LAY-OFF AND RETRENCHMENT

Lay-off [Sec. 2(kkk)]: Lay-off means "the failure, refusal or inability of

an employer on account of shortage of coal, power or raw
materials or the accumulation of stocks or the breakdown of
machinery or for any other reason to give employment to a
workman whose name is borne on the muster rolls of his
industrial establishment and who has not been retrenched".

Retrenchment [Sec. 2(oo)]: Retrenchment means the termination

by the employer of the service of a workman for any reason
whatsoever otherwise than as a punishment indicated by way of
disciplinary action.
 Meaning of lay-off
• Lay-off means temporarily keeping a workman without
or away from work. The question of keeping without
work arises when employers are unable to provide
employment to the workman for the reason beyond
his control such reason or situations may be:
Shortage of raw materials
• Economic recession
• Breakdown of machinery
• Accumulation of stocks
• Layoff
 The essential elements of lay-off:
a. Such workman is laid off whose name is borne on the
muster roll and he has not been retrenched
b. Employee is willing to employ but unable to provide
employment due to some reason beyond his control.
c. Such situation hall be an emergency and is of
temporary nature and
d. Lay-off does not cease the relationship between
employer-employees rather are suspended for the
emergency period.
O Central India spinning, weaving and manufacturing
co.ltd Nagpur v/s state industrial court 1959 Bombay HC
O The Bombay high court held that the key to the definition is to
be found in the world failure, refusal or inability of an employer
these world make it clear that employment has to be on
account of a cause which is independent of any action or
inaction on the part of the workmen themselves.
O M.A Veigra v/s C.P. Fernandes 1957 Bombay
O The Bombay high court held that it is not a privileged right of
employers rather it is an imposed right for the benefit of
workman
 RIGHTS OF WORKMAN LAID OFF FOR
O
COMPENSATION [Sec. 25C]
A workman who is laid off is entitled to compensation only if he complies with the following
conditions:
O (i) He must not be a badli or a casual workman.

"Badli workman" means a workman who is employed in an industrial establishment in the

place of another workman whose name is borne on the muster rolls of the establishment,

(ii) His name must be borne on the muster rolls of the industrial establishment.

(iii) He must have completed at least 1(one) year of continuous service.

(iv) A worker is entitled to lay-off compensation for the period of his lay off other than for
weekly holidays which may intervene.

(v) The rate of compensation must be equal to 50% of the total of the basic wage and
dearness allowance that might have been payable to him.

(vi) No compensation can be claimed for more than forty-five days during the period of
twelve months.
WORKMEN LAID OFF NOT ENTITLED TO
COMPENSATION [Sec. 25E]
No compensation shall be paid to a workman who has been
laid off:
O (i) if he refuses to accept any alternative employment in the
same or any other establishment belonging to the same
employer situated in the same town or village or within a
radius of five miles and it does not require any special skill
or previous experience, provided the same wages are
offered,
(ii) if he does not present himself for work at the appointed
time during normal working hours at least once a day,
(iii) if lay off in the consequence of strike or slowing down of
production by the workers in another part of the
establishment.
CLOSE DOWN ANY UNDERTAKING [Sec 25FFA]
O An employer who intends to close down an undertaking shall
serve, at least 60 days before the date on which the
intended closure.
O a notice, is required to give to the appropriate Government
stating clearly the reasons for the intended closure of the
undertaking.
O Provided that nothing in this section shall apply to –
O An undertaking in which less than 50 workmen are
employed, or less than 50 workmen were employed on an
average per working day in the preceding twelve months. An
undertaking set up for the construction of buildings, bridges,
roads, canals, dams or for other construction work or
project.
 RETRENCHMENT OF WORKER Section. 25C
If lay-off exceeds 45 days only the management or owner can retrench
the workers by following below said rules.
O The reason for compelling and restricting 45 days period of lay-off
before doing retrenchment of employee is.
lay-off is considered to be a unique situation created by reasons beyond
the control of employer, it is supposed to be a temporary situation
contingent on the grounds mentioned in the definition of layoffs in the
section 2(kkk). However if this contingency is prolonging beyond a
reasonable time, say 45 days, it will be matter of serious concern both to
the employer and to employees because both of them put to a loss of
50% wages by employees and loss of earnings by employer due to
temporary stoppage of work, which employer would have earned if there
was no laid-off for the reasons mentioned in section 2 (kkk).
O In the case if an employer is not able to restore the situation which
compelled him to lay off employees, he can retrench employees after
the expiry of 40 days in stuff continuing layoffs.
O In Duryodhan Naik v. Union of lndia, the Court held that the
discharge of surplus labour by the employer� for any reason
whatsoever, otherwise than as a punishment inflicted by way of
disciplinary action is called retrenchment, but where the services of
all workmen have been terminated by the employer on a real and
bona fide closure of business or the undertaking is taken over by
another employer, it has no application of retrenchment.

In Santosh Gupta v. State Bank of India, a female employee was

discharged on the grounds that she failed to qualify herself in the
prescribed test for confirmation of services. The Tribunal held that
the termination does not amount to retrenchment. But the
Supreme Court reversed the decision of the Tribunal and ordered
reinstatement of the employee with full back wages.
 Reason for retrenchment
There shall be some reasons for the retrenchment. The
service of any employee cannot be terminated without any
reason by the way of retrenchment. Generally the reason
could be following-
a. More than required labour or employee are employed
b. The closure of any part or department of the industry
c. Lack of raw material
d. Deficit in machinery
e. Natural calamity
f. Establishment of self-working machine
g. Economic crises
Procedure for retrenchment [Sec. 25G]
LIFO (Last in First Out) method should be followed while
retrenchment of workers, a workers who has joined last shall
be retrenched first. Further explanation junior should be
retrenched first.
Conditions precedent to retrenchment of workmen [Sec.
25F]
Worker who has completed one year of service and
continuing in service must be retrenched by the owner by
following rules.
O One month notice of retrenchment should be given to the
worker by the owner.
O Notice should include the reasons for the retrenchment of
the concerned worker.
O Re-employment of retrenched workmen [Section 25H]
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 workmen] who offer themselves for re-employment
shall have preference over other persons.

Retrenchment conditions .[Section 25A]

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 [50 but not more than 100]
workmen were employed on an, average per working day for the
preceding twelve months.
 Retrenchment Compensation [Sec 25F (b)]

Retrenchment worker can claim compensation from the worker under

following procedure
O 15 days of salary drawn for every year of service completed
O Eg: last drawn salary of worker = 10000/-

Number of years of service = 5 years

So, retrenchment compensation calculated as follows

Salary drawn is = 10000/- , for 15 days salary is half of the amount =

5000/- × number of service years = 5. = 25000/- is the
retrenchment compensation.
 PENALTIES
Sec Reasons Punishment
25U unfair labour practice punishable with imprisonment for a term
which may extend to 6 months or with
fine which may extend to 1000/- rupees
or with both.
26 Illegal Strikes punishable with imprisonment for a term
which may extend to one month, or with
fine which may extend to 50/- rupees, or
with both.
26 Illegal Lock-Outs punishable with imprisonment for a term
which may extend to one month, or with
fine which may extend to one 1000/-
rupees, or with both.
27 Any person who instigates or punishable with imprisonment for a term
incites others to take part in, or which may extend to 6 months, or with
otherwise acts in furtherance of, afine which may extend to one 1000/-
strike or lock-out which is illegalrupees, or with both.
under this Act,
28 Giving Financial Aid To Illegal punishable with imprisonment for a term
Strikes And Lock-Outs which may extend to 6 months, or with
fine which may extend to 1000/- rupees,
or with both.
30 Disclosing Confidential Punishable with imprisonment for a term
Information which may extend to 6 months, or with
fine which may extend to 1000/- rupees,
or with both.
30A Closure of establishment Without punishable with imprisonment for a term
Notice which may extend to 6 months, or with
fine which may extend to 5000/- rupees,
or with both.
31 contravenes the provisions of Punishable with imprisonment for a term
section 33 which may extend to 6 months, or with
fine which may extend to 1000/- rupees,
or with both.