A Look At Layoff And Retrenchment Procedures In Light Of New Industrial Relations Code

Update: 2022-01-08 06:04 GMT

The Industrial Disputes Act, 1947 has been the primary legislation to administer disputes between the employer and workmen and to provide safeguards for workmen. It covers several facets from defining what industrial disputes and industries are, to laying down the procedures to be undertaken in cases pertaining to strikes, lockouts, lay-offs, retrenchment, closure etc. The Act has undergone several amendments over the years, the notable ones being in 1956, 1976, and 2010. Finally, in 2020, on previous recommendations of Second National Commission on Labour, the Ministry of Labour and Employment streamlined the 44 existing labour legislations into four labour law codes; The Code on Wages, 2019, The Occupational Safety, Health and Working Conditions Code, 2020, The Code on Social Security, 2020 and The Industrial Relations Code, 2020. The Industrial Disputes Act, 1947 along with Industrial Employment (Standing Orders) Act, 1946 and Trade Unions Act, 1926 made up the Industrial Relations Code.

In the past two years since covid-19 has struck us, the industrial world has taken a huge hit and we have seen terms like layoff and retrenchment being thrown around quite a lot. This article aims to explain the definitions, meaning and provisions associated with these terms, to improve the reader's understanding. The provisions associated with both these terms are provided under Industrial Disputes Act, 1947 which is now a part of Industrial Relations Code that is likely to be implemented this year and thus, these provisions have been explained here in detail.

Layoff

Layoff which was earlier defined under S. 2(kkk) of Industrial Disputes Act, 1947, has now been defined in Industrial Relations Code under S. 2(t). It essentially means the failure, refusal or inability of an employer to give employment to a workman whose name appears on the muster rolls of his industrial establishment. This inability to provide work can arise from any number of reasons ranging from shortage of coal, power, raw materials, breakdown of machinery and natural calamity; which are out of control of the employer. A point to be noted from the definition is that it only applies to a workman who has not been retrenched. As can be understood, it occurs due to no fault of either workman or employer but factors which are beyond their control.

Outcome: It results in immediate unemployment which is often temporary and it only occurs in a continuing business. This is because if the industrial establishment is to be shut down, then laying off workmen is of no use, considering it is only a temporary measure.

Permissions required: While the definition of layoff has been covered under Chapter 1, Section 2 of the new Industrial Relations Code, the provisions relating to the same which were covered under Chapter VA and VB in the Industrial Disputes Act, 1947, have been mentioned in Chapter IX and Chapter X of the new Code. Like Chapter VA of the Industrial Disputes Act, 1947, Chapter IX in the Industrial Relations Code mentions at the outset under S. 65 that the provisions of that chapter pertaining to layoff, retrenchment and closure are not applicable to an industrial establishment having less than fifty workmen or an establishment having a seasonal/intermittent character.

To simplify, if an establishment has less than 50 workmen or if an establishment is seasonal/intermittent in character, then none of the provisions for layoff, retrenchment and closure are applicable to it, both under Industrial Disputes Act, 1947 and under Industrial relations code. To determine whether an establishment is of seasonal character, the decision of appropriate government will be final, according to both S. 25A(2) of Industrial Disputes Act, 1947 and S.65(2) of the Industrial Relations Code, 2020.

Furthermore, if an establishment has between 50 – 300 workmen, then no permission from appropriate government is required as chapter VA of Industrial Disputes Act, 1947 and Chapter IX of Industrial Relations Code do not mention any conditions precedent to layoff of workers.

However, under chapter VB of Industrial Disputes Act, 1947, which was only applicable to establishments having more than 100 workmen, prior permission of appropriate government was required to be obtained before laying off workmen. But in the new code, under Chapter X, the applicability of requirement to obtain prior permission from appropriate government is only applicable to establishments with 300 or more workmen.

Thus, if an establishment has more than 300 workmen, then under S.78 of the new Industrial Relations Code, 2020, prior permission of appropriate government via an application (clearly stating the reasons for intended lay-off) has to be taken for layoff, unless the layoff is due to shortage of power, natural calamity and; in case of a mine, if the lay-off is due to fire, flood, excess of inflammable gas or explosion. Furthermore, a copy of the application also has to be provided to the workmen.

Who can claim compensation: Under S.25C of Industrial Disputes Act, 1947 and under Section 67 of the Industrial relations code, if a workman's name is on the industrial establishment's muster roll and he has completed one year of continued service and he is not a badli/casual worker, then he is entitled to compensation on getting laid off. The explanation to both the above-mentioned sections describe a badli worker as a worker who is employed in the place of another workman whose names appear on the muster rolls of the industrial establishment.

It must be highlighted here that if a workman has been working as a badli worker for one year, then he shall not be regarded as a badli worker.

Who is not entitled to compensation? – While both S. 25E of Industrial Disputes Act, 1947 and S. 69 of Industrial Relations Code have laid down conditions in which a laid-off workman can be denied compensation, there is a slight difference.

While S.25E of Industrial Disputes Act, 1947 says that if a workman who has been laid off, refuses alternate employment provided or arranged by the employer either in the same establishment from which he had been laid off or another establishment belonging to the same employer within 5 miles from this previous establishment, he is not entitled to compensation, S.69 of Industrial Relations Code, substitutes 5 miles with 8 kilometres.

So, on a re-reading, if a laid-off workman refuses alternate employment either in the same establishment or an establishment owned by the same employer within 8kms of this previous establishment and the work does not even require any special skill or previous experience and is doable by the workman, then the workman is not entitled to compensation.

Furthermore, if the workman does not come to work during normal working hours at least once a day, OR the lay-off has happened because of strike or slowdown of production due to workmen in another part of establishment, then the workman is not entitled to compensation. This provision is also provided in both the Act and the Code and remains unaltered.

Compensation rights: Under S. 25C of Industrial Disputes Act, 1947 and S. 67 of Industrial Relations Code, compensation has to be paid to laid off workmen for all days during which a workman is laid off except for weekly holidays. Compensation amount will be equivalent to fifty percent the total of (basic wages + dearness allowance). It also has to be noted here that if the workman has been offered alternate employment by the employer, he should accept it. Although as one supreme court judgment puts it, offering the job of a coolie to a skilled workman cannot amount to the offer of an alternative job (Union Kanpur v. JK Cotton Spinning and weaving mills company).

Retrenchment

It refers to the termination of employment for any reason other than punishment for a disciplinary action. This definition remains unchanged and finds its place under S.2(zt) of the new Code and was provided under S.2(oo) in the Industrial Disputes Act, 1947.

Outcome: Retrenchment leads to permanent unemployment, although in a few cases, employees are rehired. This also occurs in a continuing business but here workmen are discharged permanently.

Permissions required: Since retrenchment leads to permanent discharge of workmen, provisions have been made for permissions that have to be sought before retrenching workmen. But like in case of layoff, and as has been mentioned above, if an establishment has less than 50 workmen, then the provisions of chapter VA of Industrial Disputes Act, 1947 and chapter IX of Industrial Relations Code, do not apply.

Furthermore, if an establishment has between 50 – 300 workmen, then no permission from appropriate government is required. Although a notice is required to be served on the appropriate government regarding retrenchment as per S. 25K of Industrial Disputes Act, 1947 and S.70(c) of the Industrial Relations Code. Furthermore, the workmen who have been in continuous service for not less than one year, have to be given one (1) month notice (which includes reasons for retrenchment) or one (1) month's wages in lieu of notice period.

In case the industrial establishment has more than 300 workmen, prior permission of appropriate government has to be obtained for retrenchment via an application clearly stating the reasons for intended retrenchment and a copy of this application will also be provided to workers simultaneously under S. 79(2) of the Industrial Relations Code. Furthermore, either three (3) months' notice has to be given or salary in lieu thereof, has to be paid to the workmen before retrenchment. These conditions have also been mentioned in S. 25N of Industrial Disputes Act, 1947.

If no application for permission made or if permission for retrenchment is refused, then the workers will be entitled to all benefits under any law for the time being in force.


Note - Under S. 25G of Industrial Disputes Act, 1947 and S. 71 of Industrial Relations Code, procedure for retrenchment has been provided where an important point to be noted is that – While retrenching workmen from any specific category, the employer is bound to follow the Last in First out rule – which means he has to maintain a seniority list of workmen and retrench workmen starting from the one who was hired the last. Exceptions to this rule – if there exists a contract to the contrary or the employer records his reasons to retrench any other workman, then employer may deviate from the rule. The employer can also retain an employee possessing special qualifications whose services are necessary in interest of business in a bonafide manner.


Compensation Rights: Under S. 25F of Industrial Disputes Act, 1947 and S. 70(b) of Industrial Relations Code, 2020, compensation has to be paid to workmen for their retrenchment and this must be equal to average pay of 15 days for every completed year of continuous service.

Re-employment of retrenched workmen: Under S. 25H of Industrial Disputes Act, 1947 and S. 72 of Industrial Relations Code, if after retrenchment of any worker, the employee wants to hire more people within one year of retrenchment then first, the retrenched workers who are citizens of India shall be given the opportunity of being re-employed and they will have preference over any other person. In this manner, the retrenched workmen get a right of preference over other applicants for the job.

This article is the 1st in series of explaining labour rights in India.


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