if the worker is laid off, he will be barred from claiming compensation if his situation falls under any of the three clauses in this section. A laid-off worker is not entitled to compensation in the following circumstances.

(i) If a laid-off worker refuses to accept alternative employment, such alternative employment must be:

(a) In the same establishment where he was laid off or

(b) In any other establishment owned by the same employer and located within a five-mile radius of the establishment to which he belongs,

(c) In the employer’s opinion, the alternative employment requires no special skills or prior experience and can be performed by the worker.

(d) It carries the same wages that the worker would have received in his previous employment.

(ii) If the worker fails to appear at the appointed time during normal working hours at least once a day.

(iii) If such layoffs are the result of a strike or a slowdown in production by workers in another part of the establishment.

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May 2024