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18MBA1739
18MBA1741
18MBA1742
18MBA1744
 Definition
The definition of retrenchment was not included in the Industrial Disputes Act, 1947 in its
original form. It was inserted by Amendment to the Act in 1953. Thus the Industrial
Disputes A ct, 1947 provides for certain conditions in which the termination of
employment would not be considered as retrenchment. It is intersting to note here that
the provision (bb) to Section 2(oo) was inserted later through the Amendment Act 49 of
1984. Section 2(oo)(bb) provides that termination of employment on non - renewal of
employment agreement upon its expiry shalll not be considered as ‘retrenchment’.
Before this provision was added to the Act, the Courts were of the opinion that non -
renewal of such contracts of employment would constitute retrenchment for the
purpose of this Act. This opinion was expressed by the Supreme Court in Hindustan
Aluminum Corporation v. State of Orissa. It was later realized that the judgment was a
bad judgment and the provision (bb) was subsequently added to the section.
 Exception
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 superannuating if the contract of
employment between the employer and the workman concerned contains a
stipulation in that behalf; or

(b) termination of the service of the workman as a result of the non-removal 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-healt

Pre requisite

The Bombay High Court, in State Bank of India v. Sundaramony held that wherein the
court held that an analysis of the definition reveals four essential ingredients, namely

1) There must be a termination of the service of a workman.

2) The termination must be by the employer,
3) For any reason whatsoever, and
4) Otherwise than as by way of punishment inflicted by way of disciplinary action.
Method for calculation

Procedure for calculation of retrenchment compensation

While effecting retrenchment of the workmen, it is obligatory on the part of the
employer to pay retrenchment compensation at the rate of 15 days wages (for every
completed yaer) to be calculated at the last drawn salary of an employee. The
calculation of compenstation is to be based from the date of appointment and in case
an employee has completed 240 days, he will be entitled to 15 days retrenchment
compensation besides one month’s noice or salary in lieu thereof as if he has worked
for one year. 240 days includes Sundays or off days as well as festival or national
holidays.

In case an employee has worked for more than one year, the procedure is that in case
the subsequent period of one year is less than six months then it will be counted as one
year for calculation of compenstation. While making calculations the period of notice is
also to be taken into consideration.
Conclusion
Globalization induces labour market flexibility which India is yet to attain due to its
unyielding labour law system. It has started making attempts to achieve full
employment of all resources and optimal social welfare but several issues are left
unanswered, including retrenchment.

Ordinarily, retrenchment is discharge of surplus labour by the employer. According to

Section 2(oo) of the Industrial Disputes Act, 1947 (IDA), retrenchment is the termination
of service of a worker "for any reason whatsoever", but excludes termination by way of
punishment inflicted pursuant to disciplinary action, voluntary retirement, retirement on
reaching the age of superannuation if the contract of employment contained such
stipulation, non-renewal of the contract of employment, and continued ill health.

Retrenchment may be due to inevitable reasons including rationalization or installation

of new labour-saving machinery. An employer has a right to organize his business in any
lawful manner he considers best and courts cannot question its propriety. If re-
organization results in surplus employees, no employer is expected to carry their burden.
There is consensus of judicial opinion in deciding retrenchment on the facts and
circumstances of each case