TRANSFER AND CLOSURE: DEFINITION OF LAY-OFF AND RETRENCHMENT COMPENSATION

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This article is written by Adhoksha Sarode of 7^th Semester of Adv. Balasaheb Apte college of law affiliated with Mumbai university, an intern under Legal Vidhiya

ABSTRACT

The scenarios such as transfer, lay-off, retrenchment and closure in the industrial disputes act, 1947 are the sole topics which makes employees jobless. The Industrial disputes act, 1947 as originally enacted had no provisions regarding compensation of payment to the workmen who were laid-off or retrenched. In 1953, due to closure of textile industries, to prevent unrest among the workmen due to retrenchment and laying-off the industrial disputes (amendment) act, 1953 which added sections 25-A to 25-J to the original act. In 1961, there was an amendment and new sections 25-FF and 25-FFF were substituted for old section 25-FF. These two sub-sections were again amended in 1964and the employers became liable to pay compensation in cases of lay-off, retrenchment and bona fide transfer or closure of the undertaking with these amendments.

The chapters like VA and VB provides for lay-off. Retrenchment, transfer and closure compensation to the workmen under specified conditions also resorts to those conditions.

APPLICATION OF SECTIONS 25C TO 25E

As per sections 25A (1), sections 25C to 25E regarding lay-off and retrenchment does not apply to-

To industrial establishments to which chapter VB applies, or
To those industrial establishments which are of seasonal character or work is performed only intermittently.

According to the explanation to section 25A “industrial establishment”, for the purposes of these sections, state-

A factory as defined in section 2(m) of the factories act, 1948, or
A mine as defined in section 2(j) of the Mines Act, 1952, or
A plantation as defined in section 2(f) of the Plantations Labour Act, 1951.

Lay-off compensation cannot be claimed by workmen in establishments employing less than 50 even under section 10(1) reference. [1]

In the normal course of things, if there is violation of the provisions of chapter V-A or of the principles of natural justice, the remedies provided under the act should be pursued. The power under Article 226 of the constitution should be sparingly used. [2]

Keywords-

transfer, lay-off, retrenchment and closure, the industrial disputes act, 1947, the Mines Act, 1952, the Plantations Labour Act, 1951.

INTRODUCTION

TRANSFER

Transfer is an incident of service and an administrative function. The employer is the best judge about the requirement and posting of its employees. The courts generally do not interfere with the same, the employer in the matter of transfer except on the grounds of malafide, victimization, unfair labour practice, or some other ulterior motive not connected with the business or interest of the employer or when the transfer is made in violation of any statutory authority. Thus, the law relating to transfer of an employee is not res integra.[3]

The expression ‘transfer’ connotes that an employer has more than one place of business and the employee is called upon to work in a different place of business from the one in which he worked previously.[4]

The transfers are made in order to:

Increase the effectiveness of the organization;
Increase versatility and competence of key positions;
Deal with fluctuations in work requirements;
Correct incompatibilities in employee relations;
Correct erroneous placement;
Relieve monotony.

CLOSURE Section 2(cc) –

Generally.
Mens rea.

a) Generally-

“Closure” means the permanent closing down of a place of employment or part thereof, Here the employer is constrained to close the establishment permanently. A closure may be of the entire undertaking or even a part of it. But a partial closure must be of such a part of the undertaking that the closed part has the independent functioning.[5]The industrial tribunal cannot even in a reference under Section (10)1 of the act interfere and direct an employer to continue the whole or part of the business which the employer has decided to shut down.[6]

b) Mens rea –

Closure must be deemed to be unreal and non-existent while it is true that closure must not be ‘malafide’ but must be bonafide. However, bonafide should not relate to or should not refer to the ‘motive’ or ‘mens rea’ but it should refer to the fact of the closure.[7] The apex court observed that if there is no real closure but a mere preference of a closure, or if it is ‘malafide’, there is no closure in the eyes of law, later it clarified that that the observations are not to be read as laying down an unqualified and categorical proposition of law that where a closure is malafide.[8]

LAYOFF Section 2(kkk)-

Lay-off means the failure, refusal or inability of an employer to employ workmen whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched 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,

Lay-off is a condition where the employers are constraining to deny work to their workforce owing to conditions that brings forth a temporary inability to keep their business going.

Lay-off is a statutory right given under section 25C of the act. Looking to the whole scheme of Chapter V-A of the industrial disputes act the power of the employer to lay-off is implicit. It determines not merely the right to the workman to receive compensation but also the wider rights and liabilities with regard to lay off itself.

ESSENTIALS OF LAYOFF

There has to be a failure, refusal or an inability of an employer.
The failure, refusal or the inability should due to the shortage of coal power or raw materials or due to accumulation of stocks on the breakdown of machinery or due to natural calamity or any other unconnected reason.
The names of the laid-off workers should be in the muster rolls of the establishment.
The said workers should not have been retrenched.

PERIODS OF LAY-OFF

According to section 2(kkk), lay-off can be only for a short duration and not for a protracted period. Definition of lay-off contemplates four periods of lay-off: –

Lay-off for a day occurring when work is denied within two hours of his presenting himself for work.
Lay-off for one-half of day occurring when work is denied in the first half of the shift but the workman is called on the second half of the shift.
Lay-off for more than a day not amounting to retrenchment.

FORMS AND METHODS OF LAY-OFF

Lay-off has been termed as the stoppage of work under the standing orders. As soon as the work is stopped it is not necessary that a termination of employment be affected. If the lay-off is for short-period and is on account of failure of plant or a temporary curtailment of production, the employment Is treated as continued and the period of lay-off is treated as compulsory leave either with or without pay. No formal termination of employment is necessary or can be affected. Where the lay-off is for a long period, it may be affected. Where the lay-off is for an indefinitely long period, it may be affected by termination of services after giving the employees due lay-off notice or notice pay in lieu thereof. It does not terminate employment. The employee continues on the muster-roll and has to reinstated on resumption of work.

DUTIES CAST ON THE EMPLOYER IN CONNECTION WITH A LAY-OFF

The following duties cast on the employer in connection with a layoff-

It must be justified lay-off effected bona-fide and not mala-fide.[9]
The employer must maintain a muster-roll of workmen.[10]
The stoppage of work if resorted to during working hours must be notified by notice put up on the notice board and must be in accordance with the standing orders
The period of detention of workmen if stoppage occurs during working hours should not exceed two hours after the commencement of the stoppage.
When the unemployment is caused by lay-off for a short period then the unemployment should be treated as compulsory leave either with or without wages.
If the lay-off is for an indefinitely long period, the services may be terminated by due notice or payment of notice-pay in lieu of notice.
The employees must be known of the listed things:

i) whether the employees are to remain on place of work or leave it;

ii) when shall be resumed;

iii) the time when the workers are to present themselves for work during normal working hours. The period of lay-off should not be left indefinite.[11] Where the workers did not suffer any loss, because of an irregularity, it was held that the employer could not be penalized.[12]

When it is not possible to specify the worker should be given three weeks’ time to rejoin duty when work is resumed.[13] Lay-off compensation is not “wages” under Section 22(2) of the Employees State Insurance Act.[14]

LAW GOVERNING LAY-OFF

Lay-off provisions are given under chapter V-A and V-B of the industrial disputes act, 1947. By virtue of section 25-J, these provisions have an overriding effect on other laws like Industrial employment (Standing orders) Act, 1946 or other state industrial relations laws so far as rights and liabilities are concerned.[15]The rights of the employees under the provisions are not affected by the chapter:

i) any right which a workman has under the Minimum Wages ACT, 1948 or any order or notification issues thereunder, or

ii) any right under any operative award, or

iii) any right under any contract with the employer, or

iv) any provisions concerning any law for the time being in force in any state for the settlement of industrial disputes.

PROVISIONS REGARDING LAY-OFF

The employer cannot without approval from the appropriate government layoff an employee featuring on the muster rolls of the establishment copy should be given to the workmen as well. If the lay-off happened where the workmen (other than badly workmen or causal workmen) of an industrial establishment, being a mine, owing to reasons of fire, flood or excess of inflammable gas or explosion, the employer, in relation to such establishment, shall, within a period of 30 days from the date of commencement of such lay-off, apply in the prescribed manner, to the appropriate government or the specified authority for permission to continue the lay-off. The application will be considered and a reasonable opportunity to be heard. After the consideration of the same, the appropriate government may or may not grant the employer to close down. Even here, if the government foes not respond within sixty days from the application, the permission will be deemed to have been granted.

BADLI WORKMAN

Badli workmen means a workman who is employed in an industrial establishment in the place of another workman whose name is borne on the muster roll of the establishment. he ceases to be regarded as “badli workman” if he completes one year of the continuous service in the establishment.[16]

COMPENSATION FOR LAID-OFF PERIOD- Section 25(C)

The rules regulating lay-off compensation and payments are as follows-

Prior to the amendment there was a missing content to section 25-C of the act to the effect that if lay-off was for an unbroken period of a whole year the employees concerned would get compensation for 45 days only but if it was for broken periods, they might receive more compensation. Section 25-C was re-enacted by the Industrial Disputes Act, 1965 which can be divided into following parts –

If lay-off exceeds 45 days, then the employer can keep paying lay-off compensation or retrench their workmen.

RETRENCHMENT Section 2 (oo) –

“Retrenchment” means termination of the workmen by the employer for any reason, as a punishment by way of any disciplinary action, which doesn’t include-

a) Voluntary retirement of the workman, or

b) Retirement of workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains any stipulation in that behalf or [(bb) termination of service of the workman as a result of the on-renewal of the contract of employment between the employer and the workman in relation to its expiry or such contract being terminated under a stipulation in behalf contained therein, or]

c) The termination of the service of a workman on the ground of continued ill-health, here the main ingredient is the termination of a workman from service, by the employer, but the employer can’t terminate any workmen as a punishment of disciplinary action.

The definition of retrenchment in section 2(oo) does not make any difference between regular and temporary appointment or appointment on daily wage basis or appointment of a person not possessing requisite qualification.[17]

WHAT DOES NOT AMOUNT TO RETRENCHMENT

The definition of retrenchment given in section 2(oo) of the Industrial Disputes Act makes it clear that retrenchment is a type of termination of service and as such cases which would fail to terminate and be out of scope of retrenchment. Termination of employment contract by efflux of time or expiry of contracted period would not be retrenchment. Termination on bona fide closure of business would also be no retrenchment. Unless, termination amounts to retrenchment.

The definition includes the following cases of termination-

[18]

Two steps must be satisfied for a case to be under the clause-

a) there must be a stipulation on the point of retirement in the contract of employment, and

b) the stipulation with relation to super annulation.

5. Termination of service on the ground of continued ill-health. E.g., An employee suffering from incipient cataract and senile debility, physical unfitness, infirmity on account of old age resulting in incapacity for work, or on ground of leprosy for some time. Non-absorption of workmen going on strike is also not retrenchment.

Where a worker suffers an accident during the course of employment rendering has unfit for the job, termination of services on that ground would be illegal and in contravention of section 25F of the Act.

COMPENSATION TO WORKMEN IN RETRENCHMENT- WHEN PAYABLE?

Introduction.
Tender of payment but non-acceptance by workman.
Mode of payment.

1. Introduction-

The two words (i) ‘until’ and (ii) ‘paid’ used in the section are very crucial. The word until implies and ensures that the conditions are first complied with and that only after having complied with these conditions, the retrenchment is affected. The use of word ‘paid’ means actual payment or actual tender of money. Further, actual payment or actual tender of money must be at the time of retrenchment and not thereafter. In one case the court ruled that if conditions precedents are not complied with, the retrenchment is non-est as such, there is no question of reinstatement because the relationship of master and servant was never snapped off and that being continued, a mere declaration that workmen continued to be in the employment has to be made by the court.[19]

2. Tender of payment but non acceptance by workman-

In one case, the apex court ruled that when the employer seeks to terminate the services of his workman, he should immediately pay him or offer him wages. The principle applies to retrenchment because, it is not expected of the employer to run after the employee to pay him money. In one case, the apex court observed that the law does not mean that the wages for one month should have been actually paid because in many cases, the employer could only tender the amount before the dismissal but could not force the employee to accept the payment before the dismissal become effective.[20]

3. Mode of payment-

It is necessary to comply with the provisions of section 25F, there must also be an offer or a tender or an actual payment of amount of retrenchment compensation. Such an offer or tender can be made to the worker man personally or by postal money order or by bank draft or by any other recognized means and if the workman refuses to accept the payment.

SPECIAL PROVISIONS-

When an employer retrenches a worker, they are bound to provide the worker with the notice of termination, the amount and the notice is to be provided. For the workers who have been employed for less than a year, the employer is bound to provide them with at least 2 weeks’ notice or pay in lieu of notice. For the workers who have been employed for less than 5 years, the employer must provide at least 1 month notice, for those who have been employed for more than 5 years the employer must provide at least 6 months’ notice or pay in lieu of notice. In addition to notice or pay in lieu of notice, the employer is also required to provide for retrenchment compensation to the worker, the same is equal to 15 days average pay for every completed year of service. Average pay includes the basic salary, allowance and other payments that the employer is supposed to be paid.

CONCLUSION –

By the amendment act of 1976 prior approval of the appropriate government has been necessary in the case of lay-off, retrenchment and closure in industrial establishments where 300 or more workmen are employed. In the interests of rehabilitation of workmen and for maintenance of supplies and services essentials to the life of the community, a provision is also made in the act for restarting the undertakings which were off otherwise on account of unavoidable circumstances beyond the control of the employer.

REFERENCE-

Legal service india.com lay-off, retrenchment and closure under Industrial Disputes Act, https://www.legalservicesindia.com/article/2416/lay-off,-retrenchment-and-closure-under-Industrial-Disputes-Act.html last seen on 15/08/2023.

Corpbiz Retrenchment Compensation As Per The Industrial Dispute Act, 1947, https://corpbiz.io/learning/retrenchment-compensation-as-per-the-industrial-dispute-act-1947/#:~:text=Retrenchment%20compensation%20is%20equal%20to,the%20worker%20is%20entitled%20to. Last seen on 16/08/2023.

Lexology Transfers of undertakings https://www.lexology.com/library/detail.aspx?g=95495c92-f61d-4792-8c14-3aad33e15c85 last seen on 19/08/2023.

Myadvo Industrial Disputes Act (1947): Lay-off, Retrenchment, and Closure https://www.myadvo.in/blog/industrial-disputes-act-in-india/ last seen on 19/08/2023.