Define Retrenchment. Illustrate the provisions regarding retrenchment under the Industrial Dispute Act, 1947.

Question: Define Retrenchment. Illustrate the provisions regarding retrenchment under the Industrial Dispute Act, 1947.

Find the question and answer of Labour Law only on Legal Bites. [Define Retrenchment. Illustrate the provisions regarding retrenchment under the Industrial Dispute Act, 1947.]

Answer

Retrenchment is one of the ways companies use to terminate employees when the company is forced to downsize their number of employees. Subsidiary companies of Multinational Corporations often resort to retrenchment in labour law to deal with their expenditure on human resources. However, companies often fail to consider the legal requirements to be carried out before retrenching their employees.

The definition of Retrenchment is terminating an employee due to the surplus of labour or incapacity of employees to match the performance standards of the company. The Industrial Dispute Act, 1947 deals with employment-related disputes in India and Section 2(oo) of the Act states that ‘retrenchment means termination of service of a workman by an employer for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action. However, the following are not covered within the definition of retrenchment:

• Voluntary retirement of a workman
• Retirement of workmen on reaching the age of superannuation if the employment agreement contains a provision regarding superannuation
• Termination of service of a workman due to the non-renewal of employment agreement
• Termination on grounds of continued ill-health

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. The conditions mandated to comply with a valid retrenchment are:

1. 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 employees have been given notice for retrenchment.

2. If the employer fails to provide a notice to the employees, then they shall be liable to pay a compensatory amount for such conduct.

3. 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.

4. The appropriate government or authority is served notice in a prescribed way, as specified in the official gazette.

5. 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 the 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 a 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.

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:

1. The person seeking protection must qualify the definition of a worker as defined in Section 2(s) of the Act.
2. The workman should be a citizen of India
3. The employee should have been employed in the establishment, which, according to Section 2(j) of the Act, is classified as an industry.
4.  The employee must belong to a specific category of the workforce in the industry
5. There should not be any kind of agreement between the employer and the employee regarding the principle of ‘last come first go’.
6.  The procedure of retrenchment can only be valid under Section 25G if all five conditions have been simultaneously complied with.

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:

1. When the company retrenches, the workers should be allowed to re-enter employment.
2. The worker must be a citizen of India.
3. The notice should be given to the workmen for any kind of re-employment.
4. The worker should be granted reemployment in the same industry where he was employed before being laid off.
5. The retrenched workers shall be preferred by the employer for re-employment over other persons.

Conditions Precedent to Retrenchment of Workmen

The criteria to be followed before the 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.

In the case of Rajinder Singh Chauhan and others 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 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.

Section 25Q states that if any employee infringes the basic provisions of retrenchment and violates the provisions of Section 25N, he shall be punished with imprisonment for a term extending to one month or a fine extending to one thousand rupees and both.

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