Opinion: Provisions of the ID Act pertaining to Retrenchment apply

only to workmen and not to Supervisors and Managers. Therefore, for

Managers, it will be a negotiated exit with some exit package.

Opinion: Prior to adverting to the Opinion proper for this query, I may
reproduce herein below Section 2 (oo) of the ID Act which defines
Retrenchment:

“Retrenchment means the termination by the employer of the

service of a workman for any reason whatsoever, otherwise than
as a punishment inflicted by way of disciplinary action, but does
not include--

(a) voluntary retirement of the workman; or

(b) retirement of the workman on reaching the age of

superannuation if the contract of employment between the
employer and the workman concerned contains a stipulation in
that behalf; or

(bb) termination of the service of the workman as a result of the

non-renewal of the contract of employment between the employer
and the workman concerned on its expiry or of such contract
being terminated under a stipulation in that behalf contained
therein; or]

(c) termination of the service of a workman on the ground of

continued ill- health;].”

From a reading of the above definition of Retrenchment, it is apparent

that in Section 2(oo) means termination of an employee’s services by
the employer of the service of a workman for any reason whatsoever,
otherwise than as a punishment inflicted by way of disciplinary action
and those expressly excluded by the definition. This is the wider literal
interpretation as distinguished from the narrow, natural and
contextual interpretation of the word to mean termination by the
employer of the service of a workman as surplus labour for any reason
whatsoever. [156C; 131B] B.N. Mutto v. T.K. Nandi, [1979] 2 SCR 409;
Jugal Kishore Saraf v. Raw Cotton Co. Ltd., [1955] 1 SCR 1369. Thus,
an employee can be terminated if he/she is surplus to the requirement
of the Company by following applicable Provisions mentioned supra.

I may further mention that the relevant Section pertaining to

Retrenchment of Workmen is Section 25-F of the ID Act. Under the
said Section 25-F, there are certain conditions that are conditiones
sine qua non prior to effecting Retrenchment. The said Section 25-F
reads as under:

“25-F. Conditions precedent to retrenchment of workmen.-

No workman employed in any industry who has been in
continuous service for not less than one year under an employer
shall be retrenched by that employer until-

(a) The workman has been given one month’s notice in

writing indicating the reasons for retrenchment and the
period of notice has expired, or the workman has been
paid in lieu of such notice, wages for the period of the
notice:

(b) The workman has been paid, at the time of retrenchment,

compensation which shall be equivalent to fifteen days' average
pay for every completed year of continuous service] or any part
thereof in excess of six months; and
 2

(c) Notice in the prescribed manner is served on the appropriate

Government or such authority as may be specified by the
appropriate Government by notification in the Official Gazette].”

Section 25-F (a) and (c) therefore, mandate a written Notice of one
month or one month’s pay in lieu thereof to the affected workman as
well as the Government. I may here mention that if the contract of
employment stipulates two month’s Notice Period, then the
required period will be 2 months or 2 month’s pay in lieu thereof.
The said payment is a condition precedent, which means that the
said payment will have to be made simultaneously with the action
of Retrenchment, or else, the said retrenchment will be rendered
illegal.

Opinion: I may here first reproduce Section 25-K of the ID Act, which
speaks about the Application of Chapter V-B of the ID Act, which
pertains to certain Special Provisions relating to Lay-Off,
Retrenchment and Closure in certain Establishments. The said
Section is as under:

“25K. Application of Chapter V-B.- (1) The provisions of this

Chapter shall apply to an industrial establishment (not being
an establishment of a seasonal character or in which work is
performed only intermittently) in which not less than [one
hundred] workmen were employed on an average per working
day for the preceding twelve months. (2) If a question arises
whether an industrial establishment is of a seasonal character or
whether work is performed therein only intermittently, the
decision of the appropriate Government thereon shall be final.”

I may now reproduce Section 25-L, which defines the term “Industrial
Establishment” that appears in the above-quoted definition:

“25L. Definitions.- For the purposes of this Chapter,- (a)

“industrial establishment” means- (i) a factory as defined in
clause (m) of Section 2 of the Factories Act, 1948 (63 of 1948); (ii)
a mine as defined in clause (j) of sub-section (1) of Section 2 of
the Mines Act, 1952 (35 of 1952); or (iii) a plantation as defined
in clause (f) of section 2 of the Plantations Labour Act, 1951 (69
of 1951).”

I have opined in extenso herein above and herein before in my Opinion

to query b (i) supra pertaining to Lay-Off as to how the Company does
not answer the definition of a “Factory” as defined in Section 2 (m) of
the Factories Act, since the Company does not indulge in any activity
that can be said to be a “Manufacturing Process” under Section 2 (K)
of the said Factories act. It is therefore my considered Legal Opinion
that the Company, not being an “Industrial Establishment” under
Section 25L of the ID Act will not be covered by Chapter VB of the
ID Act. Though the Company employs more than 100 workmen, since
the Company does not indulge in any activity that can be said to be a
“Manufacturing Process” as defined in Section 2 (k) of the Factories
Act, the Company will not satisfy the definition of “Industrial
Establishment” for the applicability of Chapter V-B of the ID Act, since
for applicability of the said Chapter V-B, both ingredients must be
present, i.e., employment of more than 100 workmen and being an
Industrial Establishment. Since Chapter V-B of the ID Act is not
applicable, Section 25-N of the ID Act will not apply. It is therefore
my considered Legal Opinion that the Company will therefore not be
required to seek permission for retrenching workmen under Section
25-N of the ID Act from the Appropriate Government.
 3

Therefore, Section 25-F of the ID Act will be the Section applicable,

which does not mandate taking permission prior to Retrenchment.
However, as reproduced herein above and herein before, Section 25 (c)
mandates that Notice in the prescribed manner is to be served on the
Appropriate Government i.e., the State Government or such authority
as may be specified by the appropriate Government by notification in
the Official Gazette. In this regard, I may refer to The Industrial
Disputes (Bombay) Rules, 1957, viz. Rule 80, reproduced herein
below:

“80. Notice Of Retrenchment:-

(1) The notice referred to in clause (c) of Section 25-F shall be

given in Form XXIV by an employer and be served either by
personal service or by registered post, on the secretary to the
Government of Maharashtra, Industries and Labour Department,
Bombay- (i) not less than twenty one days before the date of
retrenchment, if the notice of retrenchment has been given
to a workman; (ii) within seven days of the date of
retrenchment if no such notice has been given but the
workman is paid wages in lieu of notice; (iii)(a) at least one
month before the date of termination of service if such date is
specified in an agreement where the retrenchment is carried out
under an agreement; and (b) on the date of such agreement,
where the date of termination is not so specified. (2) A copy of
such notice shall be sent by the employer to the Commissioner of
Labour, Bombay and the Deputy Commissioner of Labour of the
area concerned, namely Deputy Commissioner of Labour
(Administration), Bombay/Deputy Commissioner of Labour,
Poona/Deputy Commissioner of Labour, Nagpur.”

Opinion: I may reproduce here section 25-F (b) of the ID Act:

“(b) The workman has been paid, at the time of retrenchment,

compensation which shall be equivalent to fifteen days'
average pay for every completed year of continuous
service] or any part thereof in excess of six months.”

Section 25-F (b) mandates that the employee being retrenched must
be paid at the time of retrenchment compensation, i.e., Retrenchment
Compensation which shall be equivalent to fifteen days’ average pay
for every completed year of continuous service. In this regard, I
may observe that for calculation of Retrenchment Compensation
under the ID Act, the gross wages payable will have to be considered
and not components thereof and the dividing factor will not be by 25
but by 30 days, as held by the Hon’ble Supreme Court in the matter of
Guru Jambheshwar University through its Registrar v/s Dharam Pal
reported at (2007) 2 SCC page 265.

Opinion: I may first mention that maintenance and display of a

Seniority List of Workmen is also mandatory under Rule 81 of the
Industrial Disputes (Bombay) Rules, 1957:

“81. Maintenance Of Seniority List Of Workmen:-

The employer shall prepare a list of all workmen in the

particular category from which retrenchment is
contemplated arranged according to the seniority of their
service in that category and cause a copy thereof to be
posted on a notice board in a conspicuous place in the
 4

premises of the industrial establishment at least seven

days before the actual date of retrenchment.”

I may mention here about the principle of “Last come, first go” which
is applicable in the matter of Retrenchment of workmen, which is
mandated in Section 25-G of the ID Act. The said Section reads as
under:

“25G. Procedure for retrenchment.- Where any workman in

an industrial establishment, who is a citizen of India, is to be
retrenched and he belongs to a particular category of workmen in
that establishment, in the absence of any agreement between
the employer and the workman in this behalf, the employer shall
ordinarily retrench the workman who was the last person to be
employed in that category, unless for reasons to be recorded the
employer retrenches any other workman.”

Section 25-G is mandatory as has been held in a catena of Judgments

(Vishwamitra Press, Kanpur v. Workers of Vishwamitra Press, [1952]
L.A.C. 20 at p.33/41; Presidency Jute Mills Co. Ltd. v. Presidency Jute
Mills Co.Employees Union, [1952] L.A.C. 62; Iron and Steel Mazdoor
Union,Kanpur v. J.K. Iron and Steel Co. Ltd., [1952] L.A.C. 467; Halar
Sali and Chemical Works, Jamnagar v. Workmen, [1953] L.A.C. 134;
Prakriti Bhushan Gupta v. Chief Mining Engineer Railway Board,[1953]
L.A.C. 373; Sudarshan Banerjee v. Mcleod and Co. Ltd., [1953] L.A.C.
702 (7 11). Therefore, if there are workmen who have been hired after
the workmen whose services are sought to be Retrenched, then the
same will be adversely impacted by Section 25-G, as under the said
Section, it is impermissible to retain later employees and Retrench
earlier employees. The exception to the said Section is that in the
event of the Company desiring to retain the later employees, it
will have to provide justifiable and compelling reasons as to why
this has been done.

I may also further draw your attention to Section 25-H of the ID Act,
which reads as below:

“Re-employment of retrenched workmen.- Where any

workmen are retrenched, and the employer proposes to take into
his employ any persons, he shall, in such manner as may be
prescribed, give an opportunity to the retrenched workmen who
are citizens of India to offer themselves for re-employment and
such retrenched workman] who offer themselves for re-
employment shall have preference over other persons.”

The above section mandates that in the event of the Company desiring
to hire fresh employees in the same Role as the employees proposed to
be Retrenched, it will be mandatory for the Company to give an
opportunity to the said Retrenched employees to offer themselves for
re-employment and such Retrenched employees who offer themselves
for re-employment shall have preference over other persons. I may
quote in this Rule 82 of the Bombay Rules:

“82. Re-Employment Of Retrenched Workmen :-

(1) Where any workmen are retrenched and the employer

proposes to take into his employ any person, he shall give an
opportunity to the retrenched workmen to offer themselves for
reemployment in the following manner, that is to say- (a) if the
number of vacancies to be filled is not less than fifty, he shall
publish in a newspaper circulating in, and in the regional
language of, the locality in which the industrial establishment is
situated, a notice giving the details of the vacancies to be filled;
 5

(b) in any other case, he shall send by registered post to the last
known address of each of such retrenched workmen eligible for
appointment to any such vacancies, a notice giving the details of
the vacancies to be filled; and seven days shall have elapsed
from the date of publication of such notice, or from the date of the
dispatch of the test of such notices, as the case may be: Provided
that where there arc provisions in any standing orders of an
industrial establishment in regard to the notifying of vacancies,
notices in respect of such vacancies shall be published or given
in accordance with such standing orders: Provided further that if
a retrenched workman, without sufficient cause being shown in
writing to the employer, does not offer himself for re-employment
on the date or dates specified in the public notice given or the
individual notice sent to him by The employer under this sub-
rule, the employer may not intimate to him the vacancy that may
be filled on any subsequent occasions].

(2) A copy of the notice referred to in sub-rule (1) shall also be

displayed in the time-keepers office at the main entrance of
industrial establishment and in the case of a department thereof
also in the department concerned.

(3) Wherever a notice has been given under sub-rule (1), the
employer shall also simultaneously inform the trade union or
unions of workmen connected with industrial establishments of
the vacancies to be filled giving details thereof.

(4) If the employer seeks the assistance of the Decasualisation

Scheme or the Employment Exchange of the area in filling the
vacancies, he shall inform the Manager of the Scheme or the
Exchange, as the case may be, that the names of such of his
retrenched employees, as may be, registered with the scheme or
the exchange, may be submitted to him along with the names of
any other suitable candidates.

(5) Information regarding the workmen re-employed in

accordance with this rule shall be sent in Form XXIV-A by the
employer to the Commissioner of Labour Bombay and the Deputy
Commissioner of Labour of the area concerned within fifteen
days from the date of such reemployment.”
Opinion: As I have already opined supra, the provisions of the ID Act
do not apply to Managers. Therefore, there is no legal protocol
mandated in this regard and the same will be based on dialogue and
discussion.

Opinion: I may first reproduce Section 9A of the ID act, which

pertains to the topic of giving Notice of Change.

“9A. Notice of change.- No employer, who purposes to effect

any change in the conditions of service applicable to any
workman in respect of any matter specified in the Fourth
Schedule, shall effect such change,-

(a) without giving to the workman likely to be affected by such

change a notice in the prescribed manner of the nature of the
change proposed to be effected; or

(b) within twenty-one days of giving such notice:

Provided that no notice shall be required for effecting any

such change—
 6

(a) where the change is effected in pursuance of any

[settlement or award]; or

(b) where the workmen likely to be affected by the change are

persons to whom the Fundamental and Supplementary Rules,
Civil Services (Classification, Control and Appeal) Rules, Civil
Services (Temporary Service) Rules, Revised Leave Rules, Civil
Service Regulations, Civilians in Defence Services (Classification,
Control and Appeal) Rules or the Indian Railway Establishment
Code or any other rules or regulations that may be notified in
this behalf by the appropriate Government in the Official Gazette,
apply.”

The above Section mandates that for changing any of the service
conditions of the workmen which form part of the matters referred to
in the Fourth Schedule of the ID Act, a Notice of Change in the
prescribed Format will have to be given. Since the said Section refers
to the Fourth Schedule of the ID Act, I reproduce the same herein
below:

“THE FOURTH SCHEDULE (SEE SECTION 9A)

Conditions of Service for change of which Notice is to be

given

1. Wages, including the period and mode of payment;

2. Contribution paid, or payable, by the employer to any

provident fund or pension fund or for the benefit of the workmen
under any law for the time being in force;

3. Compensatory and other allowances;

4. Hours of work and rest intervals;

5. Leave with wages and holidays;

6. Starting alteration or discontinuance of shift working

otherwise than in accordance with standing orders;

7. Classification by grades;

8. Withdrawal of any customary concession or privilege or

change in usage;

9. Introduction of new rules of discipline, or alteration of existing

rules, except in so far as they are provided in standing orders;

10. Rationalisation, standardisation or improvement of plant or

technique which is likely to lead to retrenchment of workmen;

11. Any increases or reduction (other than casual) in the number

of persons employed or to be employed in any occupation or
process or department or shift, 1[not occasioned by
circumstances over which the employer has no control].].”

As the above Schedule makes clear, wages, including the period and
mode of payment is one of the Service Conditions of the workmen
and a graded pay-cut that reduces the said wages of the workmen will
be covered by the first Item of the Fourth Schedule and therefore, to
effect the same, the Company will be required to follow the due
procedure of giving a Notice of Change as mandated under Section 9-
A. If the same is not done, the said graded pay-cut will be deemed to
be an Illegal Change. However, in the event of the Management
taking the concerned workmen into confidence and discussing
 7

them and persuading them to accept a pay cut and signing an

agreement about the same, no Notice of Change will be required.

Opinion: As already opined supra, the provisions of the ID Act do not

apply to Managers. Therefore, there is no legal bar or prohibition in
asking Managers to proceed on leave whether paid / unpaid
depending on their leave balance for a period of time that there is no
work.

Opinion: In so far as asking workmen to utilize their Paid Leave under

the Establishments Act is concerned, there is no difficulty in doing the
same. However, asking the workmen to go on unpaid Leave when they
have leave to their credit will require giving a Notice of Change. If the
same is not given, effecting such a change will not be legal. I urge you
to kindly peruse Item No. 5 of the Fourth Schedule of the ID Act which
I have reproduced supra. The same pertains to “Leave with wages and
holidays.” Therefore, asking the workmen to proceed on unpaid leave
when they have leave to their credit will require a Notice of Change.
Again, I may mention that doing the same by signing an
Agreement to this effect will not be illegal and will not warrant
giving a Notice of Change.

Opinion: I am afraid that this query is not clear. If the query is as to

whether Bonus that is being paid to those workmen who are not
eligible a per the Bonus Act can be curbed, I may state that if the
same has been paid long and continuously, then the same will form a
condition of service due to custom, practice and usage and curbing
the same will require giving a Notice of Change. I urge you to kindly
peruse Item No. 8 of the Fourth Schedule of the ID Act which I have
reproduced supra. The same pertains to “Withdrawal of any customary
concession or privilege or change in usage.” Therefore, curbing bonus
paid to ineligible workmen will require a Notice of Change. Again, I
may mention that doing the same by signing an Agreement to
this effect will not be illegal and will not warrant giving a Notice
of Change.

Opinion: As already opined supra, the provisions of the ID Act do not

apply to Managers. Therefore, there is no legal bar on stopping merit
increases/promotions at the Manager level. In so far as workmen are
concerned, I may state that the Company might have a written policy
pertaining to Promotions or if the same is not there, then giving merit-
based promotions must be a long and continuous practice, which will
form a condition of service due to custom, practice and usage and
stopping the same will require giving a Notice of Change. I urge you to
kindly peruse Item No. 8 of the Fourth Schedule of the ID Act which I
have reproduced supra. The same pertains inter alia to “change in
usage.” Again, I may mention that doing the same by signing an
Agreement to this effect will not be illegal and will not warrant
giving a Notice of Change.