It is defined in Section 2 (oo) of the Industrial Disputes Act, 1947.
“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- (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 [(bb) 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;].
Procedure of Retrenchment (S. 25 G):
Section 25G lays down the procedure of retrenchment.
Where any workman in an industrial establishment, who is a citizen of India, is to be retrenched and he belongs to a particular category of workmen in that establishment, in the absence of any agreement between the employer and the workman in this behalf, 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.
The employer is also required to maintain a seniority list of the workmen. The system of last in first out is to be followed in retrenching workmen.
The Principle “Last come, first go”:
Section 25G lays down the procedure of retrenchment and it embodies the principle “Last come, first go”.
Where any workman in an industrial establishment, who is a citizen of India, is to be retrenched and he belongs to a particular category of workmen in that establishment, in the absence of any agreement between the employer and the workman in this behalf, 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.
The employer is also required to maintain a seniority list of the workmen. The system of last in first out is to be followed in retrenching workmen. It is a rule but departure from the rule is the exception.
If a case for retrenchment is made out, it would normally be for the employer to decide which of the employees should be retrenched. However, this rule is not intended to deny the freedom of the employer to depart from it for sufficient and valid reasons.
The rule “last come first go” is intended to afford very healthy safeguard discrimination of workmen in regard to retrenchment. The departure from the ordinary industrial rule of retrenchment without any justification, may itself, in a proper case, lead to the inference that the impugned retrenchment is the result of ulterior consideration and hence it is mala fide and may amount to unfair labour practice and victimization. The rule of ‘last come first go’ has to be complied with for the validity of the retrenchment.
The rule “last come first go” is not an inflexible rule and extraordinary situations may justify variations. For instance, a junior recruit who has a special qualification needed by the employer may be retained even though another who is one up is retrenched. But there must be a valid reason for this deviation. The burden is on the management to substantiate the special ground for departure from the rule. Section 25-G insists on the rule “last come first go” being applied category wise and limits of the category to which he belongs.
Case Law: Swadesamitran Ltd. V. Their Workmen (AIR 1960 SC 762):
Court held that reasons such as inefficiency, habitual irregularity in the discharge of duties, and untrustworthiness are sufficient and valid reasons to deviate from the rule of “last come, first go”.
Procedure of Retrenchment Compensation Calculation:
It is obligatory on the part of the employer to pay retrenchment compensation at the rate of 15 days wages (for every completed year) to be calculated at the last drawn salary of an employee.
The calculation of compensation is to be based from the date of appointment and in case an employee has completed 240 days, he will be entitled to 15 days retrenchment compensation besides one month’s notice or salary in lieu thereof as if he has worked for one year. 240 days include Sundays or off days as well as a festival or national holidays.
In case an employee has worked for more than one year, the procedure is that in case the subsequent period of one year is less than six months then it will be counted as one year for calculation of the compensation. While making calculations the period of notice is also to be taken into consideration.
Calculation of average pay is done by dividing the last drawn monthly salary by 25 and then multiplying the dividend by 15 for every completed year of continuous work.
Re-Employment of the Retrenched Workman:
The rule under section 25-H provides that after effecting retrenchment if the employer proposes to take into his employment any person. i) He shall give an opportunity to the retrenched workmen who offer themselves for re-employment; and ii) These retrenched workmen have preference over the new applicants.
Thus, Section 25-H imposes a statutory obligation on the employer to give preference to retrenched workmen when he subsequently employs any person.
To apply Section 25-H following conditions should satisfied:-
The workman should have been ‘retrenched’ prior to the re-employment in question. In other words, if that workman’s termination of employment was not due to retrenchment, but due to some other eventualities like dismissal, discharge or superannuation, etc., he cannot claim the preferential right of re-employment under this section.
He should be a citizen of India.
He should offer himself for re-employment failing which he will forfeit the right. The offer is made in response to the notice given by the employer under Rule 76 of the Industrial Disputes (Central) Rules, 1957 or corresponding State Rules.
