Retrenchment in Indian Law connotes termination of the services of
employees who are surplus to a Company’s requirement.
Section 2 (oo) of the Industrial Disputes Act, 1947 (ID Act) defines
Retrenchment:
“Retrenchment means the termination by the employer of the
service of a workman for any reason whatsoever, otherwise than
as a punishment inflicted by way of disciplinary action, but does
not include--
(a) voluntary retirement of the workman; or
(b) retirement of the workman on reaching the age of
superannuation if the contract of employment between the
employer and the workman concerned contains a stipulation in
that behalf; or
(bb) 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 in that behalf contained
therein; or]
(c) termination of the service of a workman on the ground of
continued ill- health;].”
From a reading of the above definition of Retrenchment, it is apparent
that in Section 2(oo) means termination of an employee’s services by
the employer of the service of a workman for any reason whatsoever,
otherwise than as a punishment inflicted by way of disciplinary action
and those expressly excluded by the definition.
I may further mention that the relevant Section pertaining to
Retrenchment of Workmen is Section 25-F of the ID Act. Under the
said Section 25-F, there are certain conditions that are conditiones
sine qua non prior to effecting Retrenchment, i.e., they are condition
precedents. The said Section 25-F reads as under:
“25-F. Conditions precedent to retrenchment of workmen.-
No workman employed in any industry who has been in
continuous service for not less than one year under an employer
shall be retrenched by that employer until-
(a) The workman has been given one month’s notice in
writing indicating the reasons for retrenchment and the
period of notice has expired, or the workman has been
paid in lieu of such notice, wages for the period of the
notice:
(b) The workman has been paid, at the time of
retrenchment, compensation which shall be equivalent to
fifteen days' average pay for every completed year of continuous
service] or any part thereof in excess of six months; and
(c) Notice in the prescribed manner is served on the
appropriate Government or such authority as may be specified
by the appropriate Government by notification in the Official
Gazette].”
Section 25-F (a) and (c) therefore, mandate a written Notice of one
month or one month’s pay in lieu thereof to the affected workman as
well as the Government. I may here mention that if the contract of
2
employment stipulates two month’s Notice Period, then the
required period will be 2 months or 2 month’s pay in lieu thereof.
The said payment is a condition precedent, which means that the
said payment will have to be made simultaneously with the action
of Retrenchment, or else, the said retrenchment will be rendered
illegal.
A Notice also requires to be displayed as per Rule 80 of the Industrial
Disputes (Bombay) Rules, 1957, reproduced herein below:
“80. Notice Of Retrenchment:-
(1) The notice referred to in clause (c) of Section 25-F shall be
given in Form XXIV by an employer and be served either by
personal service or by registered post, on the secretary to the
Government of Maharashtra, Industries and Labour Department,
Bombay- (i) not less than twenty one days before the date of
retrenchment, if the notice of retrenchment has been given
to a workman; (ii) within seven days of the date of
retrenchment if no such notice has been given but the
workman is paid wages in lieu of notice; (iii)(a) at least one
month before the date of termination of service if such date is
specified in an agreement where the retrenchment is carried out
under an agreement; and (b) on the date of such agreement,
where the date of termination is not so specified. (2) A copy of
such notice shall be sent by the employer to the Commissioner of
Labour, Bombay and the Deputy Commissioner of Labour of the
area concerned, namely Deputy Commissioner of Labour
(Administration), Bombay/Deputy Commissioner of Labour,
Poona/Deputy Commissioner of Labour, Nagpur.”
I may reproduce here section 25-F (b) of the ID Act:
“(b) The workman has been paid, at the time of retrenchment,
compensation which shall be equivalent to fifteen days'
average pay for every completed year of continuous
service] or any part thereof in excess of six months.”
Section 25-F (b) mandates that the employee being retrenched must
be paid at the time of retrenchment compensation, i.e., Retrenchment
Compensation which shall be equivalent to fifteen days’ average pay
for every completed year of continuous service. In this regard, I
may observe that for calculation of Retrenchment Compensation
under the ID Act, the gross wages payable will have to be considered
and not components thereof and the dividing factor will not be by 26
but by 30 days, as held by the Hon’ble Supreme Court in the matter of
Guru Jambheshwar University through its Registrar v/s Dharam Pal
reported at (2007) 2 SCC page 265.
Display of a Seniority List of Workmen is also mandatory under Rule
81 of the Industrial Disputes (Bombay) Rules, 1957:
“81. Maintenance Of Seniority List Of Workmen:-
The employer shall prepare a list of all workmen in the
particular category from which retrenchment is
contemplated arranged according to the seniority of their
service in that category and cause a copy thereof to be
posted on a notice board in a conspicuous place in the
premises of the industrial establishment at least seven
days before the actual date of retrenchment.”
3
I may mention here about the principle of “Last come, first go” which
is applicable in the matter of Retrenchment of workmen, which is
mandated in Section 25-G of the ID Act. The said Section reads as
under:
“25G. Procedure for retrenchment.- Where any workman in
an industrial establishment, who is a citizen of India, is to be
retrenched and he belongs to a particular category of workmen in
that establishment, in the absence of any agreement between
the employer and the workman in this behalf, the employer shall
ordinarily retrench the workman who was the last person to be
employed in that category, unless for reasons to be recorded
the employer retrenches any other workman.”
The above Rule is not inflexible. If the Company needs to Retrench an
older employee and retain a newer employee, the Company will have to
record plausible and justifiable reasons for the same.
Section 25-H of the ID Act, which reads as below:
“Re-employment of retrenched workmen.- Where any
workmen are retrenched, and the employer proposes to take into
his employ any persons, he shall, in such manner as may be
prescribed, give an opportunity to the retrenched workmen who
are citizens of India to offer themselves for re-employment and
such retrenched workman] who offer themselves for re-
employment shall have preference over other persons.”
The above section mandates that in the event of the Company desiring
to hire fresh employees in the same Role as the employees proposed to
be Retrenched, it will be mandatory for the Company to give an
opportunity to the said Retrenched employees to offer
themselves for re-employment and such Retrenched employees
who offer themselves for re-employment shall have preference
over other persons. I may quote in this Rule 82 of the Bombay Rules:
“82. Re-Employment Of Retrenched Workmen:-
(1) Where any workmen are retrenched and the employer
proposes to take into his employ any person, he shall give an
opportunity to the retrenched workmen to offer themselves for
reemployment in the following manner, that is to say- (a) if the
number of vacancies to be filled is not less than fifty, he shall
publish in a newspaper circulating in, and in the regional
language of, the locality in which the industrial establishment is
situated, a notice giving the details of the vacancies to be filled;
(b) in any other case, he shall send by registered post to the last
known address of each of such retrenched workmen eligible for
appointment to any such vacancies, a notice giving the details of
the vacancies to be filled; and seven days shall have elapsed
from the date of publication of such notice, or from the date of the
dispatch of the test of such notices, as the case may be: Provided
that where there arc provisions in any standing orders of an
industrial establishment in regard to the notifying of vacancies,
notices in respect of such vacancies shall be published or given
in accordance with such standing orders: Provided further that if
a retrenched workman, without sufficient cause being shown in
writing to the employer, does not offer himself for re-employment
on the date or dates specified in the public notice given or the
individual notice sent to him by The employer under this sub-
rule, the employer may not intimate to him the vacancy that may
be filled on any subsequent occasions].
4
(2) A copy of the notice referred to in sub-rule (1) shall also be
displayed in the time-keepers office at the main entrance of
industrial establishment and in the case of a department thereof
also in the department concerned.
(3) Wherever a notice has been given under sub-rule (1), the
employer shall also simultaneously inform the trade union or
unions of workmen connected with industrial establishments of
the vacancies to be filled giving details thereof.
(4) If the employer seeks the assistance of the Decasualisation
Scheme or the Employment Exchange of the area in filling the
vacancies, he shall inform the Manager of the Scheme or the
Exchange, as the case may be, that the names of such of his
retrenched employees, as may be, registered with the scheme or
the exchange, may be submitted to him along with the names of
any other suitable candidates.
(5) Information regarding the workmen re-employed in
accordance with this rule shall be sent in Form XXIV-A by the
employer to the Commissioner of Labour Bombay and the Deputy
Commissioner of Labour of the area concerned within fifteen
days from the date of such reemployment.”
