Table of Contents
Layoff
The term “layoff” was officially introduced by Act 43 of 1953. According to Section 2(kkk) of the Industrial Disputes Act, a layoff happens when an employer fails, refuses, or is unable to provide work to an employee for certain reasons. These reasons include:
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Shortage of coal, power, or raw materials
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Accumulation of stock
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Breakdown of machinery
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Natural calamities (like floods, earthquakes, etc.)
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Or any other related reason
In simple terms, if you are a worker whose name is on the official list (called the muster roll) of your workplace and you have not been officially retrenched, but still you are not given work due to the above reasons, you are considered laid off.
How Do We Know When a Worker is Laid Off?
If a worker shows up for work at the right time but does not get any work within two hours, then legally, that worker is said to be laid off.
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If a worker is asked to come only for the second half of the day, and is not given work during that time, then he/she is considered laid off only for that half-day.
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However, if a worker comes for the second half and still doesn’t get any work, they are not considered laid off for that half-day and should receive full wages and allowances for that time.
Right to Compensation
Section 25C grants the laid-off workman the right to compensation from the employer. Eligibility conditions:- Name must be on the muster rolls
- At least one year of continuous service
- Must not be a casual or badli worker
- Compensation is only payable for the first 45 days if layoff extends beyond 45 days in a 12-month period (unless an agreement states otherwise)
- Employer can retrench a worker after 45 days of layoff with compliance to Section 25F
No Compensation Cases
Section 25E deals provides that a laid off workman shall not be entitled to compensation in the following cases:- Alternative employment- If alternative employment is offered to the workmen and he refuses to accept such employment then compensation will not be given to the workman. But the alternative employment should contain following conditions:
- Alternative employment is offered in the same establishment or any other establishment belonging to the same employer situated in the same town or village or within a radius of five miles from the establishment which he belongs, and
- If employer believes that alternative employment does not call for special skill and can be done by the laid off workman, and
- If the wages which have been normally paid to the workman in his previous employment is offered for the alternative employment also.
- Not present himself at work- If the employee does not present himself for work at the establishment at the appointed time during normal working hours at least once a day, then in such a case he is not entitled to compensation..
- Layoff due to strike- If the layoff is due to strike or slowing down of production on the part of workmen, then the workmen is not entitled to get compensation.
Prohibitions on Layoff
Section 25M prohibits layoff of any workman (except casual/badli workers) without prior permission from the appropriate government, except in cases of shortage of power, natural calamity, or similar emergencies. Case Law- Papansam Labour Union vs Madura Coats Ltd. (AIR 1995 SC 2200) — The constitutional validity of Section 25M was upheld to avoid hardship and maintain industrial peace.Retrenchment
Section 2(oo) defines retrenchment as termination of employment by the employer for any reason except disciplinary action. It excludes:- Voluntary retirement
- Retirement due to superannuation
- Termination on contract expiry
- Termination due to continued ill health
Conditions Precedent to Retrenchment
Section 25F of the Industrial disputes act, 1947 provides that no workman employed in industry for continuous service for atleast one year shall be retrenched until-- Notice to Workman- The workman should be given notice of atleast one month prior to retrenchment. In the given notice, the employer should mention the reasons of retrenchment. If no notice is given to the workman, then he must be paid wages for the period of notice.
- Compensation to Workman– A workman is entitled to compensation at the time of retrenchment. This compensation should equal fifteen days’ average pay for each completed year of continuous service, including any part of a year exceeding six months.
- Notice to appropriate government- The employer should serve a notice to the appropriate government or to the authority designated by the appropriate government for this purpose.
Procedure for Retrenchment
Section 25G of the industrial disputes act, 1947 provides the procedure of retrenchment. This section is based on the principle of First come last go and last come first go. This section provides that if an Indian worker in an industrial establishment is to be retrenched and such a worker belongs to a specific category of workers, the employer should typically follow the “last in, first out” rule. This means the worker who was hired last in that category should be retrenched first, unless the employer has valid reasons (which must be documented) to choose someone else for retrenchment. Case Law- Brohan Kumar vs Barauni Oil Refineries (AIR 1971 Pat 174) — In this case it was held that in case of retrenchment of employee, the employer has to follow the principle of “ last come first go” in the absence of any agreement between the employer and the workmen. The retrenchment is to be effected on basis of seniority of employees working category wise and not on the basis of seniority on a particular job on the date of award, and any departure from the ordinary law embodied in section 25-G cannot be enforced by employer.Re-employment of Retrenched Workmen
Section 25H of the Industrial disputes act is based on the principle that when a workmen is retrenched by employer on the ground of surplus staff, such a workman should be given opportunity to join service whenever an occasion to employ another hand arises. Following conditions must be satisfied in order to get employment:- He should have been retrenched prior to re- employment
- He should be citizen of India
- He should offer himself for re- employment in response to the notice by the employer.
- He should have been retrenched from the same category of service in the industrial establishment in which the re- employment is proposed.
Penalty for Violation
Section 25Q punishes employers who violate Sections 25M or 25N with imprisonment up to one month, or fine up to ₹5,000, or both.Difference Between Layoff and Retrenchment
| Basis | Layoff | Retrenchment |
|---|---|---|
| Meaning | Temporary suspension of employment due to shortage of work/resources | Permanent termination of employment for business reasons |
| Nature | Temporary | Permanent |
| Reasons | Shortage of material, power, etc. | Cost cutting, closure, reduction in business |
| Compensation | Layoff compensation (50% wages) | Retrenchment compensation (15 days pay per year) |
