INDUSTRIAL DISPUTES ACT

Retrenchment
Retrenchment is a kind of downsizing of the workforce. During the process, the
establishment reduces outgoing money or expenditures or redirects focus in an
attempt to become more financially solvent. The definition of the term was not
included in the Industrial Disputes Act, 1947 in its original form. It was inserted
by Amendment to the Act in 1953. The provision (bb) to Section 2(oo) was
inserted later through the Amendment Act 49 of 1984.
Explanation of the Term “Retrenchment”:

 It is defined in Section 2 (oo) of the Industrial Disputes Act, 1947.

 “Retrenchment” means 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
superannuation if the contract of employment between the employer and the
workman concerned contains a stipulation in that behalf; or [(bb) termination of
the service of the workman as a result of the on-renewal 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-health;]
What is not retrenchment?

 It is not a punishment inflicted by way of disciplinary action.

 Voluntary retirement scheme is a method used by employers to reduce surplus
staff. This mode has come about in India as labour laws do not permit direct
retrenchment of unionized employees. Voluntary retirement is not retrenchment.
 The retirement of the workman on reaching the age of superannuation is a
contract between the employee and employer. Hence it is not retrenchment.
 If the workmen are employed under a contract for a stipulated period, then
terminating services of such employees at the end of the period of contract is not
retrenchment.
 The termination of employment of workman due to his/her ill health (medical
grounds) is not a retrenchment.
Essential Ingredients of Retrenchment:

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.
Illegal Retrenchment:

 There must be valid and proper reason behind the retrenchment of a workman.
If the retrenchment is not supported by proper and valid reason, then the
retrenchment is illegal.
 If prior permission of the appropriate Government or such authority as may be
specified by that Government by notification in the Official Gazette (hereafter
in this section referred to as the specified authority) is not obtained, then the
retrenchment is illegal.
Case Laws:
Haji Ismail Said & Sons Pvt. Ltd. V. First Industrial Tribunal (1966 II LLJ
59 Cal.):

 Court held that all retrenchments are termination of services but all termination
of services are not retrenchments. Termination without reason cannot be called
retrenchment. There must be valid and proper reason behind the retrenchment of
a workman.

Bansi Light Railway Company Ltd. V. Joglekar (1957 I LLJ 243 SC):

 Court held that the retrenchment is legal if other requirements of the definition
of retrenchment are fulfilled. The employer has a right to discharge the
uneconomic surplus and his act is bona fide and not for the purpose of
victimization of his employees.

Workmen of Subong Tea Estate v. Subong Tea Estate, (1964 I LLJ 333
SC):
 The court held that it is the sole discretion of management to decide the strength
of the workforce but the retrenchment should be with proper and valid reasons.
Thus the retrenchment of workmen can only be used to reduce uneconomical
strength of workmen with proper and valid reason otherwise it may be
considered as victimization of the workmen.

Modern Stores v. Krishandas, (AIR 1970 M.P. 16):

 The court held that the act of retrenchment is not malafide if it is done to reduce
the uneconomical strength of workmen and it is a right of the employer to
restructure the business.

Management of Willox Buckwell (India) Ltd. V. Jagannath (AIR 1974 SC

1166):

 Even temporary worker can also claim retrenchment compensation under

provisions of Section 25F.

State Bank of India v. N. Sundaramony (AIR 1976 SC 1111):

 Bank’s contention was that the termination of service is not retrenchment but
the Court held that the termination of service is a retrenchment. The Court held
that the definition of the term “retrenchment” includes the termination of
services.

J. Reddy v. Railways, Guntkal Divn. (!975 I LLJ 351 A.P.):

 The Court held that even casual workers can also claim retrenchment
compensation under provisions of Section 25F if they are in continuous service
for 1 year.

Robert D’souza, v. Executive Engineer, Southern Railway (1982 I LLJ 330

SC):

 The court held that any reason for whatsoever, it would be retrenchment, except
if the case does not fall in any of the excepted categories.

Delhi Cloth & General Mills Ltd.’s case (1978 I LLJ 1):
 If the name of the workman is struck off the roll, that itself would constitute
retrenchment.
Condition Precedent to Retrenchment (S. 25 F):

 According to this section, the employer must satisfy the following conditions
before retrenching an employee employed for a period of continuous period of
not less than one year –
 a) the workman has been given one months notice in writing indicating the
reasons for retrenchment and the period of notice has expired, or the workman
has been paid in lieu of such notice, wages for the period of the notice.

 b) the workman has been paid, at the time of retrenchment, compensation which
shall be equivalent to fifteen days average pay [for every completed year of
continuous service] or any part thereof in excess of six months; and
 c) notice in the prescribed manner is served on the appropriate Government [or
such authority as may be specified by the appropriate Government by
notification in the Official Gazette].
Notes:

 The notice specified in S. 25 F(a) is not necessary if the retrenchment is under

the agreement which specifies a date of termination of services.
 The employee is entitled to the protection of section 25 F if he is employed in an
industry and has been in continuous service for not less than one year under the
employer.
 The procedure under 25F itself does not, by itself, confer any right on the
employer to retrench a workman.
Bansi Light Railway Company Ltd. V. Joglekar, Delhi Cloth & General Mills
Ltd.’s case, Guntkal Divn., Haji Ismail Said & Sons Pvt. Ltd. V. First Industrial
Tribunal, Illegal Retrenchment, Ingredients of Retrenchment, J. Reddy v.
Railways, Management of Willox Buckwell (India) Ltd. V. Jagannath, Modern
Stores v. Krishandas, Robert D'souza, Southern Railway, State Bank of India
v. N. Sundaramony, v. Executive Engineer, Workmen of Subong Tea Estate v.
Subong Tea Estate
 Procedure of Retrenchment
Retrenchment:

 It is defined in Section 2 (oo) of the Industrial Disputes Act, 1947.

 “Retrenchment” means 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
superannuation if the contract of employment between the employer and the
workman concerned contains a stipulation in that behalf; or [(bb) termination of
the service of the workman as a result of the on renewal 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-health;].

Procedure of Retrenchment (S. 25 G):

 Section 25G lays down the procedure of retrenchment.

 Where any workman in an industrial establishment, who is a citizen of India, is
to be retrenched and he belongs to a particular category of workmen in that
establishment, in the absence of any agreement between the employer and the
workman in this behalf, the employer shall ordinarily retrench the workman
who was the last person to be employed in that category, unless for reasons to
be recorded the employer retrenches any other workman.
 The employer is also required to maintain a seniority list of the workmen. The
system of last in first out is to be followed in retrenching workmen
The Principle “Last come, first go”:

 Section 25G lays down the procedure of retrenchment and it embodies the
principle “Last come, first go”.
 Where any workman in an industrial establishment, who is a citizen of India, is
to be retrenched and he belongs to a particular category of workmen in that
establishment, in the absence of any agreement between the employer and the
 workman in this behalf, the employer shall ordinarily retrench the workman
who was the last person to be employed in that category, unless for reasons to
be recorded the employer retrenches any other workman.
 The employer is also required to maintain a seniority list of the workmen. The
system of last in first out is to be followed in retrenching workmen. It is a rule
but departure from the rule is the exception.
 If a case for retrenchment is made out, it would normally be for the employer to
decide which of the employees should be retrenched. However, this rule is not
intended to deny the freedom of the employer to depart from it for sufficient and
valid reasons.
 The rule “last come first go” is intended to afford very healthy safeguard
discrimination of workmen in regard to retrenchment. The departure from the
ordinary industrial rule of retrenchment without any justification, may itself, in
a proper case, lead to the inference that the impugned retrenchment is the result
of ulterior consideration and hence it is mala fide and may amount to unfair
labour practice and victimization. The rule of ‘last come first go’ has to be
complied with for the validity of the retrenchment.
 The rule “last come first go” is not an inflexible rule and extraordinary
situations may justify variations. For instance, a junior recruit who has a special
qualification needed by the employer may be retained even though another who
is one up is retrenched. But there must be a valid reason for this deviation. The
burden is on the management to substantiate the special ground for departure
from the rule. Section 25-G insists on the rule “last come first go” being applied
category wise and limits of the category to which he belongs.
 Case Law: Swadesamitran Ltd. V. Their Workmen (AIR 1960 SC 762):
 Court held that reasons such as inefficiency, habitual irregularity in the
discharge of duties, and untrustworthiness are sufficient and valid reasons to
deviate from the rule of “last come, first go”.
Procedure of Retrenchment Compensation Calculation:

 It is obligatory on the part of the employer to pay retrenchment compensation at

the rate of 15 days wages (for every completed year) to be calculated at the last
drawn salary of an employee.
 The calculation of compensation 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 notice or salary in lieu thereof
as if he has worked for one year. 240 days include Sundays or off days as well
as a 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 the compensation. While making
calculations the period of notice is also to be taken into consideration.
 Calculation of average pay is done by dividing the last drawn monthly salary by
25 and then multiplying the dividend by 15 for every completed year of
continuous work.
Re-Employment of the Retrenched Workman:

 The rule under section 25-H provides that after effecting retrenchment if the
employer proposes to take into his employment any person. i) He shall give an
opportunity to the retrenched workmen who offer themselves for re-
employment; and ii) These retrenched workmen have preference over the new
applicants.
 Thus, Section 25-H imposes a statutory obligation on the employer to give
preference to retrenched workmen when he subsequently employs any person.
 To apply Section 25-H following conditions should satisfied:-

1. The workman should have been ‘retrenched’ prior to the re-employment in

question. In other words, if that workman’s termination of employment was not
due to retrenchment, but due to some other eventualities like dismissal,
discharge or superannuation, etc., he cannot claim the preferential right of re-
employment under this section.
2. He should be a citizen of India.
3. He should offer himself for re-employment failing which he will forfeit the
right. The offer is made in response to the notice given by the employer under
Rule 76 of the Industrial Disputes (Central) Rules, 1957 or corresponding State
Rules.