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Industrial Disputes Act (1947): Lay-off, Retrenchment, and Closure

Lay-Off, Retrenchment and Closure are three case scenarios contemplated in the Industrial Disputes Act, 1947, which essentially results in employees losing their jobs. Nonetheless, this is not a pressure tactic from the part of the employer. These are rather scenarios where situations compel an employer to resort to denying employment to their employees. The Industrial Disputes Act has come up with formal definitions and has set out laws which govern these case scenarios.
Written by:
Prachi Darji
Published on
13-Sep-2019

This is an Act which came into force in the year 1947. The objective of the act was to promote industrial peace by facilitating investigation and settlement of industrial disputes through negotiation. It is a labour legislation to protect the workmen against victimisation by employers and to ensure social justice to both employers and employees. The unique object of the Act is to promote collective bargaining and to maintain a peaceful atmosphere in industries by avoiding illegal strikes and lockouts. It also has provisions for regulation of retrenchment and lay-off.

Now, having said that, let us specifically examine what lay-off, retrenchment and closure are. At the outset, we shall define each one of these case scenarios in detail.

Lay-Off

To start off, let us look at how the act defines the concept of Lay-off. The term ‘lay-off’ has been defined as the failure, refusal or inability of an employer on account of the shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery or natural calamity or for any other unconnected reason to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched.

Essentially, a lay-off is a condition where the employers are constrained to deny work to their workforce owing to conditions that bring forth a temporary inability to keep their business going. The said case scenario can happen only in a continuing establishment.

Essentials: The conditions where Lay-off could be brought into play are:

  • There has to be a failure, refusal or inability of an employer

  • This failure, refusal or inability should be an offshoot of the shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery or natural calamity or for any other unconnected reason

  • The names of the laid-off workers should necessarily feature on the muster rolls of the establishment

  • The said workers should not have been retrenched

Special Provisions: The employer cannot, without prior permission from the appropriate government, lay-off an employee featuring on the muster rolls of the establishment A copy of the said application has to be given to the concerned workmen as well. If the lay-off happened where the workmen (other than badli workmen or casual workmen) of an industrial establishment, being a mine, owing to reasons of fire, flood or excess of inflammable gas or explosion, the employer, in relation to such establishment, shall, within a period of thirty days from the date of commencement of such lay-off, apply in the prescribed manner, to the appropriate Government or the specified authority for permission to continue the lay-off. The said application will be considered and a reasonable opportunity to be heard shall be given to the employer as well as the workmen. After considering the same, the appropriate government may or may not grant the employer to close down. Even here, if the government does not respond within sixty days from application, the permission will be deemed to have been granted. There are provisions for review of the said decision by the authority suo motu or in response to an application.

Compensation for Laid-Off period: A workman who is laid-off is entitled to compensation equivalent to 50 per cent of the total basic wages and dearness allowance for the period of lay-off. The said compensation can be availed only if the employee has done a continuous service of at least one year; this will be detailed in an upcoming section of this article. Along with this, the muster rolls of the establishment should bear the worker’s name to avail the compensation. A badli or casual worker cannot avail such compensation. Refusal to accept alternative employment, absence from the establishment, strike or deliberate slowing down of production could be grounds which would entail disentitlement to such compensation.

If such Lay-off exceeds 45 days, the employer can either keep paying such lay-off compensation or retrench the workers. Nonetheless, retrenchment should necessarily be applied abiding by the procedure set out by the statute; this will be described in detail in the upcoming section which deals with retrenchment.

Retrenchment

The Act defines “Retrenchment” as the termination by the employer of the services of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but doesn't 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

Termination of the service of the workman as a result of the on-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;

Here, the key ingredient is the termination of a workman from service, by the employer. This does not mean the employer can retrench a worker as a punishment by way of disciplinary action. Further, this scenario strictly does not include the above-mentioned conditions contemplated under the subsection.

Special Provisions: It is pertinent to note that a worker who has served for at least a year of continuous service cannot be retrenched unless served a notice three months in advance and prior permission from the appropriate government. The said application has to be submitted by the employer along with the reasons for such retrenchment. The said application will be taken into consideration and scrutinised through an enquiry. They shall provide an opportunity to be heard for both sides and may decide on the outcome of the application for reasons recorded in writing. If there’s no reply from the appropriate government for a period of sixty days from the date of application, the permission shall be deemed to have been granted. Further, it is to be noted that the said decision could be reviewed by the said appropriate government suo motu or on application from any of the sides.

Closure

The Act defines “Closure” as the permanent closing down of a place of employment or part thereof. Here, the employer is constrained to close the establishment permanently. Nonetheless, due procedure has to be complied with when it comes to rolling out a plan of closure; the said procedure, as set out by the Act, has been detailed below. These procedures, nonetheless, do not apply to an undertaking set up for the construction of buildings, bridges, roads, canals, dams or for other construction work.

Special Provisions: The employer intending to do a closure of his establishment has to necessarily apply at least ninety days in advance to the appropriate government. A copy of the said application has to be given to the representatives of the workmen as well. The said application will be considered and a reasonable opportunity to be heard shall be given to the employer as well as the workmen. After considering the same, the appropriate government may or may not grant the employer to close down. Even here, if the government does not respond within sixty days from application, the permission will be deemed to have been granted. A similar provision for review of the decision exists even here.

Continuous Service

One year of continuous service entails an entitlement for compensation under the Industrial Disputes Act(1). A workman is said to be in continuous service if he is for that period in uninterrupted service. Interruption owing to sickness authorised leave, an accident, a strike which is not illegal, a lock and a cessation of work which is not due to the fault of the workman will not be taken into consideration for calculating the period of continuous service.

A workman could be deemed to have had one year of continuous service even if the worker hasn’t had a year of continuous service if the worker was in employment for twelve calendar months preceding the date with reference to which calculation is to be made, and in the course of these twelve months, he actually worked for not less than one hundred and ninety days in the case of employment in a mine and two hundred and forty days in any other case.

The said continuous service shall also include the days laid off, days on earned leave and days taken off owing to temporary disablement owing to accident arising out of or in the course of employment. Maternity leave taken, not exceeding twelve weeks shall also be counted in continuous service in case of female workers.

Bottom Line

Although employers may be forced to deprive their employees, invoking the case scenarios as explained above, the Industrial Dispute Act has been successful in setting out standards of mutual respect and requirement for solid reasons as preconditions to bringing these into play. These provisions aim at protecting the worker’s rights while respecting the employer’s point of view as well.

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External Links:

[1] Industrial Disputes Act: A detailed view of the Industrial Disputes Act