Retrenchment

10-06-2024
Synopsis:-
1. Introduction
2. Meaning and Definition
3. Object
4. Essential Ingredients
5. Exceptions
6. Conditions precedent to Retrenchment of Workmen
i) Notice
ii) Retrenchment Compensation
iii) Appropriate Authority
IV) Continuous Service
V) Last come fist Go
7. Similarities between Lay-Off and Retrenchment
8. Difference between Retrenchment and Lay-Off
9. Conclusion
 1. Introduction
• Section 25F of the Industrial Dispute Act, 1947 says about essential
conditions to be fulfilled prior to retrenchment.
• These condition are:
• The workmen have to be given one month's written notice stating reasons
for retrenchment and wages for the notice period. At the time of
retrenchment, the worker has to be paid compensation of fifteen days'
wages.
• Retrenchment under section 2 (oo) of the Industrial Disputes Act, 1947, have
created complete uncertainty and indefiniteness in the field of industrial
law, especially relating to discharges.
 2. Meaning and Definition
• Retrenchment--------The act of retrenching
-------- A cutting down or off.
-------- A reduction of expenses.

• Retrenchment means the discharge of surplus labour or staff by the employer for any
reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary
action.

• Section 2 (oo) '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-
1) voluntary retirement of the workman ; or
2) retirement of the workman on reaching the age of superannuation
3) 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
4) termination of the service of a workman on the ground of continued ill-health.
• LANDMARK CASE LAWS
• The Supreme Court in Byram Pestonji Gariwala v. Union Bank of India and
others had restricted the definition of ‘Retrenchment’ under S.2(oo)(bb) to
occur only when there is a ‘discharge of excess labor’ by the employer.
• Later the Supreme Court in State Bank of India v. N. Sundara Money, Punjab
Land Development and Reclamation Corporation Ltd., Chandigarh v.
Presiding Officer, Labour Court, Chandigarh and subsequent decisions
rejected the narrow interpretation adopted by the Court in the earlier
decision and held that any retrenchment, as defined in Section 2(oo), means
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 and those expressly excluded by Clauses (a), (b) and (c) of the
definition.
• In view of these decisions, it cannot be said that retrenchment means
termination by the employer of the service of a workman as surplus labor.
• The Supreme Court excluded closure from the scope of retrenchment in Hariprasad
Shivshankar Shukla vs. A.D. Divelkar.
• Further, in the State Bank of India vs. Sundara Money, the Supreme Court adopted
the literal meaning of retrenchment, which is exhaustive and comprehensive and
held that the expression "for any reason whatsoever" was very wide and admitted
almost no exceptions. So, retrenchment means termination of a worker's services
for any reason whatsoever, other than those specified in Section 2(oo).

• The Bombay High Court, in State Bank of India v. Sundaramony held that wherein
the court held that an analysis of the definition reveals four essential ingredients,
namely
• 1) There must be a termination of the service of a workman.
• 2) The termination must be by the employer,
• 3) For any reason whatsoever, and
• 4) Otherwise than as by way of punishment inflicted by way of disciplinary action.
• The definition came up for interpretation before the Supreme Court in the
cases of Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills ' Mazdoor Union
Barsi Light Railway Company Ltd. and Another v. K.N. Joglekar and Others 4
and Bañaras Ice Factory Ltd. v. Their Workmen.
• Dealing with the ordinary meaning of retrenchment, the Supreme Court in
the case of the Pipraich Sugar Mills case “Retrenchment connotes in its
ordinary acceptation that the business itself is being continued but a portion
of the staff or the is discharged as surplusage and the termination of
services of all the workmen as a result of closure of the business could not
therefore be properly described as retrenchment.
 3. Object
• A desire to make more profits is natural and has been held to be
lawful, it if it is achieved by lawful means.
• An employer has the right to recognized his business in any fashion
he likes, for the purpose of economy or convenience and no body is
entitled to instruct him how he should conduct his business.
• Retrenchment aims at cutting down on all expensive fields. This
gives way to maintaining a low-budget plan to make sure there is
not any financial drop.
• Nevertheless, retrenchment mainly involves curtailing different
excess positions that are not of much use to the industry's well-
being.
• As a part of reorganization of his business, as employer may
retrench some of the employees who are not required.
• However his act of retrenchment must be within the
limitations imposed by law.
• Such Limitation are:
1. the employer should do it Bonafede.
2. He should not misuse the right of retrenchment for the
purpose of victimizing his employees and in order to get rid
of their services which it would otherwise not be
permissible.
3. He should not violate the law in force.
 4. Essential Ingredients

1.There should be termination of service of a

workmen by employer.
2.It may be for any reason whatsoever.
3.It should be otherwise than as a
punishment inflicted by the disciplinary
action.
5. Exceptions

1) Voluntary Retirement of the workman ; or

2) retirement of the workman on reaching the age of
superannuation
3) 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
4) termination of the service of a workman on the ground
of continued ill-health.
6. Conditions precedent to Retrenchment of
Workmen:-
•Section 25-f of the I.D. Act enunciates the conditions
precedent to retrenchment of workmen:
•i) Notice
•ii) Retrenchment Compensation
•iii) Appropriate Authority
•IV) Continuous Service
•V) Last come fist Go
 i) Notice
•Sec 25 F Clause (a) imposes the statutory obligation
upon the employer to give one month notice to the
workman or workmen to be affected in writing.
•He should give the reasons for retrenchment.
•If no notice given, the wages for the period of the
notice in lieu of such notice are to be paid.
•If there is any agreement between the employer and
employees no notice is necessary.
 ii) Retrenchment Compensation
• Sec 25 F clause (b) further imposes statutory obligation upon the
employer to pay compensation to retrenched employee.
• Such compensation shall be equivalent to 15 days' average pay
for every completed year of continuous service or any part
thereof in excess of six months.
• The right to Retrenchment compensation and right to gratuity
are different and distinct rights.
• Therefor, the employer should pay the gratuity and as well as
the Retrenchment compensation to the retrenched workman.
 •General Motors Ltd. vs,. Their Workmen
(1953)
•The object of the Retrenchment
compensation is to support the worker for
some period within which he can get
another employment.
 iii) Appropriate Authority
• Section 25-F clause (c) provides that the employer shall
submit information by way of notice in the prescribed
manner is served on the app. Gov. or such authority as
may be specified by the app. Gov. by notification in the
Official Gazette.
• Clause (a) requires the employer to send the notice to his
employees to be retrenched.
• Clause (C) requires the employer to send the information
in prescribed manner to the App. Gov. or such authority.
 IV) Continuous Service
• Sec 25-F starts with 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.”
• The object of Sec 25-F as appears from its head-part is to lay down condition
precedent to the retrenchment of workmen.
• The expression “continuous service” for not less than one year shall have to
be under stood as defined in Sc 25-B.
• Sec 25-F applies only to workmen who have been in continuous service for
not less than one year under an employer.
 V) Last come Fist Go
• Section 25-G provides the procedure for Retrenchment.
• This section is not a condition precedent.
• Section 25 G itself is an independent section.
• It protects the seniority among the workmen.
• 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.
7. Similarities between Lay-Off and Retrenchment:
• Under both circumstances, the worker is refused
environment.
• Under both the cases the compensation is paid to workers.
• Under both cases, the employer is the competent person to
take decisions.
• The workers may be re-appointed again Compulsorily in
Lay-off rarely in retrenchment.
8. Difference between Retrenchment and Lay-Off
 9. Conclusion
• Retrenchment is the discharge of surplus labour by the employer. According to
Section 2(oo) of the Industrial Disputes Act, 1947 (IDA), retrenchment is the
termination of service of a worker "for any reason whatsoever", but excludes
termination by way of punishment inflicted pursuant to disciplinary action,
voluntary retirement, retirement on reaching the age of superannuation if the
contract of employment contained such stipulation, non-renewal of the contract
of employment, and continued ill health.
• Retrenchment may be due to inevitable reasons including rationalization or
installation of new labour-saving machinery. An employer has a right to organize
his business in any lawful manner he considers best and courts cannot question
its propriety.
• If re-organization results in surplus employees, no employer is expected to carry
their burden.
• There is consensus of judicial opinion in deciding retrenchment on the facts and
circumstances of each case.
• Courts have decided that termination of services due to loss of confidence in
an employee, inefficiency or misconduct does not amount to retrenchment.
Termination for unauthorized absence from duty, discontinuance of service
of casual, daily employees, invalid initial appointment, compulsory
retirement, and closure or transfer of business have been held to be
retrenchment.
• Indian employers have responded to the restrictive retrenchment laws in
several ways including the greater use of contract, temporary and/or casual
labour, the use of golden handshakes, and setting up production in states
where labour is not organized.
• The government is pursuing privatization and disinvestment. Any anomaly in
retrenchment laws, which address the basic functioning of companies, needs
the immediate attention of lawmakers.