Notes on Termination of Service, Layoffs, and retrenchments

 

NOTE ON “TERMINATION OF SERVICE, LAYOFFS AND RETRENCHMENTS”

The definitions of lay-offs and retrenchment are specifically covered under Industrial Disputes Act, 1947. However, while determining termination of service of employee it is pertinent to delve into spectrum of Labour and Employment Acts and regulations which are prevalent in India in order take statutorily compliant decision taking into account the business objectives of the company.

INDUSTRIAL DISPUTES ACT, 1947 - (The ID Act)

The law relating to lay-offs and retrenchment is specifically expounded under Chapter VA (Entitled, Layoff and Retrenchment) and Chapter VB (Concerning, Special provisions relating to Lay-Off, Retrenchment, and Closure in Certain Establishment) of the Industrial Disputes Act, 1947. These two chapters in ID Act elaborately delineates provisions relating to Lay-offs and Retrenchment.

The ID Act is applicable to certain class of workmen as defined under Section 2(s) of the Act. “Workman” means

         “Any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute”

Further, note that there are certain exclusions to the definition of workman, and according to the Act, Workman who is, (i) in managerial or administrative capacity; or (ii) employed in a supervisory capacity, draws wages exceeding ten thousand rupees per mensem, or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature, are express exclusions to the definition. As such, this Act does not become applicable to sizable spectrum of employees working in various organizations or companies either due to their nature of work or earning being at a higher scale.

This Act has provided lucid definition to the words “lay-offs” and “retrenchments” under in Section 2(kkk) and Section 2(oo) of the Act, and the extract thereof is below.

"Lay-Off (with its grammatical variations and cognate expressions) means the failure, refusal or inability of an employer on account of shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery [or natural calamity or for any other connected 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.

Explanation: Every workman whose name is borne on the muster rolls of the industrial establishment and who presents himself for work at the establishment at the time appointed for the purpose during normal working hours on any day and is not given employment by the employer within two hours of his so presenting himself shall be deemed to have been laid-off for that day within the meaning of this clause:

Provided that if the workman, instead of being given employment at the commencement of any shift for any day is asked to present himself for the purpose during the second half of the shift for the day and is given employment then, he shall be deemed to have been laid- off only for one-half of that day 

Provided further that if he is not given any such employment even after so presenting himself, he shall not be deemed to have been laid-off for the second half of the shift for the day and shall be entitled to full basic wages and dearness allowance for that part of the day.”

“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 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; 

The law relating to lay-off and retrenchment is effectively applicable for workman in industrial establishment, as defined under the ID Act, and effectively, the scope and validity of these provisions to said workman are categorically restricted to certain persons employed in an industry subjected to exclusions as delineated under the definition of workman. Thereby, Act clearly indicates that employees working in companies with salaries higher than limit applicable for workman, or who are in managerial or administrative capacity does not fall within the ambit of the scope of the said Act. Given the exclusions, the scope and applicability of Industrial Disputes Act is limited to workman as defined under the said Act

In “T. Prem Sagar vs The Standard Vacuum Oil Company Madras and Others”, the apex court had laid down certain tests to ascertain whether an employee is in a position of management and extract of the judgment is provided below. 

        “So, in order to determine whether a person is in a position of management or not, the factors to be considered are  whether the,  person  had  power to operate  on the  Bank  account, whether he could make payments to third parties  and enter into agreements with them on behalf of the employer, whether he  was entitled to represent the employer to the  world  at large  in  regard  to  the dealings  of the  employer with strangers, whether he had authority to supervise the work of the  clerks  employed in the establishment, whether  he had control  and charge of the correspondence, whether he could make commitments on behalf of the employer, whether he could grant leave  to  the  members of the staff and hold disciplinary proceedings against them and whether he had the power to appoint members of the staff or punish them. The salary drawn by an employee may have no significance and may not be material though it may be treated theoretically as a relevant factor.”

The apex court had emphasized the applicability of the tests laid out under the said judgement that that they should be considered against the facts of the case, particularly taking into account the nature and scope of work of the employee in broader perspective of his/her work functions and responsibilities. 

It is important to note that the Shops and Establishment Act does not apply to the employees in any establishment in a position of management and having control over the affairs of the establishment, whose average monthly wages exceed sixteen hundred rupees. However, employees falling under the purview of the SE Act would be governed with regard to matters of Wages, Conditions for termination of services appeals, suspension and terminal benefits, under Chapter VIII of the said Act.

Section 47 of the Telangana Shops and Establishment Act stipulates conditions for terminating the services of an employee, payment of service compensation for termination, retirement, resignation, disablement, etc., and payment of subsistence allowance for the period of suspension. Pursuant to the said provision, “no employer shall, without a reasonable cause terminate the service of an employee who has been in his employment continuously for a period of not less than six months without giving such employee at least one month notice in writing or wages in lieu thereof and in respect of an employee who has been in his employment continuously for a period of not less than one year, a service compensation amounting to fifteen days average wages for each year of continuous employment”. Therefor the Section highlights that serving of notice period is mandatory for termination, retirement, resignation, disablement etc.,. Therefore, the companies will have to adhere with it. 

Employer-employee or Employer-workman relationship are regulated by various labour and employment laws. However, in the context of lay-offs, retrenchment and termination of services of employee, predominantly, two Acts, namely the Industrial disputes Act and the state relevant Shops and Establishment  (SE) Act governs and stipulates the law and procedures pertaining thereto. The ID Act govern relationship of workman-employer and the SE Act of employee-employer.