LABOUR AND INDUSTRIAL LAW

PROJECT REPORT ON
The Concept of Lay-Off

SUBMITTED TO: - SUBMITTED BY:-

Ms. KRITIKA SHEORAN SWETA GOYAL
Professor, University Institute of Legal Studies ROLL NO -208/17
PU, CHD BCOM LLB (H)
SECTION D
SEM. 9th

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 ACKNOWLEDGEMENT
I would like to thank our honourable teacher Ms. KRITIKA SHEORAN for her valuable
guidance, constant encouragement and detailed approach without would not have made it
possible for me to make a proper project on topic “CONCEPT OF LAY-OFF”. Her précised
examples, detailed descriptions and enthusiastic approach made my efforts to flourish in
right direction.
The work contained herein is an amalgamation of the remarkable work of various authors
and I am thankful to them for their publications that have helped me to prepare this project
to the best of my abilities.
Thanking You

Sweta Goyal

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 INDEX

➢ INTRODUCTION………………………………………………………………………………
➢ The concept of lay-off under the Industrial Disputes Act, 1947………
➢ PROCEDURE FOR LAY-OFF………………………………………………………………
a) Lay-off under chapter V-A of the Act.
b) LAY-OFF under chapter V-B of the Act
A) Lay-off under chapter v-A of the Act.
▪ The concept of lay-off under the Industrial Disputes Act, 1947
▪ Conditions for non-applicability.
B) Lay-off under chapter V-B of the Act.
▪ Special Provision Section 25-M Prohibition of lay-off-
▪ Compensation to the laid-off workman [Section 25-M (10)
▪ Rasonable restrictions-
▪ Constitutional Validity of Section 25-M
▪ Duties of the Employer in Connection with Lay-Off:
➢ Cases on Lay-Off………………………………………………………………………………….
➢ Conclusions…………………………………………………………………………………………
➢ Suggestions………………………………………………………………………………………….
➢ References…………………………………………………………………………………………...

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 ➢ INTRODUCTION
The Industrial Disputes Act, 1947 (the “Act”) governs the various provisions pertaining to
lay-off of workmen. The scope of this Act is to achieve harmony between employers and
workmen and promote economic and social justice, thereby, classifying the Act as a welfare
legislation. The preamble of the Act clearly states that the objective of the Act is “to make
provision for the investigation and settlement of industrial dispute.” This shows that the
intention of the legislature is to safeguard the right of workmen and the industrial
establishment.1
“Industrial Dispute” is defined under Section 2(k) of the Act. It lays down certain pre-
requisites that must exist to constitute an industrial dispute. There can be no lay-off if the
dispute does not fall within the ambit of Section 2(k).
Further, the application of the Act is limited to “industries” as defined under Section 2(j).
However, in cases where it is difficult to distinguish between an industrial and a non-
industrial activity, the “dominant nature” of the activity helps in determining the true scope
of industry.
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 project let us analyse the term layoff put forth
under the Industrial Dispute Act, 1947 in detail.2
➢ The concept of lay-off under the Industrial Disputes Act, 1947
Previously, lay-off was a practice that had no provision for compensation. However, in 1953,
the President promulgated the Industrial Disputes (Amendment) Ordinance which made a
provision for payment of compensation for lay-off. This ordinance was repealed and
replaced by Industrial Disputes (Amendment) Act, 1953. 3

Lay-off is a practice whereby the employer cannot give employment to workmen for various
reasons including shortage of raw materials, coal or power, accumulation of stocks, break-
down of machinery etc, or for any other connected reason. It has been defined under
Section 2(kkk) of the Act. If a workman, whose name is on the muster rolls of the industrial
establishment presents himself for work and is not given employment within two (2) hours
of presenting himself, he shall be deemed to have been laid-off for that day.

1
Available at- https://www.legalbites.in/lay-off-retrenchment-and-closure/ (assessed on 10-11-2021)
2
Paul Menu, Labour and Industrial Law, Allahabad Law Agency (Haryana), Edition 2020, page no. 125.
3
Supra note 1.

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All industrial establishments in India have to ensure compliance with the various labour
legislations, including the Act. The application of the provisions pertaining to lay-off is
restricted by virtue of Section 25A. It states that industrial establishments with below fifty
(50) workmen on an average per working day in the preceding calendar month, or industrial
establishments which are of a seasonal character, or industrial establishments to which
Chapter 5B of the Act applies, will not be bound by Section 25C to 25E (both inclusive). This
implies that such workmen:
(a) will not be entitled to any compensation for being laid off.
(b) will not be entered into the muster rolls of the employer.
(c) will not fall under any of the exceptions to avail compensation.4
It is important to note that workmen are entitled for compensation only if they have been in
continuous service. Defined under section 25B of the Act, a workman is said to be in
continuous service if he provides uninterrupted service, which includes interrupted service
due to sickness, accident, strikes which are not illegal, lock out or cessation of work not due
to the fault of the workman. In other words, the duration when the workman is out of the
office on account of illness is not excluded while computing continuous service.
The service is construed as continuous for a period of 1 year if the workman works in the
previous year for:
• 190 days- below the ground in a mine.
• 240 days- in any other job.5
The service is construed as continuous for a period of 6 months if the workman works in the
preceding 6 months for:
• 95 days- below the ground in a mine.
• 120 days- in any other job.
In Sur Enamel & Stamping Works Ltd v. Their Workmen, the Supreme Court held that before
a workman can be considered to have completed “one year of continuous service” in an
industry, it must be shown that he was employed for a period of at least twelve (12)
calendar months and during those twelve (12) calendar months he had worked at least two
hundred and forty (240) days.6

➢ Essentials:7 The conditions where Lay-off could be brought

into play are:
• There has to be a failure, refusal or inability of an employer

4
Supra note 2, page no.126
5
Supra note 1
6
Available at- https://www.yourarticlelibrary.com/industries/lay-off-of-workman-in-industries-meaning-
duties-and-provisions/75372 (assessed on 10-11-2021)
7
Supra note 1

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 • This failure, refusal or inability should be an offshoot of the shortage of coal, power
or raw materials or the accumulation of stocks or the breakdown of machinery or
natural calamity or for any other unconnected reason

• The names of the laid-off workers should necessarily feature on the muster rolls of
the establishment

• The said workers should not have been retrenched

➢ PROCEDURE FOR LAY-OFF8

Provisions regarding lay-off have been provided under chapters V-A and V-B of the Industrial
Disputes Act, 1947. Therefore, the provisions regarding lay-off fall under the following
heads:
(A) LAY-OFF under chapter V-A of the Act.
(B) LAY-OFF under chapter V-B of the Act.

(A) Lay-off under chapter V-A of the Act.

➢ Compensation for Lay-Off9

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 1976.10
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 –

8
Available at- http://www.legalservicesindia.com/article/2416/lay-off,-retrenchment-and-closure-under-
Industrial-Disputes-Act.html (assessed on 11-11-2021)
9
Supra note 2, page no. 128
10
Supra note 6

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If the workman was employed for the preceding 12 calendar months from the date on
which such calculation is being made.11
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

workmen12
The provisions of Section 25-E provide certain exceptions to the general rule for the
payment of lay-off compensation. In other words even if the workman is laid off, he will be
disentitled to claim compensation if his case falls within any of the three clauses of this
section. In the following cases, a worker who is laid-off will not be entitled to claim
compensation.

1. Refusal to Accept Alternative Employment13:

If a laid off workman refuses to accept alternative employment provided that such
alternative employment is:
(a) In the same establishment from which he has been laid-off or
(b) In any other establishment belonging to the same employer situated in the town or
village within a radius of five miles from the establishment to which he belongs,
(c) In the opinion of the employer the alternative employment does not call for any special
skill or previous experience and can be done by the workman and
(d) It carries the same wages which would normally have been paid to the workman in his
original employment.

2. Absence from the Establishment:

If the workman does not present himself at the appointed time during normal working
hours at least once a day.14

11
Supra note 1
12
Available at-https://psalegal.com/wp-content/uploads/2017/01/LABOURBULLETIN-ISSUEIII.pdf (assessed on
11-11-2021)
13
Supra note 6

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3. Strike or Go Slow:
If such laying-off is due to a strike or slowing down of production on the part of workmen in
another part of the establishment.

In K.T. Rolling Mills v. M.R. Meher15 it was held that provisions for payment of lay-off
compensation do not mean that the employer can pay compensation and declare lay-off.
Further, compensation cannot be awarded in advance of actual lay-off and on grounds of
social justice.
It is also necessary that the alternate employment is something which can be done by the
workman. This means that not only should the workman have the physical capability to do
the alternate work but it should be acceptable to the workman.
Therefore, in Industrial Employees’ Union, Kanpur v. J.K. Cotton Spinning and Weaving
Mills Company,16 it was held that offering the job of a coolie to a skilled workman cannot
amount to the offer of an alternative job.

(B) Lay-off under chapter V-B of the Act.

➢ Special Provision relating to Lay-Off

Section 25-M Prohibition of lay-off-
(1) Prior permission of the appropriate Government.
1. No workman (other than a badli workman or a casual workman) whose name is borne on
the muster rolls of an industrial establishment to which this Chapter applies shall be laid-off
by his employer except [with the prior permission of the appropriate Government or such
authority as maybe specified by that Government by notification in the Official Gazette
(hereafter in this section referred to as the specified authority), obtained on an application
made in this behalf, unless such lay-off is due to shortage of power or to natural calamity,
and in the case of a mine, such lay-off is due also to fire, flood, excess of inflammable gas or
explosion],
(2) An application for permission under sub-section (1) shall be made by the employer in the
prescribed manner stating clearly the reasons for the intended lay-off and a copy of such
application shall also be served simultaneously on the workmen concerned in the prescribed
manner.17

14
Supra note 12
15
(1962) IILLJ 667 Bom
16
1961 AIR 1170.
17
Supra note 1

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(3) Where the workmen (other than badli workmen or casual workmen) of an industrial
establishment, being a mine, have been laid-off under subsection (1) for reasons of fire,
flood or excess of inflammable gas or explosion, the employer, in relation to such
establishment, shall, within a period of thirty days from the date of commencement of such
lay-off, apply, in the prescribed manner, to the appropriate Government or the specified
authority for permission to continue the lay-off.

(4) Where an application for permission under sub-section (1) or sub-section(3) has been
made, the appropriate Government or the specified authority, after making such enquiry as
it thinks fit and after giving a reasonable opportunity of being heard to the employer, the
workmen concerned and the persons interested in such lay-off, may, having regard to the
genuineness and adequacy of the reasons for such lay-off, the interests of the workmen and
all other relevant factors, by order and for reasons to be recorded in writing, grant or refuse
to grant such permission and a copy of such order shall be communicated to the employer
and the workmen.
(5) Where an application for permission under sub-section (1) or sub-section (3) has been
made and the appropriate Government or the specified authority does not communicate
the order granting or refusing to grant permission to the employer within a period of sixty
days from the date on which such application is made, the permission applied for shall be
deemed to have been granted on the expiration of the said period of sixty days.
(6) An order of the appropriate Government or the specified authority granting or refusing
to grant permission shall, subject to the provisions of sub-section (7), be final and binding on
all the parties concerned and shall remain in force for one year from the date of such order.

(7) The appropriate Government or the specified authority may, either on its own motion or
on the application made by the employer or any workman, review its order granting or
refusing to grant permission under sub-section(4) or refer the matter or, as the case may be,
cause it to be referred, to tribunal for adjudication: Provided that where a reference has
been made to a Tribunal under this sub-section, it shall pass an award within a period of
thirty days from the date of such reference.

(8) Where no application for permission under sub-section (1) is made, or where no
application for permission under sub-section (3) is made within the period specified therein,
or where the permission for any lay-off has been refused, such lay-off shall be deemed to be
illegal from the date on which the workmen had been laid-off and the workmen shall be
entitled to all the benefits under any law for the time being in force as if they had not been
laid-off.

(9) Notwithstanding anything contained in the foregoing provisions of this section, the
appropriate Government may, if it is satisfied that owing to such exceptional circumstances
as accident in the establishment or death of the employer or the like, it is necessary so to

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do, by order, direct that the provisions of sub-section (1), or, as the case may be, sub-
section (3) shall not apply in relation to such establishment for such period as may be
specified in the order.18

(2) Compensation to the laid-off workman [Section 25-M (10)]

The provisions of section 25C (other than the second proviso thereto) shall apply to cases of
lay-off referred to in this section.
Explanation.—For the purposes of this section, a workman shall not be deemed to be laid-
off by an employer if such employer offers any alternative employment (which in the
opinion of the employer does not call for any special skill or previous experience and can be
done by the workman) in the same establishment from which he has been laid-off or in any
other establishment belonging to the same employer, situate in the same town or village, or
situate within such distance from the establishment to which he belongs that the transfer
will not involve undue hardship to the workman having regard to the facts and
circumstances of his case, provided that the wages which would normally have been paid to
the workman are offered for the alternative appointment also.19

➢ Reasonable restrictions-
In order to prevent hardship to the employees and to maintain higher tempo of production
and productivity, section 25M of the Industrial Disputes Act, 1947 puts some reasonable
restrictions on the employer’s right to lay-off, retrenchment and closure. Section 25-M
makes it clear that no workmen whose name is borne on the muster rolls of his employer
shall be laid off without previous permission of such authority as may be specified by the
appropriate government unless such lay off is due to shortage of power or natural calamity
and in case of a mine it is due to fire, flood, etc.

➢ Constitutional Validity of Section 25-M

In Papnasam Labour Union V. Madhura Coats Ltd.20 And another the
constitutionality of Section 25-M of Industrial Disputes Act, 1947 was challenged on the
ground that the section as amended by the Amendment Act of 1976 imposed unreasonable
restrictions in so far as it required prior permission to be obtained to effect lay-off and as
such it was ultra vires and void. It was held that the object of Section 25-M is to prevent
avoidable hardship to the employees resulting from lay-off and maintain higher production
and productivity by preserving industrial peace and harmony. It was further pointed out that
the legislature has taken care in exempting the need for prior permission to lay-off in
Section 25-M if such lay-off is necessitated on account of power of failure or natural
calamities because such reasons being grave, sudden and explicit, no further scrutiny is

18
Available at-https://www.myadvo.in/blog/industrial-disputes-act-in-india (assessed on 12-11-2021)
19
Available at -http://www.grkarelawlibrary.yolasite.com/resources/LLMSY-Lab-1-Sarita.pdf (assessed on 12-
11-2021)
20
AIR 2200 1995 SCC

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called for. Therefore, in the greater public interest for maintaining industrial peace and
harmony and to prevent unemployment without just cause, the restriction imposed under
sub-section (2) of Section 25-M cannot be held arbitrary, unreasonable or far in excess of
the need for which such restriction has been sought to be imposed. Criminal cases need not
be pursued, not only within the ambit of Section 482 of Criminal Procedure Code but in
special facts of the case will also secure the ends of justice.

➢ Duties of the Employer in Connection with Lay-Off:

The following duties are laid down for the employer in connection with a lay-off:
(a) The employer must maintain a muster roll of workmen and to provide for the making of
entries therein by workmen who may present themselves for work at the establishment at
the appointed time during normal working hours notwithstanding that workman in any
industrial establishment have been laid off.
(b) The lay-off must be for the reasons specified in Section 2(kkk).
(c) The period of detention of workmen if stoppage occurs during working hours should not
exceed two hours after the commencement of the stoppage.
(d) The compensation for lay-off must be at the rate and for the period specified in Section
25-C of the Industrial Disputes Act.21

➢ Cases on Lay-Off
❖ K.T. Rolling Mills (Private), vs Meher M.R. And Ors. : (1962) IILLJ 667
Bom
The tribunal held that the workmen were not entitled to lay-off compensation under
Chap.VA of the Industrial Disputes Act, where the order to pay compensation by the labour-
court was declared illegal as in that establishment there were less than 50 workmen .
❖ Workmen Of The Straw Board v M/S. Straw Board Manufacturing
(1974) I LLJ 499 (SC)
The Tribunal Court held in favour of the Company and stated that the closure was legitimate
and it was not a case of lay-off, retrenchment or lock-out. The Tribunal further held that
since it was a legitimate closure, the question of compensation could not be determined by
it and the workmen were not entitled to any relief.

❖ Workmen Of M/S Firestone Tyre & . vs Firestone Tyre & Rubber

Company 1973 Lab IC851 (SC)
If, however, the terms of r employment confer a right of lay-off on the management, then,
in case of an industrial establishment which is governed by Chapter VA. Compensation will
be payable in accordance with the provisions contained therein. The sections dealing with

21
Supra note 18

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the matters of lay-off in chapter VA is however applicable to certain type of industrial
establishment. Where, the number of workmen was only 30, there were no standing orders
certified under the industrial employment “standing orders” Act, 1946 nor was there any
term of contract of service conferring any right of lay-off, the workmen must be held to be
laid off without any authority of law or power in the management under the contract of
service. Such a case goes out of chapter V A.

❖ Sae Mazdoor Union, Jabalpur vs The Labour Commissioner, Indore

2001 (3) MPHT 200
The fact that the situation of accumulation of stock would become inevitable if workers
were not laid-off, would be within the scope of reasons of sec 25M read with sec 2(KKK) of
Industrial Dispute Act 1947. Under the circumstances, the application for permission to lay
off reflect a ground on the basis of which the labour commissioner could objectively
consider the case for granting the said permission. Therefore the permissions for lay-off
granted by the Labour commissioner was not assailable.

➢ CONCLUSION
While setting up any industrial establishment in India, lay-off provisions acquire importance
especially since most labour law legislations are very pro-workmen. Laying-off is a power in
the hands of the employer but it has to be exercised judiciously in accordance with the
applicable legal regulations. The monetary penalty for contravention of these provisions is
not a lot but it can impact the establishment’s goodwill and reputation. Further, improper
laying-off of workmen can lead to strikes and lock-outs, which can result in significant
business loss for the establishment. Therefore, there is reason enough for every
establishment in India to follow and adhere to labour legislations to ensure harmony
amongst its workmen and facilitate smooth running of their business activities. 22

➢ Suggestions23:-

1. Bringing more awareness/awakening amongst the worker class regarding the socially
beneficial legislations like the Industrial Disputes Act, Workmen’s Compensation Act, etc.
Emphasizing, on the various benefits available to them like that of the of retrenchment lay-
off provisions, the retrenchment, lay-off compensation, right of claiming compensation in
cases of retrenchment, lay-off.
2. No doubt, almost every Industry has their own Human Resources Department/ Personnel
which undertake the matters relating to legal aspect of the Unit. But more stress must be

22
Supra note 12
23
Available at-https://www.simpliance.in/blog/layoffs-and-retrenchment-during-covid19/ (assessed on 12-11-
2021)

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given on solving the grievances/disputes of the workmen on justified reasons in cases
relating to retrenchment, lay-off compensation.
3. Usually, the workmen hesitate to discuss about their grievances/problems, victimization
due to some sort of fear in their minds against the Management/ Employer, hence the
workmen must be encouraged to approach to the competitive authority with their
grievances/disputes in such cases and bring amicable solution between the parties which is
beneficial to both, i.e. the Management and the workmen.
4. Sometimes the workmen do approach the competitive authorities for the redressal of
their grievances/disputes of retrenchment, lay-off compensation, but take back at some
stage for one or the other reasons like settlement, compensation, or victimization.
5. The Trade Union has a vital role to play in solving the disputes relating to retrenchment,
lay-off compensation at the root level and bring amicable solution between the parties
under justified reasons, beneficial to the management and the workmen.
6. The hierarchy of Authorities under the Act must be more vigilant, supportive, cooperative
with the workmen grievances and make them realize that they shall be compensated for
their grievances on justified reasons and will not fall prey to victimization of retrenchment
and lay-off.
7. We have very few instances on retrenchment, lay-off compensation compared to other
States in India, so the procedure of disposal of cases must be speedy based upon the
circumstances of the case and simultaneously compensated in cases of retrenchment and
lay-off.
8. The implication of highly advanced technology in the Industries must be a boon to the
workmen and sought more benefits and not result to the detriment of the workmen leading
to retrenchment, lay-off of the workmen.
9. Some beneficial schemes must be encouraged for the benefit of the retrenched and laid
off workmen, so that the pains of sudden loss of earnings does not affect the livelihood of
the workmen and their dependents and they did not feel neglected or in secured in the
society.24

24
Available at- https://blog.ipleaders.in/comparative-analysis-lay-off-retrenchment/ (assessed on 12-11-2021)

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 ➢ REFERENCE BOOK:-

Paul Menu, Labour and Industrial Law, Allahabad Law Agency (Haryana),
Edition 2020.

➢ WEBSITES:-
A. https://blog.ipleaders.in/comparative-analysis-lay-off-retrenchment/
B. https://www.legalbites.in/lay-off-retrenchment-and-closure/
C. https://www.yourarticlelibrary.com/industries/lay-off-of-workman-in-
industries-meaning-duties-and-provisions/75372
D. http://www.legalservicesindia.com/article/2416/lay-off,-retrenchment-and-
closure-under-Industrial-Disputes-Act.html
E. https://psalegal.com/wp-content/uploads/2017/01/LABOURBULLETIN-
ISSUEIII.pdf
F. https://www.myadvo.in/blog/industrial-disputes-act-in-india
G. http://www.grkarelawlibrary.yolasite.com/resources/LLMSY-Lab-1-Sarita.pdf
H. https://www.simpliance.in/blog/layoffs-and-retrenchment-during-covid19/

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