Indian Legal System > Civil Laws > Industrial Disputes Act, 1947 > Retrenchment
Retrenchment is a kind of downsizing of the workforce. During the process, the establishment reduces outgoing money or expenditures or redirects focus in an attempt to become more financially solvent. The definition of the term was not included in the Industrial Disputes Act, 1947 in its original form. It was inserted by Amendment to the Act in 1953. The provision (bb) to Section 2(oo) was inserted later through the Amendment Act 49 of 1984.
Explanation of the Term “Retrenchment”:
- 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;].
What is not retrenchment?
- It is not a punishment inflicted by way of disciplinary action.
- Voluntary retirement scheme is a method used by employers to reduce surplus staff. This mode has come about in India as labour laws do not permit direct retrenchment of unionized employees. Voluntary retirement is not retrenchment.
- The retirement of the workman on reaching the age of superannuation is a contract between the employee and employer. Hence it is not retrenchment.
- If the workmen are employed under a contract for a stipulated period, then terminating services of such employees at the end of the period of contract is not retrenchment.
- The termination of employment of workman due to his/her ill health (medical grounds) is not a retrenchment.
Essential Ingredients of Retrenchment:
- There must be a termination of the service of a workman.
- The termination must be by the employer,
- For any reason whatsoever, and
- Otherwise than as by way of punishment inflicted by way of disciplinary action.
Illegal Retrenchment:
- There must be valid and proper reason behind the retrenchment of a workman. If the retrenchment is not supported by proper and valid reason, then the retrenchment is illegal.
- If prior permission of the appropriate Government or such authority as may be specified by that Government by notification in the Official Gazette (hereafter in this section referred to as the specified authority) is not obtained, then the retrenchment is illegal.
Case Laws:
Haji Ismail Said & Sons Pvt. Ltd. V. First Industrial Tribunal (1966 II LLJ 59 Cal.):
- Court held that all retrenchments are termination of services but all termination of services are not retrenchments. Termination without reason cannot be called retrenchment. There must be valid and proper reason behind the retrenchment of a workman.
Bansi Light Railway Company Ltd. V. Joglekar (1957 I LLJ 243 SC):
- Court held that the retrenchment is legal if other requirements of the definition of retrenchment are fulfilled. The employer has a right to discharge the uneconomic surplus and his act is bona fide and not for the purpose of victimization of his employees.
Workmen of Subong Tea Estate v. Subong Tea Estate, (1964 I LLJ 333 SC):
- The court held that it is the sole discretion of management to decide the strength of the workforce but the retrenchment should be with proper and valid reasons. Thus the retrenchment of workmen can only be used to reduce uneconomical strength of workmen with proper and valid reason otherwise it may be considered as victimization of the workmen.
Modern Stores v. Krishandas, (AIR 1970 M.P. 16):
- The court held that the act of retrenchment is not malafide if it is done to reduce the uneconomical strength of workmen and it is a right of the employer to restructure the business.
Management of Willox Buckwell (India) Ltd. V. Jagannath (AIR 1974 SC 1166):
- Even temporary worker can also claim retrenchment compensation under provisions of Section 25F.
State Bank of India v. N. Sundaramony (AIR 1976 SC 1111):
- Bank’s contention was that the termination of service is not retrenchment but the Court held that the termination of service is a retrenchment. The Court held that the definition of the term “retrenchment” includes the termination of services.
J. Reddy v. Railways, Guntkal Divn. (!975 I LLJ 351 A.P.):
- The Court held that even casual workers can also claim retrenchment compensation under provisions of Section 25F if they are in continuous service for 1 year.
Robert D’souza, v. Executive Engineer, Southern Railway (1982 I LLJ 330 SC):
- The court held that any reason for whatsoever, it would be retrenchment, except if the case does not fall in any of the excepted categories.
Delhi Cloth & General Mills Ltd.’s case (1978 I LLJ 1):
- If the name of the workman is struck off the roll, that itself would constitute retrenchment.
Condition Precedent to Retrenchment (S. 25 F):
- According to this section, the employer must satisfy the following conditions before retrenching an employee employed for a period of continuous period of not less than one year –
- a) the workman has been given one months notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice.
- b) the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days average pay [for every completed year of continuous service] or any part thereof in excess of six months; and
- c) notice in the prescribed manner is served on the appropriate Government [or such authority as may be specified by the appropriate Government by notification in the Official Gazette].
Notes:
- The notice specified in S. 25 F(a) is not necessary if the retrenchment is under the agreement which specifies a date of termination of services.
- The employee is entitled to the protection of section 25 F if he is employed in an industry and has been in continuous service for not less than one year under the employer.
- The procedure under 25F itself does not, by itself, confer any right on the employer to retrench a workman.