Lesson-17

Staffing-- Promotions, Transfers, Demotions and Separations

Learning Objectives

This lesson is an insight into the following topics related to staffing:

• What is promotion
• What are objectives of promotions
• What are transfers and demotions
• What are separations

Promotions

The movement of personnel within an organization can be termed as promotions,

transfers, demotions and separations. These collectively form a major aspect of human
resource management. The actual decisions about whom to promote and whom to fire
can also be among the most difficult and the most crucial that a manager has to make.

Advancement within an organization is ordinarily labeled as promotion. This includes a

change from one job to another that is better in terms of status and responsibility.
Ordinarily, the change to the higher job is accompanied by increased pay and privileges
but not always. The term dry promotion refers to an increase in responsibility and status
without any increase in pay. On the basis of factors involved in promotion, it can be
classified into the following two forms:

• Horizontal promotion
• Vertical promotion

In horizontal promotion, employee’s job classification remains the same. In this case,
only his/her position increases. For example, a lower division clerk may be promoted as
upper division clerk with the same job assignment and responsibility. In vertical
promotion, an employee crosses his/her job classification. This increases the person’s
responsibility and status. For example, a superintendent becomes departmental manager.
William Spriegal has classified promotion into three parts. These are as follows:

• Inter-departmental
• Departmental
• Inter-plants

These are based on the place of posting of an employee after promotion.

Need for Promotion

It is emphasized that organizations should have proper and systematic promotion policy.
The question here is that what specific purpose is served by promotion. In fact, the
promotion is highly desirable for both organization and its members.

1. Organizational needs-- No organization can rely on outside recruitment to fill all its
requirements. It is true that certain jobs are similar in most of the organizations but
most jobs require some specialization which can be acquired in a particular
organization. This is even true for jobs which are not quite unique and may require
familiarity with people, procedures, policies and special characteristics of the
organization in which these are performed. Thus, promotional ladders are needed to
provide promotions those who have had broad experience in the organization.

2. Providing motivation-- Promotion possibilities influence the behavior of individuals

in the organization. This stimulates organizations and individuals of greater abilities
to move ahead. Promotion is used as reward and as an inducement to better work
performance and other organisational1y-approved form of behavior. People tend to
work harder if they feel this will lead to promotion. They have little motivation if they
feel that better jobs are reserved for outsiders.

3. Providing satisfaction-- Modern organizations provide numerous benefits to their

members. Promotions are highly desirable to individuals both for their intrinsic
benefits as well as their symbolic connotations of success values. Opportunities and
clear policies for promotion provide satisfaction to employees in the following
manner:

• Employees get job satisfaction in the organization

• Promotion induces economic and moral development in employees. They
always find avenues to move upwards
• They are able to increase their productivity for promotion which inculcates the
habit of learning new things
• Their morale remains high, which is quite useful to employees as well as to
the organization.

Basis for Promotion

Many complex and interrelated factors enter into the decision in a promotion system.
Management faces difficult task of deciding whom to promote since there are usually
more candidates than openings. The bases on which decision can be made concerning
promotion are:

• Merit
• Seniority

Promotion on Merit Basis

Management personnel generally prefer merit as determined by job performance and by
analysis of employee’s potential for promotion. In this way, they ensure that competence
shall be the fundamental determinant of progress. If promotion is to be an incentive, the
best performing employee ought to be promoted. When merit is taken as base for
promotion, efficiency is ensured in the organization.

However, the argument for merit has little foundation unless conscientious and
systematic attempts are undertaken to measure merit. The main difficulty in weighing
merit, while making a promotion decision, is the lack of objective criteria. Test scores,
performance appraisal and analysis of behavior can be taken for consideration. However,
there is no accurate assessment procedure that is free of judgment.

Another problem in promotion by merit is the lack of knowledge of criteria by which

effectiveness or suitability for meeting promotion requirements are measured. An
individual may be quite competent for the present job, but his/her overall personality may
not be suitable for higher positions. If the person is promoted on the basis of present
knowledge criterion, he/she may fail at higher position. Gaudet has found that most
managerial failures are caused by personality lacks, rather than knowledge lacks, by a
ratio of 10 to 1. The importance of personality factors indicates that the present
knowledge is not so important for promotion purpose.

In order to determine comparative merit for promotion, the specific traits, attitudes,
personalities and skills that make up merit and ability are frequently ambiguous. For this
reason, some organizations often rely on objective measurements. This includes the years
of education. There are two main criteria for executive success. These are as follows:

(i) Organization’s rank

(ii) Overall effectiveness ratings

These two factors can be taken for measuring ability for promotion. They are quite
difficult to apply and both are conceptually weak. In spite of the various difficulties
involved in measuring merit, they are taken as base for promotion decision.

Promotion on Seniority Basis

Distinguishing among persons on the basis of seniority is as old as civilization itself.

Seniority is widely recognized in all types of organizations such as military, government
and business organizations. The extent to which promotions should be based on seniority
is always an area of dispute between work force’s unions and management. Seniority can
be defined as the length of recognized service in an organization. Seniority and
experience are not necessarily equivalent, although they may be generally associated.
Experience measured in years has little value except as applied to particular individuals
who make the experience meaningful in on-going situations.

Determining Seniority- While determining the seniority of individuals in an organization,

the rules should be carefully and specifically spelled out. If they are not, seniority can
generate more personnel problems than it can eliminate. There are four major tasks in the
design and establishment of a seniority system. These are as follows:

1. Accumulation of seniority-- Seniority’s greatest asset is its ability to distinguish

among all personnel on an objective basis. Therefore, the organization should
recognize the exact length of service. Accumulation of seniority presents problems of
defining when seniority begins and the effect of interruptions in service. In such
cases, there should be specific rules to count seniority.

2. Special groups-- The second task in establishing a seniority system is that of deciding
what groups are to be given special treatment in the form of exemptions from the
rules. This is commonly known as super-seniority. The labor unions generally require
that their officials should be awarded super-seniority over all others. The super-
seniority is granted to protect seniority of personnel of particular groups. In some
situations, employees may hesitate to accept promotion at supervisory positions lest
they should lose their seniority status and rights.

3. Seniority unit-- Seniority can be counted on the basis of company, plant, division,
department, or occupation. Anyone or all of these areas can be used for different
purposes. Generally for promotion purposes, the seniority is confined to occupational
area, whereas in the case of vacation choice it may be company-wide. However, it is
important specially to indicate the particular units in which seniority can be
accumulated and company should maintain exact and accurate seniority lists of all
personnel.

4. Employment privilege-- In designing the seniority system, management should

emphasize clearly the employment privileges which seniority can affect and weight of
that effect. Certain employment factors, such as promotion, transfer, layoff, choice of
shifts, choice of vacation periods, separation etc. are affected by seniority.

Promotion based on seniority has the following strengths:

1. 1.Seniority as the basis for promotion is based on objectivity and equality. The use of
such criteria as performance appraisal, selection tests and superior’s opinions leads
many employees to feel that promotions are not made fairly. This ultimately results in
declining morale and productivity. To avoid this difficulty, it is often suggested that
promotions should be based on seniority which is objectively determined.

2. In a sense, to grant promotions on the basis of seniority is to reward employees for

loyalty. No one would deny that loyalty deserves reward. Organizations that want to
hold on to their employees and avoid costly turnover, a type of guaranteed promotion
plan may be an effective personnel policy.

3. Experience contributes ability, if it is meaningful. Up to some point, the longer an

employee works at one job, the more qualified he/she becomes for promotion to the
next higher job. Researches have shown that employees with the longest service often
 are better prepared for promotion that management is initially willing to admit.
However, beyond a certain level, continued service brings very little gain.

Promotion based on seniority alone has many limitations and weaknesses. It provides
scope for inefficiency as employees are assured of promotion after certain years of
continued service. Sometimes, experience and ability do not have any correlation.
Individuals vary widely in their ability to develop through experience. Some merely
accept their daily experiences, whereas others deliberately seek and create experience
opportunities for themselves.

Merit vs. Seniority-- Striking a Balance

Each basis of promotion has its own relative strengths and weaknesses. Every
organization should decide on the relative weights it will give to merit and seniority in
making promotion decisions. Many organizations try to maintain a balance between merit
and seniority. Instead of taking a particular factor as the sole criterion, they take a
combination of both as shown in figure 17.1.

Some organizations follow the practice where seniority governs completely the
promotion in the lower job classes and merit governs completely the promotion in the
higher job classes. The primary reason behind this arrangement is the amount of
influence an employee can rightly be expected to exert in two types of jobs. In the lower
jobs, where employee is more restricted and controlled, knowledge factors are more
important. In the higher jobs, where the individual can exert a stronger influence on the
manner in which job is performed, personality factors are more important.

Figure 17.1: Merit-cum-Seniority Criteria for Promotion

Transfers

Transfers serve a number of purposes. They are used to give people broader job
experiences as part of their development and to fill vacancies as they occur. Transfers are
also used to keep promotion ladders open and to keep individuals interested in the work.
For example, many middle managers reach a plateau simply because there is no room for
all of them at the top. Such managers may be shifted to other positions to keep their job
motivation and interest high. Finally, inadequately performing employees may be
transferred to other jobs simply because a higher-level manager is reluctant to demote or
fire them. Increasingly, however, some employees are refusing transfers because they do
not want to move their families or jeopardize a spouse’s career.

Discipline, Demotion and Separations

Discipline is generally administered when an employee violates company policy or falls

short of work expectations. In this case, the managers should act to remedy the situation.

Discipline usually progresses through a series of steps. This includes the following:

• Warning
• Reprimand
• Probation
• Suspension
• Disciplinary transfer
• Demotion
• Discharge

This procedure if followed until the problem is solved or eliminated. Some ineffective
managers may be asked to go for retraining or development. Others maybe promoted to a
position with a more impressive title but less responsibility.

If demotion or transfer is not feasible, separation is usually better than letting a poor
performer stay on the job. No matter how agonizing the separation decision may be, the
logic of human resource planning frequently requires that it be made. Interestingly, a
surprising number of poor performers at one firm become solid successes at another.

Union Carbide has approached discipline in an alternative fashion through what is called
positive discipline. When problems arise at work, the supervisor confronts the employee.
Although subsequent incidents are met with increasing severity, punishment is not the
initial response. The first time an incident occurs, for example, an employee may be
required to take a day’s leave with pay to think about what happened. At the same time,
positive discipline encourages recognition of good performance by employees.

The accelerated trend toward restructuring in today’s turbulent environment of increased

competition has contributed to a growing rate of separations. As a result, some companies
provide outplacement services to help separated employees find new position.

Duracell, for example, worked closely with outplacement consultants Pauline Hyde
Associates (PHA) when it closed its factory in Crawley, England. Even before the
announcement of the closing, PHA, quietly contacted 5,000 companies about job
opportunities, resulting in the posting of 100 unadvertised vacancies potentially available
for Duracell workers. Then, immediately after the news of the closing was delivered,
PHA counselors began meeting with employees on-site. Of the 300 workers, 150 were
out of a job immediately with three month’s severance pay. Employees registered at the
job shop, which was available to them whenever they needed it. The job shop had a firm
orientation toward achievement, with an average placement rate of two people a day.
News about job successes was posted on bulletin boards to generate optimism among the
employees still working. In the end, 92 percent of those laid off found new positions
through the outplacement effort.

Rhino Foods, a $5-million specialty-dessert maker in Burlington, Vermont, chose to

avoid layoffs altogether by contracting out idle workers temporarily to other local
businesses. Employees collected the salary the other company normally paid for the same
work or if the other company normally paid less than what the worker earned at Rhino. In
this case, Rhino paid the difference. The costs that Rhino incurred were not insignificant,
but Rhino management believed they amounted to less than layoffs would have cost. In
addition, many employees acquired new ideas from the temporary employers. This
included worker who returned from Ben and Jerry’s with a suggestion for rotating breaks
for production-line employees.

It has become increasingly important for managers to establish and follow to the letter a
policy on termination. For many years, it was accepted doctrine that managers could fire
at their own discretion. Through legislative and judicial action, however, employees have
won an increasing number of complex rights. As a result, more and more companies are
finding themselves answering charges of wrongful termination in courts that seem to
view jobs as a form of legal contract or property, with roughly comparable rights.
Judgments of wrongful termination challenge the doctrine of “at-will” employment used
in many jurisdictions.

To handle disputes about discipline and document their resolution, formal complaint
procedures are common. At Federal Express, the discipline procedure includes a formal
grievance review process called the Federal Express Guaranteed Fair Treatment
Procedure (GFTP). It provides for up to three levels of review. These are as follows:

• Management review
• Officer review
• Executive review

Employees, not satisfied with the results of review at one level, may resubmit the
complaint to the next level. At each stage, both the complaint and the response should be
timely and in writing.

Let us look at some definitions of important concepts such as suspension, dismissal and
retrenchment or separation.

Definitions
Suspension-- This means prohibiting an employee from performing the duties assigned to
him/her. This involves withholding wages for as so long as that prohibition continues.
During the period of such prohibition, the contract of employment between an employer.
In this case, the employee is considered suspended. In other words, suspension does not
mean termination of service but only denial of work for some time.

Dismissal-- This means termination of service or contract as a punishment for a serious

misconduct or act of indiscipline. This is the supreme punishment which a company can
give for disciplining workmen as a last resort. It carries a stigma which may prevent the
dismissed person from getting another job. It is a permanent separation from the job.

Retrenchment-- It is a termination of service for reasons of redundancy or surplus to

requirement. The Industrial Disputes Act defines retrenchment as termination by the
employer of the service of a workman for any reason whatsoever, other than as a
punishment. It does not include voluntary retirement, retirement and termination on the
grounds of ill health. By a recent amendment, non-renewal of contract is not to be
regarded as retrenchment. In other words, retrenchment is termination of service, but all
terminations of service are not retrenchment. According to the ruling of the Supreme
Court “retrenchment” as defined in the Act is not to be given any wider meaning than the
ordinarily accepted connotation of the word. Termination of service of a workman for
any reason other than that of surplus of workers in the company is not considered as
retrenchment.

Suspension

Procedural Suspension

Procedural Suspension is not considered as a punishment. Such suspension is made when

disciplinary action is initiated or about to be initiated against a person for any misconduct
which may warrant any major penalty like discharge or dismissal. The delinquent worker
is suspended if his/her presence at work is not considered desirable for fear of tampering
with the records of any other evidence or the enquiry by itself. The worker is also
suspended in the interest of discipline and good order in the establishment and in all cases
where the act of misconduct complained of is grave and serious. It is usual to issue the
suspension order along with the letter of charge, but if the management thinks it
necessary, the workman may be suspended even before issuing the charge sheet pending
further disciplinary proceedings.

During the period of suspension, the worker is paid a subsistence allowance equal to one-
half of the gross wages for the first ninety days and three-fourths of the wages beyond
ninety days. Till recently, this subsistence allowance was paid only in the Government
and public sector establishments. But in other establishments, it was paid only if it was
provided in their standing orders or model standing orders prescribed under the Industrial
Employment or Standing Orders Central Rules applicable to them. With the recent
amendment of the rules passed under the Industrial Employment (Standing Orders) Act,
1946, the offender can be placed under suspension pending enquiry. It has been made
obligatory for all employers to pay to the worker during his/her suspension. This includes
a subsistence allowance equal to one-half of the basic wage, dearness allowance and
other compensatory allowances to which he/she would have been entitled if the person
had not been suspended. Such subsistence allowance is paid for ninety days. If the
enquiry is prolonged beyond ninety day, the allowance is increased to three fourths of
normal emoluments. If, however, the responsibility of prolongation were that of the
workman, the allowance would be reduced to one-fourth of the normal emoluments.

Like fine and warning, suspension is generally considered as a minor punishment which
may be inflicted for misconduct such as unpunctuality or irregular attendance. It is
important that these are not habitual or often repeated. As a rule, punishment should be
commensurate with the gravity of the offence. In establishments covered by the Industrial
Employment (Standing Orders) Act, 1946, the acts and omissions which constitute major
and minor misconducts and for which various punishments may be awarded, are usually
specified in the standing orders. In such cases, the punishment awarded should only be
that which is permissible under the standing orders. It is within the discretion of the
management to award a lesser punishment than that indicated in the standing orders.
However, they cannot award a major punishment like suspension for minor misconduct,
as it will not be legal under the standing orders.

The power to suspend an employee and withhold payment of wages during the period of
suspension by way of punishment, like the power to make penal deductions from the
remuneration of employees, is not an implied term in ordinary contract between master
and servant. As such, unless power is reserved to the employer specifically in the contract
of employment itself, an employee cannot be punitively suspended. Hence, in
establishments where standing orders have been framed governing the contract of
employment between the management and the workman. Provision is usually made for
reserving powers in the management to punitively suspend the workman and also for
prescribing maximum number of days of suspension which are generally four. If the
punitive suspension exceeds the number of days mentioned in the standing orders, it may
be regarded as a major punishment and may be dealt with as such.

Dismissal-- How it Differs from Discharge

Dismissal and discharge have the same result, that is, termination of the service of the
employee. It is on this account that these terms are often used indiscriminately by
employers and employees and even sometimes by the labor courts as though they were
interchangeable. But there is a difference between the two expressions and it is desired
that this is clearly understood. The aspects that need to be noted in this connection are as
follows:
a) While dismissal is a punishment for some misconduct, discharge is not always a
punishment.

b) The acts and omissions, for which the punishment of discharge may be inflicted, are
generally the same for which the extreme punishment of dismissal would be
warranted. However, on consideration of equity, expediency or extenuating
circumstances, it may be deemed desirable by the employer to discharge an employee
instead of dismissing him/her.

c) Discharge is considered a less severe punishment than that of dismissal, although

both result in the termination of service. The stigma that is attached to the expression
“dismissal” may make it practically impossible for the person concerned to obtain
another employment, which is not the case with discharge.

d) The agreed or reasonable notice may have to be given in case of discharge, but not so
in case of dismissal which is usually summary, i.e., without notice.

e) In case of dismissal, the employer can withhold the contribution to provident fund,
bonus and gratuity payable to the employees. The dues can be used to make up the
loss caused to the concern by his/her misconduct. In most cases, discharge of a
worker is still entitles him/her these benefits and other dues.

f) For dismissing a worker, the employer has to hold disciplinary proceedings. He may
or may not do so for discharging an employee. The employer can discharge an
employee by giving an agreed or reasonable notice, as provided in the standing orders
or contract of service, without serving him with a charge sheet, receiving explanation
and holding an enquiry, as is usually done for dismissing an employee. However, the
employer may be required to prove the bonafides of both the actions.

Misconduct or Grounds for Dismissal

As already mentioned, the punishment of dismissal is inflicted for various offences of

misconducts which are inconsistent or incompatible with the faithful discharge of one’s
duties, or his incapacity preventing him from fulfilling his contract of service with the
employer, or such immorality on his part as may bring the employer into disrepute. All
these three grounds justify the dismissal under common law. Willful insubordination,
riotous and disorderly behavior, dishonesty, habitual absence without leave, habitual
negligence or willful neglect of work, etc. would be justifiable grounds for dismissal
under common law.

For persons covered by industrial law, such as Industrial Disputes Act, 1947 and
Industrial Employment (Standing Orders) Act, 1946, the following items of misconduct
for which a workman may be dismissed are prescribed under the rules framed under the
latter Act:
a) Willful insubordination or disobedience, whether alone or in combination with others,
to any lawful and reasonable order of a superior.

b) Theft, fraud or dishonesty in connection with employer’s business or property.

c) Willful damage to or loss of employers’ goods or property.

d) Habitual late attendance.

e) Taking or giving bribes or any illegal gratification.

f) Habitual absence without leave or absence without leave for more than ten days.

g) Habitual breach of law applicable to the establishment.

h) Habitual negligence or neglect of work.

i) Riotous and disorderly behavior during working hours at the establishments or any
act subversive to discipline.

j) Frequent repetition of any act of omission for which a fine may be imposed to a
maximum of three per cent of the wages in a month.

k) Striking work in contravention of the provisions of any law or rule having the force of
law.

The above list of misconducts warranting dismissal is only illustrative. Several other Acts
and omissions can be added to this. This may include willful slow down or inciting others
to slow down, assault on manager or supervisors and other offences under the Indian
Penal Code involving moral turpitude. This takes into consideration the nature of the
industry or the establishment.

Right to Hire and Fire and it’s Abridgement

Employers have been claiming right to hire and fire from time in memorial. The
unfettered exercise of this right by the employers was recognized in common law. Under
common law a person wrongly discharged or dismissed cannot be reinstated, and can get
at the most some prescribed monetary compensation by way of relief. The industrial law
which has replaced the common law for regulating relations between employer and
employee also upholds the right of the employer to manage and discipline his employees.
But this right has been abridged considerably with the enactment of the Industrial
Disputes Act, 1947, Industrial Employment (Standing Orders) Act, 1946, and the
Payment of Wages Act, 1936 and with the emergence of the principles of social and
natural justice, and their extensive use made by Labor Court, Industrial Tribunals, High
Courts and Supreme Court, in deciding disciplinary cases and other industrial disputes.
Under the common law the authorities decide cases only in terms of contractual rights
and obligations, but under the industrial law the authorities have to take into
consideration the principles of social justice, and so they can even order the reinstatement
of the workman discharged or dismissed wrongly. The employers do retain their right to
take disciplinary action, but in a bonafide manner. Under the Industrial Disputes Act, the
employees have acquired the right to question the action taken against them, appeal to
labor and other higher courts against it. The higher courts can intervene if the dismissal or
discharge is malafide. It sometimes smacks of victimization or unfair labor practice and
violates the principles of natural and social justice.

In view of these changed conditions under which employers’ action can be challenged
and set aside, the employers are now compelled to observe such principles and
procedures in taking disciplinary action, including discharge or dismissal of their
workers, as to minimize the chances of their action being annulled or set aside.

Procedure for Dismissal

No desirable procedure which may comply with principles of natural justice has been laid
down in any law for dismissal or discharge of an employee, nor has it been the subject of
any collective bargaining, or tripartite understanding. However, a model procedure which
should be followed has been evolved from various awards and judgments of labor courts,
industrial tribunals, high courts and the Supreme Court. The procedure follows the steps
given below:

1. Preliminary enquiry on receiving report of misconduct.

2. Issuing of charge sheet if there is a prima facie case for misconduct and if there is
some evidence for establishing the same and for obtaining explanation of the
delinquent employee.
3. Holding fair and unbiased domestic enquiry if explanation of the employee is found
unsatisfactory). This is in conformity with the principles of natural justice and gives
full and real opportunity to delinquent employees to prove their innocence.

The punishing authority is to consider the report and decide the punishment to be
awarded if the employee is found guilty. In deciding the punishment it has to be seen that
it is in proportion to the offence committed. He has also to see that the enquiry has been
conducted properly (see Appendix to the unit on ‘Discipline’ in this booklet) before
communicating the decision to the employee concerned. If at that time, the employee is a
party to any dispute pending before the Conciliation Officer or Board of Conciliation or
Labor Court or Tribunal, the punishing authority should take the approval of the
concerned authority before whom the dispute is pending, before conveying his decision
to the employee. Even if the decision is conveyed to the employee, before taking
necessary permission, he may be informed that necessary permission is being obtained,
and his dismissal will take effect from the date the permission is given, In the meanwhile,
he will be considered as suspended.

Other restriction on dismissal-- Under Section 33 of the Industrial Disputes Act, 1947,
allows dismissal or discharge of an employee under special conditions. The person is
considered party to a dispute which is pending before any conciliation or arbitration or
adjudication authority. Prior to this, a permission or approval of that authority has to be
taken for passing any order of dismissal or discharge. If the employee concerned is not
party to the dispute, he can be dismissed with a one-month notice or one-month wages in
lieu of the notice. During that month, the employer has to apply for permission for
dismissal to the authority concerned. Incase of protected workmen, prior permission for
dismissal and discharge is essential even when they are not connected with the dispute.
These protected workmen are trade union office. These are bearers who are declared, as
such, to save them from being victimized for raising or conducting the dispute. The
unions nominate them and the number does not exceed one per cent of the total
workforce. It is subject to a minimum number of five.

Retrenchment

As already defined, retrenchment is termination of service for redundancy. This is when

workers become surplus to requirements, either because of rationalization or due to loss
of market for the product or for use of some labor saving devices. Termination of services
can be due to disciplinary action, prolonged illness, retirement and superannuation,
expiry of contract, termination of contract as per the terms of the contract, unsatisfactory
working during the probationary period. This is provided in the standing orders or service
contract and non-renewable contract. It is not retrenchment. Lay-off is not termination of
service. It is only temporary denial of employment due to circumstances beyond the
control of employer, such as power shortage, mechanical breakdown, non-availability of
raw material, accumulation of stocks, shortage of coal, and natural calamity or any other
connected reasons. In case of mines, workers can be laid-off on account of excess of
inflammable gas, fire, flood and explosion.

Secondly, compensation is payable both in lay-off and retrenchment, but in layoff it is

payable in case of factories, mines and plantations if the establishment employs 50 or
more workers, and the work is neither seasonal nor intermittent. Again, lay-off
compensation is payable only to such workers who are on the muster-roll of the
company, and are neither casual, nor badli workers and if they are not offered alternative
employment within five miles of the establishment where they are working on the same
remuneration and other terms of employment. All these restrictions are applicable for
payment of compensation for retrenchment which is payable in all establishments,
irrespective of their employment strength and also to all classes of workers except
apprentices, if they have completed one year of continuous service, or have worked for
240 days on the surface or 190 days underground in 12 calendar months. The condition of
one-year continuous service is also applicable to lay-off compensation.

Lastly, in case of lay-off compensation payable is half of the wages which would have
been payable to a workman, had he not been laid-off, and this he can claim as statutory
right. In case of retrenchment, compensation payable is half month’s salary for every
completed year of service, besides one month notice in case of undertakings employing
less than 100 persons and three months notice in case of undertakings with 100 or more
employees or wages in lieu of notice. But retrenchment compensation is not the statutory
right of the retrenched worker. It is only a pre-condition of retrenchment, because if it is
not paid the workman will not be considered as the retrenched process. Chapters V-A and
V-B of the Industrial Disputes Act, 1947, regulate it. These Chapters were not in the
principal Act to start with. Chapter VA and Chapter V -B were introduced in 1953 and
1976 to check and minimize retrenchment and lay-off which were causing a spate of
industrial disputes resulting in strikes and lockouts. Chapter V-A regulates retrenchment
in establishments employing 100 or fewer workmen. According to Sec. 25 of this Chapter
no workman employed in any industry who has been in continuous service for not less
than one year or who had worked for 240 days on the surface of 190 days underground in
12 calendar months under an employer shall be retrenched by that employer unless

(a) The workman has been given one month notice in writing indicating the reason for
retrenchment and the period of notice has expired, or the workman has been paid one
month’s wages in lieu of notice.

(b) The workman has been paid, at the time of retrenchment, compensation equal to 15
days average pay for every completed year of service or any part there of in excess of
six months.

(c) Notice in the prescribed manner is served on the appropriate Government. No such
notice may be required if the retrenchment is under an agreement which specifies a
date for the termination of service. The 240 and 190 days working period which
qualifies a workman for receiving compensation includes days for which he was on
leave with wages, or laid-off under an agreement or is permitted by standing orders or
absent due to temporary disablement caused by accident arising out of or in course of
employment, and in case of a female employee the days on which she has been on
maternity leave.

Procedure for retrenchment-- In case of workmen who are Indian nationals, the principle
of “first come last goes” has to be followed for retrenchment. The authorities can retrench
any other workman after recording the reasons for the same. For this purpose, seniority is
to be considered in relation to the same category of workers.

Re-employment of retrenched persons-- Where any workmen are retrenched, and the
employer proposes to reemploy any persons, he shall give an opportunity to the
retrenched workmen who are citizens of India to offer themselves for re-employment,
and such retrenched workmen who offer themselves for re-employment, shall have
preference over other persons.

Retrenchment in establishments employing more than 100 Persons-- A different law

regulates retrenchment in these establishments and this is as provided in Chapter V-B of
the Industrial Disputes Act.

Retrenchment Compensation
The statutory payment of compensation for retrenchment is not peculiar to India. In fact,
payments for such a contingency are widely prevalent both in developing and developed
countries. Such payments are, however, known differently, such as redundancy
allowance, separation or severance allowance. The last two allowances are payable even
in case of discharge and dismissal. Provisions for such payments are made either by
legislation or by collective agreements.

Payment of retrenchment and lay-off compensation is also supported by the principles of

social justice and equality. An over-aged worker is not in a position to provide for such
contingencies as involuntary unemployment, and therefore, he needs financial help. In
such difficulties, the company has to pay him something to maintain himself and his
family till he is re-employed or finds another employment.

Lastly, payment of such compensation is also considered essential to maintain industrial

peace. Hardship arising from unemployment must be avoided. In India, as many as 25 per
cent of the disputes resulting, in strikes and lockouts, etc, are caused by retrenchment and
personal factors. Provisions relating to retrenchment in the Industrial Disputes Act, 1947,
are primarily social security measures providing relief for temporary involuntary
unemployment.