Retrenchment

(zh) "retrenchment" means the termination by the employer of the service of a worker
for any reason whatsoever, otherwise than as a punishment inflicted by way of
disciplinary action, but does not include—
Barsi Light Rly Co Ltd v KN Joglekar (1957) ‘Retrenchment’ means discharge of surplus
labour or staff by the employer, for any reason whatsoever……in no case is there any
retrenchment unless there is a discharge of surplus labour or staff in a continuing or running
industry.

Hariprasad Shivshankar Shukla v A.D. Divelkar (1957) Where the services of all
workmen have been terminated by the employer on a real and bona fide closure of business
or where the services of all workmen have been terminated by the employer on the business
or undertaking being taken over by another employer, it was held that it did not amount to
retrenchment.

Punjab LDRC v PO Labour Court (1990) Termination for any reason shall be treated as
retrenchment instead of the single ground i.e., discharge of surplus labour.

State of Haryana v Om Prakash (1998) ‘Retrenchment’ contemplates an act on the part of

the employer, which puts an end to the service, to fall within its ambit. If the workman ceased
to report for duty and, even after he ceases to report for his duty, it is not his case that at any
point of time, he reported for duty and was refused work, it could not be said it was a case in
which the employer had done anything to put an end to his employment. Hence such a case
would not fall within the meaning of Retrenchment.

NCL-II (2002) recommended that the term ‘retrenchment’ should be defined precisely, to
cover only a termination of employment arising out of a need for the reduction of surplus
workers in an establishment, such surplus having arisen out of one or more of several
reasons.

Casual Workers

S M Nilajkar v Telecom District Manager (2003) Termination of service of the casual

workmen employed in State projects cannot be treated as Retrenchment.

Seasonal Workers – Not Retrenchment

Exceptions
(i) voluntary retirement of the worker; or

Bengal Nagpur Cotton Mills v J Bastion (1960) Instead of voluntary resignation, the
concerned workman, in spite of his protest, was asked to handover the charge which he did in
protest. Court held that where resignation is tendered on account of duress or coercion etc., it
ceases to be voluntary act of the employee expressing his desire to quit.

(ii) retirement of the worker on reaching the age of superannuation; or

(iii) termination of the service of the worker as a result of the non-renewal of the
contract of employment between the employer and the worker concerned on its expiry
or of such contract being terminated under a stipulation in that behalf contained
therein; or

Santosh Gupta v. State Bank of Patiala (1980) stirred up the maximum controversy. Here
the services of a workman (a woman who had put in more than 240 days in a year) were
terminated for her failure to pass the test which would have enabled her to be confirmed in
the service. The court held it to be a case of retrenchment and observed : If the definition of
'retrenchment is looked at unaided and unhampered by precedent, one is at once struck by the
remarkably wide language employed and particularly by the use of the words "termination...
for any reason whatsoever" ...[I]f the words "for any reason whatsoever" are understood to
mean what they plainly say, it is difficult to escape the conclusion that the expression '
retrenchment ' must include every termination of the service of a workman by an act of the
employer . Explaining the object and nature of retrenchment, the court observed: The
manifest object of these provisions is to so compensate the workman for loss of employment
as to provide him the where- withal to subsist until he finds fresh employment... As the
expression retrenchment compensation indicates, it is compensation paid to a workman on his
retrenchment and it is intended to give him some relief and to soften the rigour of hardship
which retrenchment inevitably causes. The retrenched workman is suddenly and without his
fault , thrown on the street and has to face the grim problem of unemployment. At the
commencement of his employment a work- man certainly expects and looks forward to
security of service spread over a long period, but retrenchment destroys his hopes and
expectations.

Mohan Lal v. Management, Bharat Electronics Ltd (1981) where services of Mohan Lal
were terminated during the extended probation period because the employer found the same
to be unsatisfactory, court, while holding it out to be a case of retrenchment, opined:
Termination by the employer of the service of a workman for reason whatsoever would
constitute retrenchment except in cases excepted in the section 2(oo).

CM Venugopal v LIC of India (1994) Where the terms of contract of service provided for
the necessity of some minimum business to be done by the employee and in case of failure
provided for the termination. Court held that the case was covered by exception, and was not
retrenchment.

LIC v Raghavendra s Kulkarni (1998) – The termination of services of a probationer, in

terms of appointment letter, does not amount to a retrenchment.

(iv) termination of service of the worker as a result of completion of tenure of fixed term
employment; or

State Bank of India v. Sundara Money , (1976) onwards the Supreme Court took a swing
and adopted a different line of reasoning. In this case the employee's services were terminated
after the expiry of the period stipulated in the contract of employment. It was expressly stated
 in the order of appointment itself that the services of the employee were not required by the
employer beyond the period specified therein. Holding it to be a case of retrenchment, the
court observed : A termination takes place where a term expires either by the active step of
the master or the running out of the stipulated term. To protect the weak against the strong
this policy of comprehensive definition has been effectuated. Termination embraces not
merely the act of termination by the employer but the fact of termination however produced.
A separate subsequent determination is not the sole magnetic pull of the provision. A pre-
emptive provision to terminate is struck by the same vice as the post-appointment
termination. Supreme Court based its decision on the construction of the words ‘for any
reason whatsoever’ as ‘very wide and almost admitting of no exception’.

Haryana State FCCW Store Ltd v Ram Niwas (2002) Appointment being for a specific
purpose and for a particular period, there shall be no retrenchment in termination of their
services.

(v) termination of the service of a worker on the ground of continued ill-health;

Anand Bihari v RSRTC (1991) Medical examination of Bus Drivers revealed that they had
developed a defective eye-sight and did not have the required vision for heavy motor
vehicles. Court held that defective eye-sight, disabling the workmen from discharging their
normal duty of bus driving, fell within the meaning of the expression ‘continued ill-health’.

Section 70. Conditions precedent to retrenchment of workmen

No worker 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—

 Part-time workers do answer to the definition of workman within the meaning of 2(s)
and they are entitled to the benefit of continuous service under section 25-B and the
benefit of 25-F.

(a) the worker has been given one month's notice in writing indicating the reasons for
retrenchment and the period of notice has expired, or the worker has been paid in lieu of such
notice, wages for the period of the notice;

 If the workman has been asked to go forthwith, he has to be paid at the time when he
has been asked to go and could not be asked to collect his dues afterwards.

(b) the worker has been paid, at the time of retrenchment, compensation which shall be
equivalent to fifteen days' average pay, or average pay of such days as may be notified by the
appropriate Government, for every completed year of continuous service or any part thereof
in excess of six months; and
 The compensation for retrenchment must be paid at the time of retrenchment. It is
implicit in the requirement to pay compensation at the time of retrenchment that the
law recognises and declares the right of the workmen to compensation at the time of
retrenchment. But clause (c) cannot be held to be a condiditon precedent even though
it has been included under section 25-F as it is only for the purpose of keeping the
government informed about the conditions of employment in different industries
within its region. Non-compliance with the clause (c) before the retrenchment, would
not, therefore, invalidate the retrenchment. Bombay Union of Journalists v State of
Bombay (1964)

Notice of Retrenchment was served on 27.07.1992 which was effective from

04.08.1992. There was nothing on the record to prove that workmen were paid One
month’s salary nor any evidence was produced by the employer regarding the
compliance of clause (c) of 25-F (Mackinon Mackenzie and Co Ltd v ME Union
2015)

 If the retrenchment order is invalid in law ab initio, subsequent payment of

compensation cannot validate it. Even if the workman receieved compensation
subsequent to the order of retrenchment, they will not be estopped from challenging
the legality and validity of the order of retrenchment.

 Acceptance of lesser amount ‘in full and final settlement’ of the retrenchment claim or
accepting a lower post after termination shall not satisfy the requirements of Section
25-F and shall not extinguish right of workman under it. Because there cannot be
estoppel against the statute and terms of contract cannot override the statutory
provision.

 Where tender of retrenchment compensation was made before the dismissal came into
force and the wages would have been paide to him if he had cared to receive them,
court held that it was sufficient compliance of Sec. 25-F. Because giving notice or
tendering payment is enough and refusal to receive the notice of payment by the
workman does not invalidate the notice or tender of payment.

(c) notice in such manner as may be prescribed is served on the appropriate Government or
such authority as may be specified by the appropriate Government by notification.

 If the workman dies during the period of unemployment subsequent to his

termination, the amount of his wages from the date of his termination to the date of his
death becomes a vested right of the workman and it will devolve on his heirs-at-law
though the right to reinstatement would not survive.

When the Retrenchment is found to be illegal and invaild for non-compliance with 25-
F, it is imperative for the Tribunal to award relief of Reinstatement with Full
 Backwages and it has no discretion to award any other relief. (Swadesmitran Ltd. V
Workmen 1960)

Surendra Kumar Verma v CGIT-cum-LC (1981) Invalid retrenchment must

ordinarily lead to the reinstatement of the services of the workmen. It is as if the order
has never been, and so it must ordinarily lead to the backwages too. But there may be
exceptional circumstances which make it impossible or wholly inequitable vis-à-vis
the employer and workmen to direct reinstatement with full backwages. For instance
where the industry has been closed after the retrenchment or is in severe financial
dooldrums or the workman might have secured better or other employment elsewhere,
the relief of reinstatement must be denied. In other words, in cases of bonafide
retrenchment without complying with the mandatory pre-conditions, the tribunal will
have discretion to award compensation in lieu of reinstatement, depending on the facts
and circumstances of the case.

 For the aforesaid purpose, several factors like the manner and method of selection,
nature of appointment-ad hoc, daily-wage, temporary or permanent etc., period for
which the workmen had worked and the delay in raising industrial dispute, are
required to be taken into consideration.

 Number of days worked in broken spells in different departments, which are

independent departments of the corporation, cannot be taken as continuous service for
the purpose of Section 25-F.

 Whether the holding company which transferred its employees to different units for
work can claim that those of them, who were depued to work in one of the units which
was closed, were not its workmen? No, because the unit of the company which did not
recruit them cannot terminate them.