Retrenchment is the process by which an employer fires workers or employees for financial reasons. The reason for terminating their services is not due to any form of punishment or disciplinary action, but rather to excess labour or the company’s financial standing. Retrenchment is the term used to describe an employer’s removal of an employee from their place of employment. That means that the relationship between the employer and the employee is over.

Section 2(oo) of the Industrial Dispute Act of 1947 defines retrenchment. Retrenchment is defined as “the termination of a worker’s employment by an employer for any reason, other than as a penalty inflicted through disciplinary action.”


The ideas of “last come, first go” and “first come, last go” form the basis of the process for terminating employees. The Industrial Disputes Act of 1947 mentions this idea in Section 25G. The employee may request procedural protection in accordance with the following criteria:

  • Prescribed qualification: In order to be eligible for protection, an employee must meet the requirements outlined in Section 2(s) of the Act.
  • Indian citizenship is a prerequisite for employment. Indian nationality is a significant component.
  • Employment in an Industry: The worker needs to be employed by an industry. Put differently, he needs to be working for an organisation that complies with Section 2(j) requirements.
  • Specific workforce category: The worker must belong to a specific workforce within the organisation.
  • Absence of a retrenchment contract: In order to be eligible for protection under Section 25G, an employee must not have previously entered into a retrenchment agreement with their employer in that sector.

Under this section of the Act, the employee will receive procedural protection if the aforementioned requirements are met.


Throughout the layoff process, employees are given a number of rights to shield them from being taken advantage of by their employers. They are shielded from their employers’ capricious behaviour. The employees are granted the following rights in order to maintain equity:

  • To receive prior notice: Depending on the terms of the employment contract signed by employers and employees, employees are entitled to receive prior notice and compensation in lieu of notice.
  • To obtain guidance and assistance: When a company fires a large number of employees, they should be provided with counselling services or help finding new employment.
  • To receive severance pay: Employees are entitled to retrenchment compensation or severance packages if their employment agreement specifies that laid-off workers will receive severance pay.
  • Consultation and representation: Regarding the retrenchment process, employees or their representatives are entitled to consultation in many areas or localities.
  • To understand the cause of the cutbacks: Workers are entitled to know why they are being laid off. The explanation and reasoning behind the decision to retrench must be provided to them.
  • To have access to grievance procedures: If workers believe they are being laid off unfairly, they should have the ability to contest the decision.


As previously stated, retrenched workers who have worked continuously for a full year must receive compensation. The following crucial conditions must be met by the employer in order to pay retrenchment compensation:

  • For each year of completed continuous service in the organisation, or any portion exceeding six months, the retrenched employee should receive half of their average monthly salary.
  • The employer has the option to give the laid-off workers more money if he so chooses. The nature, scale, and financial standing of the business, as well as the quantity of laid-off workers, will all influence the additional pay. This sum ought to exceed the minimum compensation that they will receive.
  • Bonuses, gratuities, and any other unpaid wages or dues can be given by the employer to the staff if he so chooses.


Enacted in 1947, the Industrial Dispute Act aims to resolve all issues that may arise between employers and employees. One of the Act’s most significant provisions, retrenchment, helps to legally let go of employees without causing a riot or other disturbance. Another name for the retrenchment process is a reduction or curtailment process. This reduces unnecessary expenses and aids in a company’s proper organisation of structures and resources. Businesses can cut back on excess staff whenever they run into financial trouble. However, the Act specifies a process that must be followed before the employees are let go. If an employee feels that he is being fired unfairly, it also helps the employee to contest the employer’s decision.

Our firm, Law Offices of Kr. Vivek Tanwar Associates and Advocates, specializes in providing Legal Assistance in the matters pertaining to labor laws like unfair termination of employees, retrenchment, etc.

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