Introduction
The news of the layoff of the employees is not new. We are becoming technology-friendly day by day and the use of Artificial intelligence is making the life of humans easier. It has made almost everything a call away for a person. However, the increasing use of Artificial Intelligence and technology has also adversely affected us and primarily the employment sector, according to the reports of India Today, Artificial Intelligence led to a surge of ‘136 percent’ layoffs in the technology sector in the year of 2024[1]. The data from Harvard Business Review shows that layoff not only affects the laid-off employees but also their productivity. Additionally, it demonstrates that most businesses saw a drop in earnings following layoffs and that, among other difficulties, businesses that experience layoffs are twice as likely to file for bankruptcy as those that do not[2]. Despite these challenges when someone does a normal search about the layoff of employees worldwide, the list goes up. The word layoff has been known since the 1880s and originally it meant rest and relaxation. Later, it means a periodic respite from work[3]. Layoff of the employees is governed mainly by the Industrial Disputes Act, 1947[4]. Although there were no provisions of the same in the main act but the scope of the act is to achieve harmony between employers and employees and to endorse social justice which is important to protect the right of workmen against layoff. Further, the preamble clearly states the objective of the Act is to make provision for the settlement of industrial disputes which also shows the motive of the Act to safeguard the rights of workmen and industrial establishments.
Layoff under the Industrial Dispute Act, 1947
Originally, it did not contain any provisions relating to Layoff or compensation for the Laid-off. Therefore, there were no uniform guidelines for the adjudicating organizations to follow. However, by 1953, the textile sector had amassed enormous stock. There was going to be a further shift closure at textile mills, which may have meant mass layoffs and severe disruption in the textile industry. The President of India responded by enacting the Industrial Dispute (Amendment) Ordinance, 1953[5], which subsequently became an Act. It was the Industrial Disputes (Amendment) Act, 1953[6] that contained the provision for compensation for layoff. According to Section 2(KKK)[7] of the Industrial Dispute Act, 1947, a worker is deemed laid off if an employer is unable to hire the worker whose name appears on the muster roll (a list of employees working in a factory) of an industrial establishment for non-employer-related reasons, such as a natural disaster, a shortage of coal, raw materials, or power, or any other relevant reason. Section 2 (KKK)[8] of the Act can be understood as the condition where employers cannot give the employee any employment for a certain period to keep their business alive. It is not permanent and does not result in the contractual relationship’s end. It is only a temporary reduction of the wages of the employee. Further, the Court has also interpreted the term “lay-off” various times through different judgments. The Apex Court in the case of Priya Laxmi Mills Ltd. Vs. Mazdoor Mahajan Mandal[9] has interpreted the term lay-off in the etymological sense as a time frame where workers are temporarily discharged from work. Thereafter, the Supreme Court in another case, Workmen of Firestone Tyre and Rubber Co. of India Ltd. Vs. Management and Others[10] have held that ‘Lay Off’ is a temporary unemployment of the worker. It is not a full suspension of contractual relations. The Court has further held that it means the employer is unable to employ due to the reason mentioned in Section 2(KKK) itself.
The court has also defined the term lay-off that is given in Section 2(KKK) of the Act[11]. In one of the landmark cases Central India Spinning, Wearing and Manufacturing Co. Ltd., Nagpur Vs. State Industrial Court[12], the Bombay High Court has held the key terms, of Section 2 (KKK)[13] to make it apparent that the caused unemployment irrespective of their action, is “failure, refusal, and the inability of an employer”. In another case Management of Kairbetta Estate Vs. Rajamanickam[14], the Supreme Court has interpreted the term “for any other reason” which is given in Section 2(KKK)[15] as the act that must be ejusdem generis (similar) to the reasons that are expressly mentioned in the section and the common thing of all reasons has to be something which is not in the hand of the employer.
Procedure for layoff
Section 25M[16] of the Act contains the provision of Prohibition of lay-off by the employer. This Section only applies to industrial organizations that, during the last 12 months, employed not less than 100 people on an average per working day. It does not apply to the seasonal industrial establishment. Following is the procedure for the layoff by the employer-
1. It states that an employer cannot lay off the workmen whose name is listed on the muster rolls without prior government permission unless the reason is a shortage of power, fire, flood, or any other natural calamity.
2. The employer shall prepare an application properly state the reason for the layoff and serve a copy to the workmen.
3. The employer must request to the appropriate government or concerned authority within 30 days of the commencement of layoff for permission to continue the layoff if the workers are laid off due to fire, flood, excess of combustible gas, or explosion.
4. It is at the appropriate authority’s discretion to either grant or refuse the application of the layoff after an inquiry to check the adequacy of the layoff. A reasonable opportunity to be heard by the concerned person must be provided by the authority and the same must be notified to the employer and employees.
5. If the government fails to inform employers of the status of their application of permission i.e., granted or refused to the employer, within 60 days, the application is considered granted after 60 days.
6. The Government’s order granting this permission is final and enforced against all involved parties and remains valid for a year after it is issued.
7. Employers may request that appropriate authorities review the order and submit the case to a tribunal for decision. The tribunal will then have 30 days to provide an award.
8. If the application is refused or if they fail to apply for permission, then employers must provide all benefits to workers who are laid off.
9. The government can waive compliance for layoff permission in industrial establishments or mines under exceptional circumstances like employer death or accident in the establishment and such waiver is valid till the order’s subsistence.
10. The employer must compensate the workmen during such layoff as per section 25 C of the Act with some exceptions.
The effect of the layoff
Lay-off affects mostly the laid-off employees as a sudden loss of a job is unbearable both financially and emotionally. Additionally, the laid-off employee may face numerous difficulties in finding new jobs. Sometimes they may be unemployed for a while. However, layoff does not only affect the employee but it also affects the Company, their sales, and revenue among other things. Following are some of the effects of the layoff-
- Bad effect on employees- Layoff affects mostly employees who are laid off. The Sudden layoff of the employees brought various challenges which may range from financial to emotional. It is stressful for the employees and can also impact declining interest in the job, performance, disengagement, lower work quality, and reduced innovation. Some employees may also experience “survivor syndrome”, which can include guilt and confusion about why they were spared.
- Decreasing productivity- Layoffs also impact the morale of the remaining employees. The laid-off of their peers leads to the feeling of uncertainty and anxiety in their mind which has the potential to harm productivity. Low morale also weakens the engagement. Employees may feel powerless after a Layoffs the experience of their peers indicates that effort and performance are not enough to secure their job.
- Impact on the Economy- Consequences of Layoffs have the potential to affect the economy in a wider range. Large-scale employment losses result in lower consumer spending, which can affect companies that depend on consumer spending. Tax income may decrease as a result of layoffs since fewer people will be working and filing taxes.
Compensation for a laid-off employee
The provision related to the compensation of the laid-off employee is given in Section 25-A[17] which contains provisions for the industries that are permitted to lay off without any compensation, Section 25-B[18] defines Continuous service, Section 25-C[19] contains provisions about the workmen’s right to compensation and workmen is not subject to compensation under Section 25-E[20]. Following is the elaborated discussion on the above-discussed Section of the Industrial Dispute Act, 1947[21] which deals with Compensation.
- Application-Section 25- A excludes certain industrial establishments from workmen’s compensation provisions, including those with less than 50 workers, seasonal or intermittent work, and those under Chapter V-B of the Act[22].
- Continuous Service- Section 25-B defines continuous service as a workman who has completed at least one year without any break at an industrial establishment to be eligible for compensation. The break excluded authorized leave, sickness, accident, legal strike, lock-out, or work cessation due to the workmen’s fault. Further, the section outlines two exceptions where a workman is considered in continuous service. These exceptions include those employed for twelve months, those in mines for 190 days or more, and those with other employment for 240 days[23].
- Right of laid-off workmen for compensation- Section 25-C contains the provision under which a workman has to comply to get compensation. It stated that laid-off employees are entitled to receive 50 % of total basic earnings and a dearness allowance for the period of the layoff. Further, an employee should not be a Badli Worker, his name must be on the Muster Roll of the Industrial Organization, and must have completed a 1-year duration of continuous working, these conditions must be fulfilled to be eligible for compensation[24].
- Workmen not entitled to compensation: Section 25-E contains a provision where a worker is not entitled to compensation. It reads that a workman cannot receive compensation if they refuse alternate work within 5 miles of their previous job which does not require special skills or experience, and do not present at the workplace daily. Additionally, a worker cannot receive compensation if they are involved in a strike or slowdown in another industrial establishment[25].
Judicial Pronouncement
The role of the Judiciary in deciding the fate of law is integral in India. The Indian Judiciary through its different Judgments and pronouncements has interpreted the different aspects of Layoff of the employee with its legal expertise. In the case of Papanasam Labour Union Vs. Madura Coats Ltd. and another[26], the Constitutional validity of Section 25-M was challenged on the ground that this section after the 1976 amendment act, imposed unreasonable restrictions as it required prior permission for the effect of lay-off. The court upheld the constitutionality of the Section and further stated that its goal is to promote industrial peace and harmony to retain higher productivity and production and to prevent employees from suffering as a result of layoffs. Further, in another case of Ashok Kumar Jain and others Vs. State of Bihar and others[27], the Constitutionality of Section 25-M has been upheld by the Apex Court. In another case, Rashtriya Maharashtra Elektrosmelt Kamgar Sangh Vs. K.B. Satpute, assistant Commissioner of labour[28], the court has ruled that Section 25-M states that no workman whose name appears on the muster rolls may be fired without prior approval of the appropriate Government unless such lay-off is due to the reason that is given the Section itself. In another case of Pune Zilha Kamgar Sangh Vs. State of Maharashtra and Others[29], the Bombay High Court has held that whenever an application is made for permission for layoff under Section 25-M of the Act before the appropriate government, it has to look at the interest of the workmen and has to give the proper opportunity of being heard while granting or refusing the application.
Suggestions
Layoff of the employee affects many things. It affects not only employees but also the company, market, and productivity. Layoff has the wide potential to damage the culture, legal, and ethical obligations of the company. Following are some of the suggestions to minimize the impact of layoff –
- Alternative to Layoff- There are many alternatives to the layoff. For example, organizations should develop scenarios to inform their workforce plans during economic downturns, suspend discretionary expenses, not hire for non-essential positions, postpone salary increases to overcome financial challenges and seek grants and government support, among other things.
- Effective Policy- The legislature must pass an effective law or policy to safeguard the worker’s rights irrespective of the type of industrial establishment they belong to, as workers in every type of establishment are vulnerable to exploitation by their employers. The government must protect the workmen during the economic downturns from layoffs in the industries through timely economic and policy intervention.
- Welfare of the employee- Companies should prioritize the welfare of the employee. They can ensure the same by communicating with the employee early and Companies can offer support in assisting them in their job search among others. The welfare of the employee can also be ensured by the government through its support scheme for laid-off employees.
- Implementation- Implementation is the key factor in checking the effect of any law. The implementing authority is the executive in India which plays a pivotal role in ensuring the proper implementation of the law. Unless the law related to the layoff is implemented properly, the welfare of the employee cannot be ensured.
Conclusion
The industry is the backbone of any developed economy or any aspiring developed country. It has the potential to increase the exports of a country or the economy of a country. The best example before us is China. According to the United Nations Trade and Development Report, China’s share of global exports is 14.7 Percent as of 2020[30]. The role of Industry is integral to making any country developed. In recent years, the establishment of industry in India increased day-by-days but at the same time, the government should ensure the welfare of the employees through important amendments to safeguard the workforce rights as India has the largest young workforce in the world[31]. On the other hand, the industrial establishment should also not ignore their workmen only for profit, they should ensure the proper environment for the workers at the sites, they should adequately follow the rule of layoff, they should comply with the rules laid down in the Industrial Dispute Act, 1947, and meanwhile, the executive of India should also make sure the proper implementation of laws and regulation related to the same.
[1] India Today, https://www.indiatoday.in/technology/features/story/ai-will-hit-jobs-in-indian-it-sector-but-experts-say-companies-can-also-be-ethical-about-job-cuts-2513756-2024-03-12 (last visited Dec. 02, 2024)
[2] Harvard Business Review, https://hbr.org/2018/05/layoffs-that-dont-break-your-company (last visited Dec. 02, 2024)
[3]Vocabulory.com, https://www.vocabulary.com/dictionary/layoff#:~:text=When%20the%20word%20layoff%20was,to%20make%20it%20sound%20less. (last Visited Dec. 03, 2024).
[4] Industrial Dispute Act, 1947, No. 14, Acts of Parliament, 1947 (India).
[5] Industrial Disputes (Amendment) Act, 1953, No. 53, Acts of Parliament, 1953 (India).
[6] Ibid
[7] Industrial Disputes Act,1947, § 2KKK, No. 14, Acts of Parliament, 1947 (India).
[8] Ibid
[9] MANU/SC/0310/1976.
[10] MANU/SC/0305/1973.
[11] Supra 7
[12] AIR 1959 BOM 225.
[13] Supra 7
[14] MANU/SC/0234/1960.
[15] Supra 7
[16] Industrial Disputes Act, 1947, § 25M, No. 14, Acts of Parliament, 1947 (India).
[17] Industrial Disputes Act, 1947, § 25A, No. 14, Acts of Parliament, 1947 (India).
[18] Industrial Disputes Act, 1947, § 25B, No. 14, Acts of Parliament, 1947 (India).
[19] Industrial Disputes Act, 1947, § 25C, No. 14, Acts of Parliament, 1947 (India).
[20] Industrial Disputes Act, 1947, § 25E, No. 14, Acts of Parliament, 1947 (India).
[21] Supra 4
[22] Supra 18
[23] Supra 19
[24] Supra 20
[25] Supra 21
[26] MANU/SC/0567/1995.
[27] MANU/SC/0568/1995.
[28] MANU/MH/0168/1983
[29] 2019 SCC OnLine Bom 12408.
[30] United Nations Trade and Development, https://unctad.org/news/china-rise-trade-titan (last visited Dec. 04, 2024)
[31] Centre for Economics and Data & Analysis, https://ceda.ashoka.edu.in/trends-in-youth-employment-in-india-2017-18-to-2022-23/ (last visited Dec. 06, 2024)
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