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Conditions: Precedent for Retrenchment

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This Article is Written by Pragaas Kaur Chugh of IILM Law School, Intern under Legal Vidhiya

Introduction:

Retrenchment is a term which is commonly used in human resource management. In the context of labour law, it means laying off a worker or employee in the case of economic difficulty. Whenever the employer has to fire an employee, he/she must give a month’s notice. In the case where the notice given is less than a month, it shall be assumed that the conditions for retrenchment are not met, and it shall not be considered a valid retrenchment. In the case where an employee gets laid off without prior notice of thirty days, he shall be employed back and renumerated for the time he was wrongfully retrenched.

When an employer terminates the employee from his/her organization the notice shall be in the written format. The condition for the notice to be written is to mitigate confusion and ambiguity and also avoid filing of such cases. Another important condition is to clearly specify the reason for retrenchment. The Industrial Dispute Act, 1967 states that the notice of retrenchment shall not be served to any employee to victimize them or due to any unfair labour practises adopted by the organisation. The reasons behind retrenching an employee should have a rational ideation, economic issue or use of some labour-saving device. Therefore, the reasons should be just and equitable.

The notice period must expire before the employee is retrenched. No employee shall be retrenched before the expiry of the notice period. That is, if the employee is retrenched on the twenty ninth day of notice period, then it shall be considered invalid. In the case where the employer deems it necessary to fire the employee in less than a month, then he/she has to pay the employee the wages of the entire month during which the notice is served. This is done so that the employee can find work elsewhere in the time being.

The employer also has to pay retrenchment compensation to the employees he/she has retrenched.

Another condition is relating to the amount of retrenchment. The average salary of fifteen days of every completed year of service or any part in excess of six months has to given as retrenchment compensation. The average salary here means the average of three months prior to the date of retrenchment.

There are also some special provisions relating to retrenchment. Section 25-M Prohibition of redundancy states that an employer is not entitled to retire any employee (other than a   casual employee) whose name is entered in the register of an industrial enterprise covered by this chapter, except with the prior permission of [the relevant enterprise. Government or such other authority as that Government may notify in the Official Gazette

Section 25-N Requirement to fire employees. An employee working in an industrial facility covered by this chapter who has been continuously employed by the employer for at least one year may not be dismissed until a) the employee is notified in writing three months before the reasons for dismissal and the notice period has expired or the employee has been paid a notice period for the notice period salary; and (b) the prior permission of the Government concerned or of such authority as that Government may notify in the Official Gazette.

Historical Development:

Retrenchment as a concept has been around for centuries, referring to workforce reduction or cost cutting.

One of the earliest examples of retrenchment can be found in the Roman Empire, where emperors often reduced their armies to save money. This was often done to solve an economic crisis or to reduce the burden of maintaining the country’s military. The emperors then used the precedent of previous contractions to justify their actions, claiming that the empire prospered despite a smaller army.

Early modern European rulers began using retrenchment measures to reduce debt and balance budgets. In England, King Charles II used the precedent of previous rulers who reduced the size of the navy to justify his cuts in military spending in the 1670s. Similarly, in France, Louis XIV used the precedent of his predecessors, who cut spending on the royal household, to justify his own reductions in the 1680s.

During the Industrial Revolution, downsizing became common as companies sought to increase profits and reduce costs. The use of precedents to justify dismissal decisions also became more common during this period. For example, in the 1830s, textile mills in Lowell, Massachusetts lowered workers’ wages and allegedly increased hours. The management of the factories justified their actions by previous reductions in wages and working hours in other textile factories.

In the late 19th and early 20th centuries, downsizing became more common as governments and businesses faced economic crises and increased competition. During this period, precedents continued to be used to justify dismissal decisions. For example, during the Great Depression, many firms cut wages and laid off workers, citing previous layoffs by other firms.

In the post-World War II era, downsizing continued to be used by both governments and businesses. During this period, the use of precedents to justify dismissal decisions also continued. For example, in the 1980s the British government cut spending on social welfare and public services, echoing earlier cuts by other governments in the 1970s.

In summary, the concept of retrenchment has existed for centuries, and the use of precedents to justify retrenchment decisions has also existed for some time. Downsizing has been used by governments, businesses and individuals to reduce costs and increase efficiency. Using precedents to justify dismissal decisions has been a common practice throughout history and will continue to be.

International Scenario:

Reduction as a legal term refers to the process of reducing or reducing the expenses of a company or organization. In an international scenario, downsizing is governed by various laws and regulations that vary from country to country.

Retrenchments are a common practice in many countries and are often used by businesses and organizations to reduce costs and increase efficiency. However, downsizing is also a highly regulated area of ​​law, and employers must comply with various legal requirements when undertaking the downsizing process. In many countries, dismissal is governed by labor laws that set out the conditions under which an employer can dismiss a worker. For example, in the United States, layoffs are governed by the Worker Adjustment and Retraining Notice (WARN) Act, which requires employers to provide at least 60 days’ notice of mass layoffs or factory closures. The law also sets out the conditions under which an employer can fire an employee. Changes in business operations resulting in permanent or temporary closure of factories or facilities, significant reductions in labour force, or reduction in working hours.

Similarly, in the United Kingdom, retrenchment is governed by the Employment Rights Act 1996, which sets out the conditions under which an employer may dismiss a worker like redundancy or the closure of a company. The law also requires employers to consult employees and give notice of termination. In many countries, layoffs are also regulated by collective bargaining agreements between employers and unions. These agreements set out the conditions under which an employer may dismiss a worker, the procedures for consultation with the employee, and the provision of notice of dismissal.

Workforce reductions are also governed by international labour standards set by the International Labour Organization (ILO). The ILO sets minimum standards for workers’ rights, including freedom of association, collective bargaining and protection from discrimination. The ILO also provides guidance on implementing the dismissal process, highlighting the need for consultation with workers and unions, and the provision of adequate dismissal and severance pay. In the European Union, dismissal is regulated by European Union Directive 98/59/EC, which sets out the conditions under which an employer may dismiss an employee like redundancy or closure of a business enterprise. The directive requires employers to consult with workers and provide them with notice of termination, severance pay, and opportunities for retraining.

In some countries, reductions are also subject to judicial review. For example, in South Africa, the Labour Relations Act 1995 provides for judicial review of retrenchment decisions, allowing employees to challenge the fairness of the process and the reasons for the reduction.

This reduction may also be subject to international investment law. For example, in some cases investors may bring claims against governments for actions that materially affect their investments, such methods that limit the ability to fire an employee. These demands are often made under bilateral investment treaties (BITs) or free trade agreements (FTAs), which provide mechanisms for settling investor-state disputes.

In recent years, cutbacks have become controversial in many countries, especially against the backdrop of globalization and economic uncertainty. Some critics argue that cuts could weaken labour protections and be used as a tool to exploit workers, especially in developing countries. Some argue that cuts are necessary for companies to remain competitive, and that over-regulation can stifle economic growth. In summary, truncation as a legal concept is governed by various laws and regulations that vary from country to country. Retrenchment is a highly regulated area of ​​law, and employers must comply with various legal requirements when implementing reductions.

Case Laws:

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 employees would also be laid off. After one month of winding up, the company starting firing people on different dates. The employees contended that they did not receive a month’s notice and also demanded wages for that month.

State Bank of India Vs. Money (AIR 1976): In this case, the bank gave the appointment letter and also served the termination letter. The employee automatically got terminated on the date of termination. The employees filed a case regarding this. The court decided that any company can pass a composite order. Therefore, giving the appointment and termination date side-by side is valid. Therefore, if the date of termination is already given, it means that you are retiring in the eyes of the company shall not be entitled for compensation as well. Since, the composite order does not fall under the definition of retrenchment, the employees shall not be retrenchment compensation.

Gurujambeshwar University Vs. Dharampal (AIR 2007): In the case the university hired a gardener. The University later retrenched the gardener and gave him retrenchment compensation. The gardener contented that the retrenchment compensation given to him is miniscule and the retrenchment should therefore be considered invalid. Mr. Dharampal (the gardener) demanded that his service as a gardener should continue. The court decided that no company can decide the amount of retrenchment compensation by themselves. The court held that the university gave the retrenchment compensation as per the rules laid down and declared the retrenchment as valid.

In the case of Managing Director, Karnataka Handloom Development Corporation Limited v. Sri Mahadeva Laxman Raval (2006), the defendant was employed as an experienced weaver at regular times and intervals in the company to train other fellow weavers. He started getting paid lower wages and his contract eventually terminated. The defendant filed a labour dispute with the company in the Labour Court. A court ordered his reinstatement and the decision was upheld by the High Court. As a result, the company has appealed to the Supreme Court. The Supreme Court ruled that the terms of employment indicated that the defendant was not an employee and was employed under contract under a statute of limitations action. The Court also held that section 2(oo) of the Industrial Disputes Act, 1947 was not used and that the defendant’s suspension was not a reduction within the meaning of section 2(oo) of the Act.

Conclusion:

In conclusion, retrenchment as a legal provision is a highly regulated area of ​​law that varies from country to country. It is an important tool that companies and organizations use to reduce costs and increase efficiency, but it also has important implications for employees and their rights.

 Appropriate procedures must be followed when implementing the downsizing process, including consultation with employees and unions, proper notification and avoidance of discrimination. Failure to follow these procedures can result in legal disputes and workers’ compensation claims.

 The international scenario for retrenchment as a legal concept is governed by various laws and regulations, including labour laws, collective agreements and international labour standards. These laws and regulations define the conditions under which employers can dismiss employees and guide the implementation of dismissal processes.

 In short, termination as a regulation has an important role in business, but it must be treated carefully and in accordance with the requirements arising from the law to protect the rights of employees and avoid legal disputes.

References:

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