PROVISIONS RELATING TO LAYOFF, RETRENCHMENT AND CLOSURE IN CERTAIN ESTABLISHMENTS

This Article is Written by Nanditha k s of 2^nd Year LL. B of IIFM Law School, Bengaluru

Abstract

The Article discusses the provisions in Chapter V-B of the Industrial Disputes Act of 1947(under Industrial Relations Code, 2020) (hereinafter; the Act). The Article gives the meaning of lay-off, retrenchment, and closure and tries to explain the provisions in simple terms along with related case laws.

Keywords

Layoff, Retrenchment, Closure, Chapter V-B of Industrial Disputes Act, 1947

MEANING OF LAYOFF

Section 2(kkk) of the Act defines “lay-off as “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 natural calamity or for any other connected 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.”[1]

Thus, lay-off means the incompetency of the employer to provide to continue to give employment to his employees due to numerous shortages of raw materials, natural calamities, or financial crunch. Following are the essentials of lay-off:

1. The inability of the employer to provide a job due to lack of raw materials or lack of power or breakdown of machinery or natural calamity or due to any other reasons connected to employment that leaves the employer incompetent.
2. The workers’ names should be on muster rolls i.e., on the register of the industry.
3. Most importantly the workers should not be retrenched. 

Lay-off caused difficulties for the working class as there were no fixed rates of compensation. In the 1970s layoffs caused a big concern and the National Apex Body recommended the Government to bring in measures to protect workmen from arbitrary lay-offs. The Industrial Disputes (Amendment) Act of 1976 made it mandatory for industries engaging more than 300 workmen to take permission from the appropriate government prior to laying them off. Later, it was amended to 100 workmen.  The Supreme Court in Kairbetta Estate v. Rajmanickam[2] iterates the difference between lay-off and lock-out. “Lay-off generally occurs in a continuing business, whereas lockout is the closure of the business. In the case of a lay-off owing to the reasons specified in Section 2 (kkk), the employer is unable to give employment to one or more workmen. In the case of a lockout, the employer closes the place of business and locks out the whole body of workmen.”[3]

MEANING OF RETRENCHMENT

Section 2(oo) of the Act provides for the meaning of retrenchment as termination of service but not as a measure of disciplinary action and also it does not include the following scenarios:

1. workman’s voluntary retirement.
2. retirement of the workman on reaching the age of superannuation, if the contract of employment between the employer and the workman concerned contains a clause on that behalf.
3. termination of the service of the workman as a result of the non-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 on that behalf contained therein.
4. termination of the service of a workman on the ground of continued ill health.

Thus, the termination of service for reasons like restructuring, downsizing, economic difficulties, technological advancements, or discontinuation of a specific department or unit, etc. is called retrenchment except for termination as a disciplinary action. In Anand Bihari v. Rajasthan State Road Transport Corporation, Jaipur[4] the Supreme Court held that termination due to eyesight is considered ill health under Section 2 (oo) and such termination is considered as retrenchment.    

DIFFERENCE BETWEEN LAYOFF AND RETRENCHMENT

Lay-off and retrenchment might appear as very similar tools for terminating workers. However, they are not. Lay-off is a temporary suspension of the workmen due to the inability of the employer to provide work. The workmen are paid during such a period as the employee and employer relationship is not affected by the lay-off. After the completion of such a period, workmen are expected to re-join the industry. While on the other hand, retrenchment is a permanent termination of service. It is typically considered a last resort when the employer determines that the workforce needs to be reduced or certain positions are no longer viable. Retrenched employees are often provided with compensation and other benefits as prescribed.  

MEANING OF CLOSURE

Section 2 (cc) of the Act provides for the definition of ‘closure’ as “the permanent closing down of a place of employment or part thereof.”[5]

In the case of Workmen of the Straw Board Manufacturing Co Ltd v. M/s Straw Board Manufacturing Co Ltd[6], it was decided that it was acceptable for an employer who has chosen to terminate the business to take the necessary steps to do so gradually. As a result, it was determined that the decision to terminate the first group of workers’ employment due to the closure was not unreasonable.

SPECIAL PROVISIONS RELATING TO LAYOFF, RETRENCHMENT AND CLOSURE IN CERTAIN ESTABLISHMENTS

25K. Application of Chapter V-B.

Section 25K of the Act provides for the applicability of Chapter V-B. Chapter V-B applies to an industrial establishment in which more than 100 workmen are employed for the preceding 12 months. The industry should not be seasonal or intermittent in nature. Any disputes related to the nature of the industry the words of the appropriate government will be final.

25M. Prohibition of lay-off

Section 25M establishes the procedure of lay-off. The following are such procedures:

1.  Unless the appropriate government or the specified authority by the government (hereinafter; specified authority) grants permission, no workman whose name is on the muster roll may be laid off. Lay-offs due to shortage of power or natural calamity and in cases of mines fire, explosion, flood, or increase of inflammable gas are exceptions to make an application.
2. Copy of application made to the authority in a prescribed manner with specified reasons of lay-off should be served to the workmen as well. 
3.  When the employer has laid off workmen without making an application (exceptions to mines, power cuts, and natural calamities) an application has to be made to the appropriate authority within 30 days of such lay-off.
4. When an application is made asking for permission the appropriate authority shall inquire, investigate and grant or deny the permission considering all the relevant factors. The reasons for the decision shall be in writing and served to both the employer and workmen.
5. When such an application is made to the appropriate authority and within 60 days no decision is communicated to the employer it shall be deemed to have granted the permission.
6. The order passed by the appropriate authority is binding on the employer and the employees and shall be in force for a year, starting from the day of the order. 
7.  The order passed by the appropriate authority can review its judgment when an application is made by the employer or workmen or voluntarily. If the case is referred to a Tribunal. The Tribunal shall pass the order within 30 days from the day of reference.
8. Lay-offs made without permission or made after denying permission shall be considered illegal and all the laid-off workmen will be eligible for all benefits as if they were still working.
9.  Taking permission from the appropriate authority or applying for such permission can be excepted if the appropriate Government deems it necessary during the period of accident or death of the owner or such similar period.    
10. The laid-off workmen under this section will also be entitled to compensation of half of the basic wage and dearness allowance under Section 25 C provided the workman’s name is on the muster roll and he has worked for a year.
11. The explanation specified for Section 25M states that when the employer provides an alternative job for the workmen, it is not considered a lay-off. On the condition that the alternative employment does not require additional skills or prior experience, the location of the new job remains the same as before or within a reasonable distance, posing no difficulty for the worker to commute, and the worker is paid their regular wages for this work.

The constitutionality of Section 25M was contested in a case[7] based on the contention that it imposes unreasonable restrictions as the Section prescribes for prior permission from the authority. The court held that the imposed restrictions are not arbitrary in nature and certain exceptions have been laid out under the Section for circumstances like power cuts and natural calamities where taking permission would not be possible.  

25N. Conditions precedent to retrenchment of workmen

Section 25N specifies the conditions precedent to the retrenchment of a workman.

1. A workman who has been employed continuously for a year cannot be retrenched unless (a) a three-month notice is served in writing along with the reasons for retrenchment and such notice period should be expired and dues payable to the workman should be clear. (b) Permission has been granted by the appropriate authority.  
2. The employer should make an application to the appropriate authority in the prescribed manner along with the reasons for retrenchment. A copy of the application should be also served to the employees.
3. When an application is made asking for permission the appropriate authority shall inquire, investigate and grant or deny the permission considering all the relevant factors. The reasons for the decision shall be in writing and served to both the employer and workmen.
4. When such an application is made to the appropriate authority and within 60 days no decision is communicated to the employer it shall be deemed to have granted the permission.
5. The order passed by the appropriate authority is binding on the employer and the employees and shall be in force for a year, starting from the day of the order. 
6.  The order passed by the appropriate authority can review its judgment when an application is made by the employer or workmen or voluntarily. If the case is referred to a Tribunal. The Tribunal shall pass the order within 30 days from the day of reference.
7. Retrenchment made without permission or made after denying permission by the appropriate authority shall be considered illegal and all the retrenched workmen will be eligible for all benefits as if they were still working.
8.  Taking permission from the appropriate authority or applying for such permission can be excepted if the appropriate Government deems it necessary during the period of accident or death of the owner or such similar period.   
9. When permission is granted by the specified authority or is deemed to have granted permission every workman in the establishment will be entitled to compensation just before the date of applying for permission. The worker who is retrenched will receive compensation that is equivalent to fifteen days’ average pay for each year of completed continuous service. If the worker has served for less than a year but more than six months, the compensation will be prorated based on the portion of the year served.

In the case of KV Rajendram v. Deputy Commissioner[8], the division bench of the Madras High Court was asked to rule on the constitutionality of Sections 25N and 25Q of the Industrial Disputes Act, 1947. The Court determined that Section 25N and Section 25Q as it relates to the imposition of penalties for violating the clause in Section 25N were unconstitutional. The Supreme Court’s ruling in Excel Wear v. Union of India[9], which deemed Sections 250 and 25R of the IDA to violate the Constitution, served as the foundation for the court’s reasoning supporting this point of view. Later in the case of Workmen of Meenakshi Mills Ltd v. Meenakshi Mills[10], a five-judge bench of the Supreme Court ruled that the amended Section 25N of the Industrial Disputes Act, 1947, enacted in 1984, does not violate the fundamental right protected under Article 19 (1) (g) of the Constitution and is not exempted by Article 19 (6) of the Constitution. The Court held that Section 25N is constitutionally valid and does not suffer from any unconstitutional defects.

25O. Procedure for closing down an undertaking

Section 25O provides for the procedure for closing down an undertaking. The below provides provisions for such procedures:

1. An employer has to make an application in a prescribed manner along with the reasons for closedown before the appropriate Government prior to 90 days of such closure. A copy of the application should be served to the representatives as well. Such a provision does not apply to undertakings of construction of buildings, bridges, roads, canals, dams, or for other construction work.
2. When the application is made before the appropriate Government, the Government has to decide on giving the employer, workmen, or any other person interested in the matter to be heard and also by considering other relevant factors and the interest of the general public. The reasons for the decision shall be in writing and served to both the employer and workmen.
3. When such an application is made to the appropriate Government and within 60 days no decision is communicated to the employer it shall be deemed to have granted the permission.
4. The order passed by the appropriate Government is binding on the employer and the employees and shall be in force for a year, starting from the day of the order. 
5.  The order passed by the appropriate Government can review its judgment when an application is made by the employer or workmen or voluntarily. If the case is referred to a Tribunal. The Tribunal shall pass the order within 30 days from the day of reference.
6. Closedowns made without permission or made after denying permission by the appropriate Government shall be considered illegal and all the workmen will be eligible for all benefits as if they were still working.
7.  Taking permission from the appropriate authority or applying for such permission can be excepted if the appropriate Government deems it necessary during the period of accident or death of the owner or such similar period.   
8. When permission is granted by the specified authority or is deemed to have granted permission every workman in the establishment will be entitled to compensation just before the date of applying for permission. The worker who is retrenched will receive compensation that is equivalent to fifteen days’ average pay for each year of completed continuous service. If the worker has served for less than a year but more than six months, the compensation will be prorated based on the portion of the year served.

The Supreme Court maintained the constitutionality of Section 25-N in Workmen of Meenakshi Mills Ltd. v. Meenakshi Mills Ltd[11]. As a result, there had been disagreement among the High Courts on the legality of Section 25-O. The modified Section 25-O was not deemed to be in violation of the Constitution by the Supreme Court in the current case, and Article 19(6) of the Constitution preserved it.

25P. Special provisions as to restarting of undertakings closed down before the commencement of the Industrial Disputes (Amendment) Act, 1976.

Section 25P talks about provisions relating to the reopening of an undertaking that was closed before the commencement of the Act. The appropriate Government may permit restarting of an undertaking falling within this Chapter by issuing a public order in the Official Gazette if the following conditions are met. 

1. The undertaking was closed due to unavoidable circumstances beyond the control of the employer.
2. There should be a potential of resuming back the undertaking.
3. It is necessary for the rehabilitation of the workmen previously employed or necessary to maintain the demand and supply of essential commodities. 
4. The restarting of the undertaking will not cause undue hardship to the employer.

The industrial establishment should be restarted within one month of the Government publishing grant in the Official Gazette.

25Q. Penalty for lay-off and retrenchment without previous permission.

Section 25Q specifies the punishment for laying off and retrenching workmen without permission i.e., violation of Section 25M and 25N. The offense shall be subject to a potential penalty of imprisonment for a period of up to one month, or a fine of up to one thousand rupees, or both.

25R. Penalty for closure

Section 25R provides a penalty for closing down the undertaking by violating Section 25(O) (failure to make an application to take permission) as imprisonment which may extend for a period of up to 6 months, or a fine of up to five thousand rupees, or both. If sub-section (2) of Section 25(O) i.e., closing down the undertaking after denial of permission and violation of guidelines provided under Section 25P amounts to imprisonment which may extend to one year or a fine of five thousand rupees or both. If the offense continues then a fine which may extend to two thousand rupees may be levied for each day of such contravention.

CONCLUSION

In summary, closedown, layoff, and retrenchment are key aspects within the realm of labor and employment. These terms hold significant importance in the legal context, governing the permanent cessation of operations, temporary work suspensions, and employee terminations due to operational or financial reasons. These measures are subject to legal frameworks that aim to safeguard the rights of workers while considering the viability of businesses. Such regulations strike a balance between protecting employees and addressing the needs of employers in the ever-evolving landscape of labor relations.

REFERENCES

1. The Industrial Disputes Act, 1947 https://www.indiacode.nic.in/bitstream/123456789/11102/1/industrial-disputes-act-1947.pdf
2. https://www.legalservicesindia.com/article/2416/lay-off,-retrenchment-and-closure-under-Industrial-Disputes-Act.html#:~:text=This%20chapter%20deals%20with%20the%20special%20provisions%20relating,Section%2025-S%20of%20the%20Industrial%20Disputes%20Act%2C%201947.
3. Industrial Relations and Labor Laws, 7^th edition by Srivastava S.C
4. Anirudh Grovera, A critical approach to the provisions of lay-off and retrenchment under the Indian Labour law Regime, Jus Corpus Law Journal, January 2022.

CASE LAWS

Anand Bihari v. Rajasthan State Road Transport Corporation, Jaipur,1991 AIR 1003

Excel Wear v. Union of India, 1979 AIR 25

Kairbetta Estate v. Rajmanickam, (1960) 2 LLJ 275 (SC).

KV Rajendram v. Deputy Commissioner, (1980) 2 LLJ276

Papnasam Labour Union v. Madhura Coats Ltd., 1995 AIR 2200

Workmen of Meenakshi Mills Ltd v. Meenakshi Mills, 1994 AIR 2696

Workmen of the Straw Board Manufacturing Co Ltd v. M/s Straw Board Manufacturing Co Ltd, 1974 AIR 1132

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[1] S. 2(kkk), Industrial Disputes Act, 1947.

[2] (1960) 2 LLJ 275 (SC).

[3] Ibid.

[4] 1991 AIR 1003

[5] S. 2(cc), Industrial Disputes Act, 1947.

[6]1974 AIR 1132

[7] Papnasam Labour Union v. Madhura Coats Ltd.,1995 AIR 2200     

[8] (1980) 2 LLJ276

[9] 1979 AIR 25

[10] 1994 AIR 2696

[11] Supra 9