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This article is written by Shweta Pandey of Shri Ramswaroop Memorial University


From decades, private companies retrench their employees for one reason or another. Most organizations are unwilling to provide full benefits to workers when they are retrenching from their work. It is impossible for the unemployed worker to fight lawsuits for years. The ultimate losers in industrial disputes are the workers. When employees lose their reputations and careers, they quietly quit and look for other jobs. Collective bargaining can only be successful in large organizations with active trade unions. So, The Industrial Disputes Act, 1947 provide provisions regarding retrenchment of workers from organisations.


 Retrenchment, conditions of retrenchment, The Industrial Disputes Act, 1947, Termination, Section 25f, Section 25N, Labourers’ weal, and interest.


So, retrenchment is a kind of downsizing. In the process, companies reduce cash outflows and expenses, or shift their focus to improving their financial solvency. A definition of the term “retrenchment” was not included in the Industrial Disputes Act, 1947 in its original form. This term was introduced by a 1953 legislative amendment and Clause (bb) of section 2(oo) was added.


Section 2 (oo) defines retrenchment.

Elements of section 2 (oo) are:

  • The employment of employee must be terminated by the employer.
  • Action must be taken for purposes other than disciplinary action.


  • Voluntary retirement,
  • Retirement upon reaching the mandatory age of retirement,
  • Termination of employment due to non-renewal of the employment contract between the employer and the employee,
  • Termination of employment for reasons of healthcare.


  • The basic difference between layoff and retrenchment is the reason for the termination of employment. A layoff generally occurs when a company is passing fiscal difficulties or a downturn in business, while retrenchment is a strategy employed to ameliorate a company’s fiscal performance.
  • Layoffs are generally temporary and workers are frequently brought back when business improves, while retrenchment is an endless result to reduce costs.
  • Layoffs are generally used to reduce the pool during slow business ages, while retrenchment is a more comprehensive strategy to restructure the entire association.
  • In a layoff, the employer may offer severance pay or other benefits to workers, while in retrenchment, the employer may not offer similar benefits.
  • Layoffs are frequently a last resort for companies, while retrenchment is a visionary measure taken to ameliorate a company’s fiscal performance.
  • Layoffs are generally done in a specific department or position, while retrenchment can affect the entire company or association.
  • Legal demand and process can be different between layoff and retrenchment depending on the country or region, it’s important to check with original labour laws before pacing with either option.


Section 25F defines all the circumstance and conditions for retrenchment of employee. However, these requirements apply if the employee has worked for at least one year without interruption at the time of dismissal. The requirements for compliance with valid reductions are:

  1. The employer must notify employee in writing, the reasons for the retrenchment before the end of the month. A dismissal shall not take effect until the worker is notified of the dismissal.

If the employer fails to notify the employee, the employee is responsible for paying compensation for this action.

  •  The worker must be paid remuneration equal to 15 days’ annual wages for his one year of continuous employment in the industry, or any portion thereof exceeding her six months.
  •  Relevant notices will be served on the relevant government or agency in the manner specified in the Official Gazette.

Compensation payment is a mandatory condition for the retrenchment of an employee. Failure to do so will void the retrenchment. If the dismissal is found to be illegal or is not approved by government authorities, the employee is entitled to continue working and to be reinstated and entitled to wages for the period. A worker’s termination of service for reasons other than those set out in Section 2(oo) shall be considered retrenchment. Termination is void if the requirements for effective retrenchment are not met.


Section 25N in chapter VB of Industrial disputes Act, 1974 defines some special provisions relating to conditions precedent retrenchment of workmen from establishment.

  1. Section 25N states that an employee who has been in the industry for at least one year continuously may be dismissed by his employer only if he receives a notice of dismissal stating the reasons for dismissal within three months.
  2. Approval of retrenchment and issuance of notices are subject to approval by governments or other competent authorities.
  3. Employers must apply for a retrenchment permit to the government and relevant authorities in the prescribed manner and present a copy of this permit to the employee as published in the Official Gazette.
  4.  If an employer seeks approval of a retrenchment procedure, the government will conduct an investigation into the procedure and, after giving the employer a reasonable opportunity to be heard, will grant or deny approval of the procedure in its discretion.  Corresponding orders will be submitted to employers and employees.
  5. Governments must follow the principles of natural justice and conduct investigations with transparency and impartiality. The government must notify the employer of the order within 60 days after the employer applies for the permit to the government or relevant authorities. An order is considered complete if it is not placed within 60 days from the expiration date.
  6. Any order issued by any government or particular authority, whether approved or denied, shall be final and binding on all parties and shall be in force for one year from the date it is sent to the parties.
  7. If an employer challenges a government order, it will be referred to the court for a decision, and the court must decide on the matter within 30 days.
  8. If an application for authorization to retrenchment is denied by the government, it is considered illegal.

 It is therefore imperative that permit applications are made to the government and that the government’s decision is final for the parties.


Burden of proof that termination of service is retrenchment is rest upon the worker, who forwards the claims of retrenchment.


Compensation is payable under section 25F and 25N of Industrial Disputes Act, 1947.

It is mandatory for each and every employer to pay compensation to their workmen as suggested in provision of the act or otherwise retrenchment can be declared as illegal.


  1. National Iron Company Vs. State of West Bengal (AIR 1967) In this case, the National Iron Company gets wound up on 5th December, 1967. Since the company has wound up, the workers would also be laid off. After one month of wrapping up, the company starting firing employees on different dates. The workers contended that they didn’t admit a month prior notice and also demanded stipend for that month.
  2. State Bank of IndiaVs. Money (AIR 1976) In this case, the bank gave the appointment letter and also served the termination letter. The hand automatically got terminated on the date of termination. The workers filed a case regarding this. The court decided that any company can pass a compound order.  The appointment and termination date side- by side is valid. Thus, if the date of termination given, it means that you’re retiring in the eyes of the company shall not be entitled for compensation as well. Since, the Composite order doesn’t come under the description of retrenchment; the workers shall not be entitled of retrenchment compensation.
  3. 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 aren’t retrenchments. Termination without reason can not be called retrenchment. There must be valid and appropriate reason behind the retrenchment of a employees.
  4. Bansi Light Railway Company Ltd.V. Joglekar (1957 I LLJ 243 SC) Court held that the retrenchment is legal only if conditions of the description of retrenchment are fulfilled by employer. The employer has a right to discharge the uneconomic fat and his act is bona fide and not for the purpose of victimization of his workers.


The vittles’ of retrenchment have been made in compliance with the introductory indigenous rights of the citizens. The labour laws when challenged have been justified by the Supreme Court that they’re naturally valid and the Parliament has made laws keeping in mind the principles of social weal and profitable justice for all. The assiduity has been given a due emphasis and that the development of the assiduity is identified to labours’ benefits. So, in order to make the country a weal state, a socialist pattern of society must be maintained. Employers use the retrenchment system to reduce the number of workers in their separate sectors if they’re passing problems. The other major ways that can be espoused for denting lay- off, check, and voluntary withdrawal.


  1. Labour and Industrial Laws by S.N. Mishra, 29th edition.
  2. https://indiankanoon.org/
  3. A detailed Study on the laws of retrenchment, ipleaders blog, https://blog.ipleaders.in/detailed-study-laws-retrenchment/, last seen on 9th July,
  4. https://legalvidhiya.com/conditions-precedent-for-retrenchment/ , last seen on 9th July.


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