With the recent advancement in the various domains of science and technology, particularly those of Artificial Intelligence, the clouds are gathering around the threat that the robots are ready to replace the jobs which traditionally demanded human presence. The machines are on the verge of outdoing manpower. In a country such as India where the human resource is in abundance; the impact is bound to be drastic, if not regulated. Meanwhile, owing to the recent shift in the workplace because of COVID-19, we have also ushered into a new era of work-from-home culture; and independent contractors and individual professionals. All this is bound to have a significant impact on the hiring, firing and retaining the employee all across the globe.

In this part of the blog, we shall discuss the legality and practical aspects involved in the retrenchment process in India.

In the basic terminology, retrenchment is synonymously used for the process of downsizing. Usually, the process of retrenchment is resorted to by the corporates in order to terminate the employees who are not found wanting or who fail to meet the performance demands of the employer. At times companies even resort to retrenchment in order to shore up their operations and make them appear profitable.

In the legal terminology, retrenchment as defined under Section 2 (oo) of the Industrial Disputes Act of 1947 as-

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-

(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 on that behalf; or

(bb) 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 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

Workmen under the ID Act of 1947

Employees who fall under the category of ‘workmen’ are qualified to receive a greater degree of protection under the law. A workman is any person who is employed in an industry to perform any manual, unskilled, skilled, technical, operational, clerical, or supervisory work for hiring purposes. But with regard to those employees who fall under the category of the administrative; managerial or supervisory category are not to be considered as workmen as defined under section 2(s) of the ID Act.

Now, there is this bone of contention as to whether who all individual comprises of the workman. Thus, it is also the most contentious court issue in the employment law in India.

Prior Permission of the Government to terminate the employee.

In factories where there are more than 100 workmen being employed in the given time period, the legalities involved are a lot of tasks. Such factories are supposed to obtain prior permission from the specified labour authorities prior to retrenching the workmen.

The intention behind terminating the employees has to be clearly established in the said application. The decision to grant or refuse the permission must be undertaken only after due diligence and after the interested parties are given a fair opportunity to be heard.

In instances where the government or the specified authority does not communicate the order or refusal to grant the permission within the period of 60 days, then the permit shall be deemed to have been granted.

Further law so promulgated under the ID Act requires the employer to serve a minimum of three month notice period indicating the reason of termination to the workman. In instances where the permission has been granted, the compensation should be equal to 15 days of average pay for every completed year of continuous service or part thereof in excess of six months.

In case if the retrenchment of the workman has been carried out in any other manner shall be deemed to be illegal and shall be regarded as inoperative in the eyes of the law. ID Act further attracts penal consequences which the employer shall be liable to pay.

In cases where the factories comprise less than 100 workmen, it shall be the duty of the employer to notify the labour authorities regarding the termination of employment. Such a termination should precede with one month’s notice which is to be given to the workman or shall pay compensation equivalent to the 15 days average pay in lieu thereof.

When it comes to the labour laws in India, the collective bargaining agreement is said to lean more towards the benefits of the employees. However, the terms of the contract prevail in such instances.

Section 25G and Section 25 H

Section 25G and Section 25 H of the ID Act further state that it shall be the statutory responsibility of the employer to provide an opportunity to terminated workers to offer themselves for re-employment and that such workers shall be given preference over the others. The debate which revolves around such a law is that it restricts the employer’s right in deciding as to which employees need to be retrenched. However, the courts have held that the interest of the business organization should not be overlooked.


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