Professional Documents
Culture Documents
Lay Off & Retenchment
Lay Off & Retenchment
is submitted in fulfilment of the requirement of the syllabus of B.COM, LL.B.(Hons.) 9th semester
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ACKNOWLEDGEMENT
I would like to express my profound gratitude towards Dr. Shallu Nuniwal for her contribution towards the
completion of our project on the topic ‘Lay off and Retrenchment’; for the time and efforts that she provided.
Her useful advice and suggestions were really helpful to us during the project’s completion; which also helped
me in doing a lot of research and i came to know about so many new things.
Secondly, I would also like to thank our parents and friends who helped us a lot in finalizing this project within
the limited time frame. In this aspect, I am eternally grateful to them.
I would like to acknowledge that this project was completed entirely by me and not by someone else.
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TABLE OF CONTENTS
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INTRODUCTION:
The industrial Dispute act, 1947 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 this act is " to make provision for the
investigation and settlement of industrial dispute". This shows the intention of the legislature is
to safeguard the right of the workmen and the industrial establishement.1
An employer may lay-off or retrench his workmen and may close down or transfer his industrial
establishment in accordance with the provisions of the act. The act provides for the compensation
to the workmen who is laid -off or retrenched to overcome economic hardship. Similarly, a
workmen is also entitled to compensation when he is denied employment due to the transfer or
closure of the industrial establishment where he was employed.
The provisions regarding compensation and procedure for lay-off ,retrenchement, transfer or
closure have been laid down under chapter V-A and chapter V-B of the act.
Chapter-V-B provides for the special provisions for lay-off, retrenchment and closure .Chapter-
V-B applies to industrial establishments employing not less than one hundred workmen and
which are not seasonal in their character.
MEANING AND DEFINITION OF LAY-OFF:
Lay-off is a practice whereby the employer cannot give employment to workmen for various
reasons including shortage of raw material, 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.
It defines lay-off as :
"Lay-off means the failure, refusal or inability of an employer on account of shortage of
coal, power or raw material or the accumulation of stocks or the breakdown of machinery
or natural calamity or for any other connected reason to give employment to a workmen
whose name is borne on the muster rolls of his industrial establishment and who has not
been retrenched."2
ESSENTIAL FEATURES OF LAY -OFF ARE:
1. Failure, refusal or inability of an employer to give employment to his workmen.
2. This failure, refusal or inability is on account of :
(a) Shortage of coal;
1
Lay off under industrial dispute act, 1947 available at www.psalegal.com
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Section -2 (kkk), Industrial Dispute Act, 1947
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(b) Power;
(c) Raw material;
(d) Accumulation of stocks;
(e) Breakdown of machinery;
(f) Natural calamity
3.The name of the workmen is borne of the muster rolls of the industrial establishment
4. The workmen has not been retrenched.
DEEMED LAYOFF
Explanation to the definition of lay-off under section – 2(kkk) provides for the "deemed lay-
off".It says 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 hours of presenting himself,
he shall be deemed to have been laid off for that day.3
CONTINOUS SERVICE:
Defined under section -25B of the act, a workmen is said to be in continuous service if he
provides uninterrupted services, which includes interrupted service due to sickness, accident,
strikes which are not illegal, lockout or cessation of work not due to the fault of the workmen .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 period of 1 year if the workmen works in the previous
year for :
190 days- below the ground in mine
240 days- in any other job
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 mine
120 days- in any other job. 4
In sur enamel and stamping works Itd. V their workmen 5, the SC 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 atleast 12 calender months and during those 12
calender months he had worked atleast 240 days.
3
Explaination to the definition of lay-off under section-2(kkk)
4
Dr. Meenu Paul, Labour and Industrial Law 124 (Allahabad Law Agency)
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(1963) 2LLJ 367, 379 SC.
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PROCEDURE FOR LAY-OFF:
Industrial establishments to which the provisions of the lay-off under chapterV-A are applicable
are specified under section -25A of the act.
Section-25 A applies –
To industrial establishments in which less than fifty workmen on an average per working
day have been employed in the preceding calendar month; or
To industrial establishment which are of seasonal character in which work is performed
only intermittently.
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 is final.6
The provisions relating to lay-off under chapter V-A do not apply to industrial establishments to
which chapter V-B applies.
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If during the one year period of continuous service, the workmen is laid-off more than 45 days,
no further compensation will be paid if there is an agreement in that respect between the
workmen and the employer. Upon the expiry of this period, the employer can retrench the
workmen and the compensation then would exclude the amount already paid during the 45 day
period of lay-off.
The Supreme Court in P. Virud Chalam v. Management of lotus Mill7 held as follows;
"Section -25C clearly lays down that if there is an agreement for not paying any more lay-off
compensation beyond 45 days between the workmen and the employer such an agreement has
binding effect both on the employer and and the workmen concerned."
According to section - 25 K of the act, chapter V-B of the act applies to industrial establishments
which are:
1) Not seasonal in their character or in which work is not performed only intermittently; and
workmen
7
1998 Lab IC 834 SC
8
Dr. Meenu Paul, Labour and Industrial Laws 130( Allahabad Law Agency)
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2) In which not less than one hundred were employed on an average per working day for the
preceding 12 months.
Procedure for lay-off under chapter V-B (Section-25 M):
I. Prior permission of the central government
II. Compensation to the laid - off workman
Prior permission of the central government:
Section - 25 M lays down that no workman, other than a badli or a casual workman, whose name
is borne on the muster rolls of an establishment to which this chapter applies shall be laid off by
his employer unless such lay-off is due to shortage of power or natural calamity, and in the case
of mine such lay-off is due also to fire, flood, excess of inflammable gas or explosion.
He can lay-off the workman only with the prior permission of the appropriate government or
such authority as may be specified by that government on an application made in this behalf (as
amended by the industrial dispute amendment act, 1984.)
An application for the permission shall be made by the employer in the prescribed manner
stating clearly the reasons for the intended lay-off. A copy of such application shall also be
served simultaneously on the workmen concerned.
Where the workmen other than badly workmen or casual workmen of a mine have been laid -off
for reasons of fire, flood, or excess of inflammable gas or explosion, the employer shall, within a
period of 30 days from the date of commencement of such lay-off apply to the appropriate
government or specified authority for permission to continue the lay-off.
Where an application for permission has been made, the appropriate government or the specified
authority shall make necessary enquiry as it thinks fit. It shall give a reasonable opportunity of
being heard to the employer, the workmen concerned, and the persons interested in such lay-off.
The appropriate government, having regard to the genuineness and adequacy of the reasons for
such lay-off, to the interest of the workmen, and all other relevant factors by order and reasons to
be recorded in writing, grant or refuse to grant such permission. A copy of the order of the
appropriate government or prescribed authority shall be communicated to the employer and the
workmen.
Where an application for permission 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 60 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 60 days.
An order of the appropriate government or the specified authority granting or refusing to grant
permission shall be final and binding on all the parties concerned and shall remain in force for
one year from the date of such order.
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The appropriate government or the specified authority may either in its own motion or on the
application made by the employer, or any workmen, review its order granting or refusing to grant
permission or refer the matter to a tribunal for adjudication
Compensation to the laid -off workmen ( section -25 M(10)) :
According to sub-section(10)of section-25M, a workmen laidoff under section -25 M of chapter
V-B of the act must be paid compensation according to the provisions of section - 25C.
According to section-25C a workmen who is laid off is entitled to compensation equivalent to 50
percent of total basic wages and dearness allowance for the period of lay-off.
This right of compensation is, however, subject to the following conditions;
a) He is not a badli or casual workmen
b) His name should be borne on the muster rolls of the establishment
c) He should have completed not less than one year of continuous service the employer A
workmen Is not entitled to compensation for such weekly holidays as may intervene during the
period of laid-off.
Illegal lay-off (Section – 25 M (8) ) :
Where no application for permission has been made, 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 the workmen shall be entitled to all benefits under any law for the time being in
force as if they had not been laid-off.
Penalty for illegal lay-off (section -25 Q ):
According to this section, an employer who contravenes the provisions of section 25 M and
declares or continuous lay-off without the permission of the appropriate government or specified
authority is punishable;
a) With imprisonment for term which may extend to one month ; or
b) With fine ;or
c) With both, imprisonment as well as fine.
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b) The alternative employment in the opinion of the employer does not call for any special skill
or previous experience and can be done by the workmen;and
c) The offer of the alternative employment should be in the same establishment from which he
has been laid-off;or
d) With such distance from the establishment to which he belongs that the transfer will not
involve any undue hardship to worker.
e) The wages which would have been paid to the workman are offered by the alternative
employment also.
CONCEPT OF RETRENCHMENT
Retrenchment is something akin to downsizing. When a company or government goes through
retrenchment, it reduces outgoing money or expenditures or redirects focus in an attempt to
become more financially solvent. Many companies that are being pressured by stockholders or
have had flagging profit reports may resort to retrenchment to shore up their operations and
make them more profitable. Although retrenchment is most often used in countries throughout
the world to refer to layoffs, it can also label the more general tactic of cutting back and
downsizing.
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If the worker intentionally or wilfully resigns from the service of the employer, then such
voluntary retirement will not be covered by the definition.
If the employer or employee retires after attaining the age of superannuation but such a
provision must be mentioned in the employment contract between the employer and the
employee.
If the employee is restricted to work in the industry as a result of the employer's failure to
renew the contract of employment.
Termination due to the employee's continuing bad health is not covered under the concept
of retrenchment. The ill-health of the employee would include his physical and mental
health. The question of whether the employee is suffering from a continuous illness is
based on the facts and circumstances of the case and can be shown or refuted on either
side.
Economic difficulties: If the company faces financial hardships or experiences any kind
of loss in its income, the industry then considers limiting its respective employees by way
of retrenchment.
Rationalization in the industry: Sometimes, companies and industries require more
realistic ways in their operations as they progress. It is possible that applying such
techniques will result in structural or operational modifications. If the industry becomes
redundant as a result of such developments, the method of retrenchment can be used after
such recognition and evaluation of all relevant factors.
Technological changes in the industry: Technological developments are progressively
being implemented by industries in their enterprises. As a result, while adopting such
technological developments may reduce the need for employees, it may also be necessary
for workers to be able to properly comply with the new technology. As a result, if the
deployed technologies render the usage of employees obsolete, the firm or industry may
be obliged to retrench.
Failure of machinery - If a specific industry's machinery fails, the law of retrenchment
may be used.
In the case of Managing Director, Karnataka Handloom Development Corporation Limited v.
Sri Mahadeva Laxman Raval, the respondent was appointed for fixed working hours and
intervals as an expert weaver in the company to train other fellow weavers. His services were
discontinued after the expiry of the contract period. The respondent raised an industrial dispute
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with the company in the labour court. The court directed his reinstatement, and the award was
approved by the High Court. Hence the corporation filed an appeal in the Supreme Court. The
Supreme Court held that the terms of appointment show that the respondent was not a worker but
employed on contract based on a time-barred action. The court further held that Section 2(oo) of
the Industrial Disputes Act of 1947 was not attracted and discontinuance of the service of the
respondent was not retrenchment as defined in Section 2(oo) of the Act.
PREREQUISITES OF A VALID RETRENCHMENT
The conditions for a valid retrenchment are outlined in Section 25F. These requirements,
however, apply if an employee has been in continuous service for at least one year in the case of
retrenchment.
He shall be deemed to be in continuous service under an employer—
for a period of one year, if the workman, during a period of twelve calendar months preceding
the date with reference to which calculation is to be made, has actually worked under the
employer for not less than-
one hundred and ninety days in the case of a workman employed below ground in a mine;
and
two hundred and forty days, in any other case; The conditions mandated to comply with
a valid retrenchment are:
Before one month, the employer shall issue a written notice outlining the grounds for
the retrenchment to the workforce. The retrenchment should only be effective when
the period for notice for retrenchment expires.
CONDITIONS WORKMEN PRECEDENT TO RETRENCHMENT OF WORKMEN:
The criteria to be followed before retrenchment of workmen have been stated under Section 25N.
The conditions are:
Section 25N states that the worker who has been in continuous service for at least one
year in the industry shall be retrenched by the employer only if he has been given the
notice by the employer before three months stating the reasons for retrenchment and the
worker has been paid with the annual wages before the notice.
The permission for the retrenchment and the issuance of the notice should be approved by
the government or any other appropriate authority.
The employer must make an application for retrenchment approval to the government and
the appropriate authorities in the prescribed manner and the copy of such approval must
be submitted to the workers as specified in the official gazette.
When the employer requests approval for a retrenchment procedure, the government will
undertake an investigation into the procedure and, after providing the employer with a
reasonable opportunity to be heard, will grant or refuse authorization to the method as he
considers fit. The order of the same shall be provided to the employer and the worker.
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The government must follow the principles of natural justice and be transparent and
impartial when • conducting an investigation.
The government must notify the order of the employer within sixty days after the
employer has applied for authorization to the government or the appropriate authorities.
If the order is not made within sixty days of the expiration date, it is presumed granted.
The order issued by the government or the specified authority, whether approved or
refused, becomes final and binding on all parties, and it will be in effect for one year from
the day it was conveyed to the parties.
If the order by the government is challenged by the employer then it will be referred to
the tribunal for adjudication and the tribunal should within thirty days pass the judgment
on the matter.
The application for permission for retrenchment if refused by the government, shall be
considered illegal.
Thus, it is mandatory that the application for permission is necessary to be made to the
government and the decision of the government lays final on the parties.
In the case of Workmen of Meenakshi Mills Limited etc v. Meenakshi Mills Ltd and another 9,
the constitutional validity of Section 25N was challenged because the provision violated Article
14, Article 19(1)(g) and Article 19(6) of the Constitution of India, stating that the employer had
no constitutional rights to retrench the workmen. The case was referred to the Supreme Court for
its final decision. The Supreme Court held that Section 25N of the Industrial Disputes Act of
1947 was constitutionally valid on the ground that the restrictions imposed on the rights of
employers to retrench workmen are in the interest of the general public. Hence, it does not
infringe the rights of the Constitution. It was further held that an industrial dispute may arise on
account of the failure on the part of the employer if he does not comply with the provisions of
Section 25N. Hence, the power has been conferred to the workmen and the management to raise
industrial disputes and move the appropriate government granting or refusing the permission for
retrenchment.
PROCEDURE OF RETRENCHMENT
The retrenchment principle of 'first come, last go' and 'last come, first go' are well-known in
industrial law. The concept has been codified in Section 25G. A worker can seek the procedural
protections afforded by this provision. The protection can only be availed if the following
requirements are fulfilled:
The person seeking protection must qualify the definition of a worker as defined in
Section 2(s) of the Act.
The workman should be a citizen of India
The employee should have been employed in the establishment, which, according to
Section 2(j) of the Act, is classified as an industry.
The employee must belong to a specific category of a workforce in the industry
9
1994 AIR 2696
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There should not be any kind of agreement between the employer and the employee
regarding the principle of 'last come first go'.
The procedure of retrenchment can only be valid under Section 25G if all the five conditions
have been simultaneously complied with.
Principle of 'first come, last go' and 'last come, first go'
The principle of 'first come, last go' and 'last come, first go' can only be applied if the worker has
been classified under different categories of the workmen employed in any industry or
establishment. The principle of 'last come, first go' states that in the case of retrenchment, the
employer has the power to decide which of the employees are to be retrenched. The rule acts as a
healthy safeguard if there is any kind of discrimination against the worker in case of
retrenchment. The principle will not be applicable if:
• If there is any type of agreement between the employer and the employee.
• For any other reason, the employer considers necessary.
The principle of retrenchment is that management should start with the latest recruit and
progressively retrench employees higher up in the list of seniority. The management in matters of
retrenchment should act fairly and must comply with the principles of equality, equity, justice,
and fairness.
In the case of Brohan Kumar v. Barauni Oil Refineries10, it was decided that in the absence of
any agreement between the employer and the workers, the employer must use the "last come,
first served" principle in the case of an employee's retrenchment. The retrenchment would be
carried out based on the seniority of workers working categorically, not on their seniority.
RE-EMPLOYMENT OF RETRENCHED WORKMEN
The Act's Section 25H is based on the well-known concept that when an employer retrenches a
worker due to labour allow shortage, the worker should be given the first chance to return to
work whenever the need for another hand arises. Section 25H imposes a statutory obligation on
the employer to give an opportunity to the retrenched employees to apply for re-employment.
The workmen must satisfy the following conditions:
When the company retrenches, the workers should be allowed to re-enter employment.
The worker must be a citizen of India.
The notice should be given to the workmen for any kind of re-employment.
The workers should be granted reemployment in the same industry where he was
employed before being laid off.
The retrenched workers shall be preferred by the employer for re- employment over other
persons.
10
AIR 1971 Pat 174
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PUNISHMENT FOR INFRINGEMENT
Section 25Q states that if any employee infringes the basic provisions of retrenchment and
violates the provisions of Section 25N, he shall be punishable with imprisonment for a term
extending to one month or a fine extending to one thousand rupees and both.
HOW ARE LAYOFF AND RETRENCHMENT DIFFERENT
Lay-off and Retrenchment can be differentiated on the following basis:
Employmen The workmen are appointed back This results in the immediate termination
t of after the end of the layoff period. of the workmen
Workmen
Motive Action Step Business Strategy
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CONCLUSION
While setting up any industrial establishment in India, lay-off provisions acquire importance
especially most labour law legislations are pro- workman. 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 workmen can
lead to strikes and lock-outs, which can result in significant 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.
BIBLIOGRAPHY
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BOOKS:
• Paul, Dr. Meenu, 'Labour & Industrial Laws', 10th Ed., 2017, Allahabad Law Agency,
Faridabad.
WEBSITES:
https://www.lawctopus.com/academike/industry-under-industrial-disputes- act-
https://indiankanoon.org/doc/500379/
https://bnblegal.com/article/definition-of-workman/
https://www.legalserviceindia.com/legal/article-943-industrial- disputes.html
https://www.lawctopus.com/academike/industrial-disputes-and-individual- disputes-
under-industrial-disputes-act-1947
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