UNIVERSITY INSTITUTE OF LEGAL STUDIES
PANJAB UNIVERSITY
RETRENCHMENT: RIGHTS OF
RETRENCHED WORKERS
A Project Report submitted as a part of curriculum of
B.A. LL.B (Hons.)
in the subject of
Labour Laws
SUBMITTEDTO: SUBMITTED BY:
Dr. Virender Negi Ridhima Khindria
243/18
9th Semester
Section A
ACKNOWLEDGEMENT
I would like to express my gratitude to my teacher DR.VIRENDER NEGI who
gave me the golden opportunity to do this wonderful project on the topic
RETRENCHMENT which helped me in doing a lot of research and I came to
know about so many new things. He provided with guidelines from time to
time. His profound knowledge of the subject helped me in writing meaningful
content in the project. I am thankful to him.
Secondly, I would also like to thank my parents and friends who supported me
morally as well as helped me in finding relevant material regarding the project
so that I could complete it in the limited timeframe.
2
TABLE OF CONTENT
SERIAL TOPIC PAGE
NUMBER NUMBER
1 INTRODUCTION 4
2 CONCEPT OF RETRENCHMENT 4
3 RETRENCHMENT: LEGAL ASPECTS 4-5
4 EXCEPTION TO THE DEFINITION OF 5
RETRENCHMENT
5 THE REASONS FOR RETRENCHMENT 5-6
6 PREREQUISITES OF VALID 6-9
RETRENCHMENT
7 PROCEDURE OF VALID RETRENCHMENT 9-10
8 REEMPLOYMENT OF RETRENCHED 10-11
WORKERS
9 PUNISHMENT 11
10 DIFFERENCE BETWEEN LAYOFF AND 11-12
RETRENCHMENT
11 BIBLIOGRAPHY 13
3
I. INTRODUCTION
In contrast to the majority of the East Asian countries, India has enacted and
implemented a range of regulations and laws aimed at protecting the worker’s
well-being over time. Thus, there exist laws safeguarding the trade union rights,
rules and regulations forbidding bonded labour and child labour in hazardous
industries, laws ensuring minimum wages, and laws preventing retrenchment,
layoffs, and dismissal of workers.
In India, as per Section 3(1) of the Industrial Disputes Act of 1947, industries
with more than a hundred employees, these industries must obtain government
approval before making any redundancies or retrenchments, and employees are
entitled to three months’ notice of any such action. The method serves as a
safeguard for employees who may be fired without any specific reason or
justification by industry authorities or as a cost-cutting strategy for employers.
The perspective of introducing such legislation is to provide protection to the
rights of the workers and promote the welfare of the labour, but the perspective
has an unintended consequence of making the Indian economy less flexible. As a
result, when industries and corporations confront adversity, retrenchment rules
compel them to maintain bloated workforces and personnel, thereby affecting the
industries as they are then left with fewer resources for making investments in the
new production processes.
I. CONCEPT OF RETRENCHMENT
Retrenchment is something akin to downsizing. When a company or government
goes through retrenchment, it reduces outgoing money or expenditures or
redirects focus in an attempt to become more financially solvent. Many
companies that are being pressured by stockholders or have had flagging profit
reports may resort to retrenchment to shore up their operations and make them
more profitable. Although retrenchment is most often used in countries
throughout the world to refer to layoffs, it can also label the more general tactic
of cutting back and downsizing.
II. RETRENCHMENT: THE LEGAL ASPECT
The above is a very informal definition of retrenchment. Retrenchment has more
to it than just termination of employment by a employer. Section 2(oo) of
4
the Act defines the term ‘retrenchment’. The term retrenchment can be referred
to as the permanent termination of the employment of the employee or a worker
by his or her employer for any reason or circumstance, but other than disciplinary
action.
The modification to the Industrial Disputes Act of 1947 included Section 2(oo).
The provision was added to the Industrial Disputes Act, 1976 by the way of an
amendment. The Act was amended because the 1947 Act lacked measures that
would give employees protection and immunity if they were faced with any type
of involuntary unemployment. Therefore, Section 2(oo) was introduced as a
statutory provision to promote the welfare of the laborers and provide them with
adequate financial realities in the Industrial Disputes Act,1976.
III. EXCEPTIONS TO THE DEFINITION OF RETRENCHMENT
The conditions mentioned underneath are not covered by the definition of
retrenchment. They are:
• If the worker intentionally or wilfully resigns from the service of the employer,
then such voluntary retirement will not be covered by the definition.
• If the employer or employee retires after attaining the age of superannuation
but such a provision must be mentioned in the employment contract between
the employer and the employee.
• If the employee is restricted to work in the industry as a result of the
employer’s failure to renew the contract of employment.
• Termination due to the employee’s continuing bad health is not covered under
the concept of retrenchment. The ill-health of the employee would include his
physical and mental health. The question of whether the employee is suffering
from a continuous illness is based on the facts and circumstances of the case
and can be shown or refuted on either side.
IV. THE REASONS FOR RETRENCHMENT
The action for retrenchment taken by the employer may be for any reason as he
thinks fit but should be just and legal. When a portion of the staff or labor force
is discharged as a surplusage in a running or a continuing business, termination
of which may be due to various possible reasons such as:
5
• Economic difficulties – If the company faces financial hardships or
experiences any kind of loss in its income, the industry then considers limiting
its respective employees by way of retrenchment.
• Rationalization in the industry – Sometimes, companies and industries
require more realistic ways in their operations as they progress. It is possible
that applying such techniques will result in structural or operational
modifications. If the industry becomes redundant as a result of such
developments, the method of retrenchment can be used after such recognition
and evaluation of all relevant factors
• Technological changes in the industry – Technological developments are
progressively being implemented by industries in their enterprises. As a result,
while adopting such technological developments may reduce the need for
employees, it may also be necessary for workers to be able to properly comply
with the new technology. As a result, if the deployed technologies render the
usage of employees obsolete, the firm or industry may be obliged to retrench.
• Failure of machinery – If a specific industry’s machinery fails, the law of
retrenchment may be used.
In the case of Managing Director, Karnataka Handloom Development
Corporation Limited v. Sri Mahadeva Laxman Raval, the respondent was
appointed for fixed working hours and intervals as an expert weaver in the
company to train other fellow weavers. His services were discontinued after the
expiry of the contract period. The respondent raised an industrial dispute with the
company in the labour court. The court directed his reinstatement, and the award
was approved by the High Court. Hence the corporation filed an appeal in the
Supreme Court. The Supreme Court held that the terms of appointment show that
the respondent was not a worker but employed on contract based on a time-barred
action. The court further held that Section 2(oo) of the Industrial Disputes Act of
1947 was not attracted and discontinuance of the service of the respondent was
not retrenchment as defined in Section 2(oo) of the Act.
V. PREREQUISITES OF A VALID RETRENCHMENT
The conditions for a valid retrenchment are outlined in Section 25F. These
requirements, however, apply if an employee has been in continuous service for
at least one year in the case of retrenchment.
He shall be deemed to be in continuous service under an employer--
6
for a period of one year, if the workman, during a period of twelve calendar
months preceding the date with reference to which calculation is to be made, has
actually worked under the employer for not less than—
• one hundred and ninety days in the case of a workman employed below
ground in a mine; and
• two hundred and forty days, in any other case;
The conditions mandated to comply with a valid retrenchment are:
• Before one month, the employer shall issue a written notice outlining the
grounds for the retrenchment to the workforce. The retrenchment should only
be effective when the period for notice for retrenchment expires.
In Devinder Singh v. Municipal Council Sanaur1, the Supreme Court held that,
"Provisions contained in Section 25-F(a) and (b) are mandatory and termination
of service of workman, without giving one month’s notice or pay in lieu thereof
andretrenchment compensation is null and void /illegal /inoperative.
• If the employer fails to provide a notice to the employees, then they shall be
liable to pay a compensatory amount for such conduct.
• The employee must be compensated with an amount equal to 15 days annual
wage for the completed year of continuous employment in the industry or any
portion of it exceeding six months.
• The appropriate government or authority is served notice in a prescribed way,
as specified in the official gazette.
The notice regulations must adhere to the provisions of Rule 76 of the Industrial
Disputes (Central) Rules, 1957, which govern the notice of retrenchment.
The requirement of paying compensation is a mandatory pre-condition for
retrenchment of a workman, therefore its non-compliance will render a
retrenchment invalid. If the retrenchment is proved unlawful or is not approved
by the government authorities then such a workman has a right to reinstatement
with continuity of service and right to wages for such period.
Termination of service of a workman for any reason other than those except in
Section 2(oo) amounts to retrenchment. If the prerequisites for a valid
retrenchment have not been complied with, the termination would be void.
1
(2011) 6 SCC 584
7
VI. CONDITIONS PRECEDENT TO RETRENCHMENT OF
WORKMEN
The criteria to be followed before retrenchment of workmen have been stated
under Section 25N. The conditions are:
• Section 25N states that the worker who has been in continuous service for at
least one year in the industry shall be retrenched by the employer only if he
has been given the notice by the employer before three months stating the
reasons for retrenchment and the worker has been paid with the annual wages
before the notice.
• The permission for the retrenchment and the issuance of the notice should be
approved by the government or any other appropriate authority.
• The employer must make an application for retrenchment approval to the
government and the appropriate authorities in the prescribed manner and the
copy of such approval must be submitted to the workers as specified in the
official gazette.
• When the employer requests approval for a retrenchment procedure, the
government will undertake an investigation into the procedure and, after
providing the employer with a reasonable opportunity to be heard, will grant
or refuse authorization to the method as he considers fit. The order of the same
shall be provided to the employer and the worker. The government must
follow the principles of natural justice and be transparent and impartial when
conducting an investigation.
• The government must notify the order of the employer within sixty days after
the employer has applied for authorization to the government or the
appropriate authorities. If the order is not made within sixty days of the
expiration date, it is presumed granted.
• The order issued by the government or the specified authority, whether
approved or refused, becomes final and binding on all parties, and it will be in
effect for one year from the day it was conveyed to the parties.
• If the order by the government is challenged by the employer then it will be
referred to the tribunal for adjudication and the tribunal should within thirty
days pass the judgment on the matter.
• The application for permission for retrenchment if refused by the government,
shall be considered illegal.
Thus, it is mandatory that the application for permission is necessary to be made
to the government and the decision of the government lays final on the parties.
8
In the case of Rajinder Singh Chauhan and other v. State of Haryana and
others (2006), the appellants were the employees of the Haryana Store Federation
of consumers co-operative wholesale stores limited. Hence, they were retrenched
by the employers in compliance with Section 25F of the Industrial Disputes Act
of 1947. They were aggrieved by the process of retrenchment and challenged the
labour action of the employers i.e, retrenchment through the writ petitions under
Article 226 of the Constitution of India, but failed to get any remedy.
The employees then filed writ petitions in the Supreme Court challenging the
decision of the Punjab and Haryana High Court. The Supreme Court held that the
employer i.e, the respondents were not included under the definition of
Section 2(g) of the Industrial Disputes Act of 1947. Hence, the High Court was
appropriate in determining that Section 25N did not adhere to the appellants’
retrenchment.
In the case of Workmen of Meenakshi Mills Limited etc v. Meenakshi Mills
Ltd and another2, the constitutional validity of Section 25N was challenged
because the provision violated Article 14, Article 19(1)(g) and Article 19(6) of
the Constitution of India, stating that the employer had no constitutional rights to
retrench the workmen.
The case was referred to the Supreme Court for its final decision. The Supreme
Court held that Section 25N of the Industrial Disputes Act of 1947 was
constitutionally valid on the ground that the restrictions imposed on the rights of
employers to retrench workmen are in the interest of the general public. Hence, it
does not infringe the rights of the Constitution. It was further held that an
industrial dispute may arise on account of the failure on the part of the employer
if he does not comply with the provisions of Section 25N. Hence, the power has
been conferred to the workmen and the management to raise industrial disputes
and move the appropriate government granting or refusing the permission for
retrenchment.
VII. PROCEDURE OF RETRENCHMENT
The retrenchment principle of ‘first come, last go’ and ‘last come, first go’ are
well-known in industrial law. The concept has been codified in Section 25G. A
worker can seek the procedural protections afforded by this provision. The
protection can only be availed if the following requirements are fulfilled:
2
1994 AIR 2696
9
• The person seeking protection must qualify the definition of a worker as
defined in Section 2(s) of the Act.
• The workman should be a citizen of India
• The employee should have been employed in the establishment, which,
according to Section 2(j) of the Act, is classified as an industry.
• The employee must belong to a specific category of a workforce in the
industry
• There should not be any kind of agreement between the employer and the
employee regarding the principle of ‘last come first go’.
The procedure of retrenchment can only be valid under Section 25G if all the
five conditions have been simultaneously complied with.
Principle of ‘first come, last go’ and ‘last come, first go’
The principle of ‘first come, last go’ and ‘last come, first go’ can only be applied
if the worker has been classified under different categories of the workmen
employed in any industry or establishment. The principle of ‘last come, first go’
states that in the case of retrenchment, the employer has the power to decide
which of the employees are to be retrenched. The rule acts as a healthy safeguard
if there is any kind of discrimination against the worker in case of retrenchment.
The principle will not be applicable if:
• If there is any type of agreement between the employer and the employee.
• For any other reason, the employer considers necessary.
The principle of retrenchment is that management should start with the latest
recruit and progressively retrench employees higher up in the list of seniority.
The management in matters of retrenchment should act fairly and must comply
with the principles of equality, equity, justice, and fairness.
In the case of Brohan Kumar v. Barauni Oil Refineries3, it was decided that in
the absence of any agreement between the employer and the workers, the
employer must use the “last come, first served” principle in the case of an
employee’s retrenchment. The retrenchment would be carried out based on the
seniority of workers working categorically, not on their seniority.
3
AIR 1971 Pat 174
10
VIII. RE-EMPLOYMENT OF RETRENCHED WORKMEN
The Act’s Section 25H is based on the well-known concept that when an
employer retrenches a worker due to labour allow shortage, the worker should be
given the first chance to return to work whenever the need for another hand arises.
Section 25H imposes a statutory obligation on the employer to give an
opportunity to the retrenched employees to apply for re-employment. The
workmen must satisfy the following conditions:
• When the company retrenches, the workers should be allowed to re-enter
employment.
• The worker must be a citizen of India.
• The notice should be given to the workmen for any kind of re-employment.
• The workers should be granted reemployment in the same industry where he
was employed before being laid off.
• The retrenched workers shall be preferred by the employer for re-
employment over other persons.
Only a ‘retrenched’ workman has been given the right to claim benefit under
Section 25H. A dismissed, discharged or superannuated worker has no claim for
preferential re-employment.
If the worker is given a notice by the employer for re-employment and he
consequently fails to offer himself for re-employment, then he will be disentitled
from claiming the benefit under Section 25H.
When an employer has to employ more workers, the retrenched worker must be
allowed to re-enter the workforce. The principle of equality is not only
incorporated in this specific Section 25H, but it is the general application in
industrial adjudication that everybody must be equally treated and must comply
with the provisions of natural justice, equality, fairness, justice, and equity.
It was cited in the case of Delta Wire Pvt. Ltd. v. General Labor Union and
Another4, that after having been retrenched and been paid the statutory
compensation the only right that is available to a worker because of having been
previously employed is the one conferred by Section 25H of the Act. The worker
has a preference for re-employment, but he cannot claim the same level of service
after re-employment as he had before retrenchment.
IX. PUNISHMENT FOR INFRINGEMENT
4
(1995) IILLJ 287 Bom
11
Section 25Q states that if any employee infringes the basic provisions of
retrenchment and violates the provisions of Section 25N, he shall be punishable
with imprisonment for a term extending to one month or a fine extending to one
thousand rupees and both.
X. HOW ARE LAYOFF AND RETRENCHMENT DIFFERENT
Lay-off and Retrenchment can be differentiated on the following basis –
Basis Layoff Retrenchment
Meaning A layoff can be defined as the Retrenchment can be defined
inability, refusal or failure of the as the termination of the
employer to provide employment to services of the workman by
the workman whose name is borne on the employer due to any
the muster roll of his industrial reason other than a
establishment due to the shortage of punishment as a result of any
coal, raw materials, power, and disciplinary action against the
breakdown of machinery or worker
accumulation of stocks, natural
calamity or any other connected
reason and not retrenched.
Section Section 2(kkk) of the Industrial Section 2(oo) of the Industrial
Dispute Act 1947 Dispute Act 1947
Impact on The Industrial establishment ceases The operations of the
Operations of to operate. Industrial establishment
Industrial continue.
Establishment
Effect on the Here, the employer-employee The employee-employer
employer- relationship continues relationship ends
employee
relationship
Employment The workmen are appointed back This results in the immediate
of Workmen after the end of the layoff period termination of the workmen
Motive Action Step Business Strategy
12
BIBLIOGRAPHY
BOOKS:
• Paul, Dr. Meenu, ‘Labour & Industrial Laws’, 10th Ed., 2017, Allahabad Law
Agency, Faridabad.
WEBSITES:
• https://www.lawctopus.com/academike/industry-under-industrial- disputes-
act-
• https://indiankanoon.org/doc/500379/
• https://bnblegal.com/article/definition-of-workman/
• https://www.legalserviceindia.com/legal/article-943-industrial-
disputes.html
• https://www.lawctopus.com/academike/industrial-disputes-and- individual-
disputes- under-industrial-disputes-act-1947
13
