LAY-OFF AND RETRENCHMENT

Introduction

Layoff refers to the removal of employees by the employer for reasons other than the
employee’s fault. A layoff is 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.

Definition of lay-off

Section 2 (kkk) defines the term ‘Layoff’’ as the inability, failure, or refusal of the employer
to provide employment to a workman whose name is mentioned in the muster roll of his
industrial establishment and who is not retrenched due to the lack of power, coal, raw
materials, accumulation of stocks, breakdown of machinery or natural calamity for any other
relevant reason.

Conditions essential for a lay-off

1. There must exist an inability, failure or refusal from the employer’s side to provide
employment to the workmen.
2. Such inability, failure or refusal must be due to lack of power, coal, raw materials,
accumulation of stocks, breakdown of machinery or natural calamity for any other
relevant reason.
3. The name of the workman must be mentioned in the muster roll of the employer’s
industrial establishment.
4. The workman must not have been subjected to retrenchment.

A layoff is a measure that is used only in continuing businesses. If the employer decides to
permanently shut down his industrial establishment then layoff is of no use.

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 –

 1. The workman is not a badli or a casual worker.
2. The workman’s name must be mentioned in the muster roll of the industrial
establishment.
3. The workman must have rendered at least one year of continuous service under such an
employer.

Non-applicability of compensation on workmen

Section 25E states when a workman shall not be entitled to layoff compensation –

1. If the workman is absent from the establishment during the required working hours at
least once a day.
2. If the workman is laid off for slowing down the efficiency of workmen in another part of
the establishment or due to the reason for a strike.
3. If the workman expresses his refusal towards the alternative employment being given to
him, provided that:
4. Such employment is given in the same establishment he has been laid off from.
5. Such employment is given in any other establishment under the same employer within 5
miles radius from the establishment to which he belonged.
6. Such employment as per the employer does not require any previous experience or
special skills as compared to the work that the workman can do
7. Such employment provides the same wages to the workman as his previous
employment did.

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 :

1. Such industrial establishments where less than 50 workmen worked on an average

during each working day in the preceding calendar month.
2. An industrial establishment where work is done seasonally or occasionally.
3. An industrial establishment that comes under the aegis of chapter V-B as included by
the Industrial Disputes Amendment Act of 1976.

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 –

1. If the workman was employed for the preceding 12 calendar months from the date on
which such calculation is being made.
2. 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.

Prohibition of lay-off

An employer is subjected to certain restrictions these restrictions apply to those industrial

establishments which are not seasonal in nature and where there more than 100 workmen.

An employer cannot lay off a workman whose name is mentioned in the muster roll of his
industrial establishment except when the reason for such layoff is lack of power or a natural
calamity. If the work is regarding a mine then the reasons can also be fire, explosion, excess of
inflammable gas or a flood.

An employer can lay off the workmen after acquiring the permission of the concerned
authorities specified by the government or the government itself. For this purpose, an
application shall be made by the employer stating the reasons for such lay-off and a copy of the
same application shall be provided to the workmen who are subjected to such lay-off.

After receiving an application, the concerned authority or the government can inquire
about such lay off. After such inquiry, the order of the concerned authority or the government
must be communicated to the employer and the employees being laid off. The order of the
concerned authority or the government shall be considered as final and will be binding for a
period of one year from the date of such order.

If the concerned authority or the government does not communicate its order regarding
its grant or refusal to grant permission for such lay off within 60 days from the date of
application then such application for permission shall be considered as granted.

The order of the concerned authority or the government can be referred to a tribunal for
adjudication or reviewed either in its own motion or through an application made by an
employer or any workman.
 In case any lay off occurs even after the permission to do so is refused then such lay off
will be considered illegal and the workmen laid off will be entitled to the benefits of the law.
However, an employer will not be considered to have laid off a workman if he provides
alternative employment to such workman.

Concept of retrenchment

Section 2(oo) talks about retrenchment. Retrenchment refers to the termination of a

workman for any reason except for a form of punishment in furtherance of imposing
disciplinary action.

However, retrenchment does not include voluntary retirement of a workman, workman

retiring upon reaching the age of superannuation as mentioned in the employment contract,
removal of a workman on basis of continued ill-health, and removal of the workman because
the employment contract is terminated or is non-renewed after its expiry.

Conditions precedent to retrenchment

As per Section 25F, the employer must give one month’s written notice to the workman
that includes the reasons for retrenchment, or in lieu of such notice, the workman must be paid
wages for the period of the notice.

The employer at the time of retrenchment must pay the workman the compensation
which is equal to the average pay of 15 days for each year of continuous service provided by
such workman.

The notice regarding retrenchment must be served to the appropriate Government as well.

Procedure of retrenchment Section 25G

The procedure of retrenchment as per this Section is as follows:

If an employer decides to retrench a workman belonging to a certain class of workmen

working in the establishment of such employer, he must ensure to retrench such a workman
who was considered as the last candidate to be employed for such work at the time of
employment.

Usually, the rule followed during retrenchment is that it must start with beginners or new
workmen and then progress towards the experienced or senior workmen.

However, the exceptions to the above-mentioned method are if a contract exists between
the employer and the workmen that is contrary to the rule or if the employer states the
grounds to retrench any other workman.
 The employer in good faith is allowed to continue the employment of those workmen who
possess special skills and whose service is imperative for the establishment’s proper functioning.

Landmark Judgements regarding retrenchment

Byram Pestonji Gariwala v Union Bank of India and Others

In this case, the Apex court restricted the definition of ‘retrenchment’ as defined under
Section 2(oo) (bb) of the Industrial Disputes Act, 1947. It held that only when ‘discharge of
excess of labour’ is done by the employer then retrenchment is said to occur.

State Bank of India v N. Sundaramony

In this case, the Supreme Court put an end to its earlier decision expressed in Byram
Pestonji Gariwala v Union Bank of India and Others by expanding the definition of
retrenchment as defined under Section 2(oo) of the Industrial Disputes Act, 1947.

It held that any retrenchment done as per Section 2(oo) shall mean that the termination of
a workman is done by the employer for any reason whatsoever other than as a punishment in
furtherance of imposing disciplinary action and those explicitly excluded by clauses (a), (b) and
(c) of the said definition.

G. Jagadishwar Reddy v Railways, Guntakal Division

In this case, it was held that retrenchment compensation can also be claimed by casual
workers under the provisions of Section 25F of the Industrial Disputes Act, 1947 if such casual
worker had rendered continuous service for a period of one year.

Delhi Cloth and General Mills v Union of India

In this case, it was held by the Supreme Court that if the name of any workman is removed
from the muster roll of an industrial establishment then it would automatically be deemed as
the retrenchment of such workman.

Lay-off and retrenchment: a comparative analysis

N Layoff Retrenchment

1.A layoff basically means the temporary while retrenchment means the removal of
termination of a workman at the disposal excess workmen to increase the efficiency
of an employer of the industrial establishment
2.The termination in a layoff is temporary
3.In a layoff, the industrial establishment
stops functioning or operating after the
declaration.
4.A workman who had been laid off is
appointed back as soon as the layoff
period ends.
while termination in retrenchment is
permanent.
However, in retrenchment, the industrial
establishment continues its functions or
operations.
In the case of retrenchment, the
employment of the workman is
immediately terminated, there is no further
relation between the employer and the
workmen.