Lay Off and Retrenchment

In the partial fulfillment of marking scheme of B.A.LL.B. (5th semester)

Submitted To: Submitted By:Shvet Sharma

MS: Isha BA.LLB 5th –SEM

Geeta Institute Of Law , Karhansh , Panipat

Introduction
Layoff and retrenchment are talked about in the Industrial Disputes Act of 1947. Layoff refers to
the removal of employees by the employer for reasons other than the employee’s fault. A layoff
is temporary in nature as it indicates the incapability of an employer to continue the employment
of the workers for a short period. Retrenchment refers to a situation where the employer removes
his employees to increase profits and decrease losses. Even in retrenchment, there is no fault of
the employee that results in the termination of the employment. Through this article let us
analyse the terms layoff and retrenchment put forth under the Industrial Dispute Act, 1947 in
detail.

Definition: 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

 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.
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. Layoff means there will be immediate removal of the
employees, however, such unemployment is temporary in nature so it does not result in the
termination of the already existing employer-employee relation and leads to no alteration of the
terms 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, 1947: non-applicability of compensation on

industries

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.
Section 25B of the Industrial Disputes Act, 1947: continuous service

As per Section 25B, a workman is said to render continuous service if he has worked for at least
one year without any interruption. He shall be eligible for compensation if he has rendered a
minimum of one year of continuous service. The interruption of such continuous service is not
affected by reasons such as an accident, authorized leave, sickness, legal strikes, a lock and the
termination of work that is not due to the fault of the workmen.

There are two exceptions where even if a workman is not in continuous service shall be deemed
to be in continuous service – they are –

 If the workman was employed for the preceding 12 calendar months from the date on
which such calculation is being made.

 If the workman during such 12 months had rendered his services for 190 days or more
in the case of being employed in a mine and 240 days in any other employment.

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.
Conditions for non-applicability of compensation on workmen

Section 25E states when a workman shall not be entitled to layoff compensation –

1. If the workman is absent from the establishment during the required working hours at
least once a day.

2. If the workman is laid off for slowing down the efficiency of workmen in another part
of the establishment or due to the reason for a strike.

3. If the workman expresses his refusal towards the alternative employment being given
to him, provided that:

 Such employment is given in the same establishment he has been laid off from.

 Such employment is given in any other establishment under the same employer within
5 miles radius from the establishment to which he belonged.

 Such employment as per the employer does not require any previous experience or
special skills as compared to the work that the workman can do

 Such employment provides the same wages to the workman as his previous
employment did.

Prohibition of lay-off under Industrial Disputes Act, 1947

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. If the work is regarding a
mine then the reasons can also be fire, explosion, excess of inflammable gas or a flood.
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.

If the concerned authority or the government does not communicate its order regarding its grant
or refusal to grant permission for such lay off within 60 days from the date of application then
such application for permission shall be considered as granted. 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 concept of retrenchment under the Industrial Disputes Act, 1947

Section 2(oo) of the Industrial Disputes Act, 1947 talks about retrenchment. As per the said
section, retrenchment refers to the termination of a workman for any reason except for a form of
punishment in furtherance of imposing disciplinary action. However, retrenchment does not
include voluntary retirement of a workman, workman retiring upon reaching the age of
superannuation as mentioned in the employment contract, removal of a workman on basis of
continued ill-health, and removal of the workman because the employment contract is terminated
or is non-renewed after its expiry.
Section 25F of the Industrial Disputes Act, 1947: conditions precedent to retrenchment

 As per this Section, the employer must give one month’s written notice to the
workman that includes the reasons for retrenchment, or in lieu of such notice, the
workman must be paid wages for the period of the notice.

 The employer at the time of retrenchment must pay the workman the compensation
which is equal to the average pay of 15 days for each year of continuous service
provided by such workman.

 The notice regarding retrenchment must be served to the appropriate Government as

well.

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 decides to retrench a workman belonging to a certain class of workmen working

in the establishment of such employer, he must ensure to retrench such a workman who was
considered as the last candidate to be employed for such work at the time of employment.
Usually, the rule followed during retrenchment is that it must start with beginners or new
workmen and then progress towards the experienced or senior workmen.

However, the exceptions to the above-mentioned method are if a contract exists between the
employer and the workmen that is contrary to the rule or if the employer states the grounds to
retrench any other workman. The employer in good faith is allowed to continue the employment
of those workmen who possess special skills and whose service is imperative for the
establishment’s proper functioning.
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.

State Bank of India v N. Sundaramony

In this case, the Supreme Court put an end to its earlier decision expressed in Byram Pestonji
Gariwala v Union Bank of India and Others by expanding the definition of retrenchment as
defined under Section 2(oo) of the Industrial Disputes Act, 1947. It held that any retrenchment
done as per Section 2(oo) shall mean that the termination of a workman is done by the employer
for any reason whatsoever other than as a punishment in furtherance of imposing disciplinary
action and those explicitly excluded by clauses (a), (b) and (c) of the said definition.

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.

Lay-off and retrenchment: a comparative analysis

A layoff basically means the temporary termination of a workman at the disposal of an employer
while retrenchment means the removal of excess workmen to increase the efficiency of the
industrial establishment, provided that such removal is done for any reason whatsoever other
than as a form of punishment in furtherance of imposing disciplinary action.

The termination in a layoff is temporary while termination in retrenchment is permanent. The

employer-employee relationship does not cease to exist in the former and it ceases in the latter.

In a layoff, the industrial establishment stops functioning or operating after the declaration.
However, in retrenchment, the industrial establishment continues its functions or operations.

A workman who had been laid off is appointed back as soon as the layoff period ends. In the
case of retrenchment, the employment of the workman is immediately terminated, there is no
further relation between the employer and the workmen.

Conclusion

Any company doing business banks upon various aspects for the purpose of its operation,
gaining profits and reducing losses. It is also required to look after its employees well enough so
that they work efficiently for the development of such a company. However, in order to survive
in the market, these companies are required to take accurate and expeditious decisions.
Terminating the employees or workers by means of lay-offs or retrenchment may be beneficial to
the company as both methods follow certain protocols to make sure that the employees or
workers are not subjected to unfair conditions.

References

 https://labour.gov.in/sites/default/files/THEINDUSTRIALDISPUTES_ACT1947_0.pdf

 http://www.legalservicesindia.com/article/2416/lay-off,-retrenchment-and-closure-
under-Industrial-Disputes-Act.html

 https://thefactfactor.com/facts/law/civil_law/labour_laws/industrial_disputes_act/
retrenchment/420/
 https://www.legalbites.in/lay-off-retrenchment-and-closure/