Conditions for valid retrenchment

 What is retrenchment?

Retrenchment has been defined under Section 2(oo) of the Industrial Disputes Act,1947. According to this section when a portion of the staff or labour force is discharged as a reason of surplusage but the business is continued. Retrenchment means the termination of the workman by the employer but it should be noted that the retrenchment can be done for any reason but not as a measure of punishment by disciplinary action.

Section 25-F of the Industrial Disputes Act, 1947 deals with the conditions precedent to retrenchment of workmen. This section provides the requirements for a valid retrenchment of an employee who has been in continuous service for not less than one year. The following conditions are prescribed for a valid retrenchment-

1. One month’s notice in writing must be given to the workman in advance stating the reason for the retrenchment. If no notice is given to the workman, then the workman must be paid in lieu of such notice wages for the period of notice. Retrenchment should come to effect only after the expiry of the notice.

2. The Second requirement is that the workman has been paid at the time of retrenchment. The compensation must be equivalent to 15 days of average pay for every completed year of continuous service or any part thereof in excess of 6 months.

3. The third requirement is to serve the notice in the prescribed manner on the appropriate government or such authority specified by the appropriate government.

It is a mandatory requirement to pay the compensation as a pre-condition to the workman for a valid retrenchment and non-compliance will result in invalid retrenchment and would attract penalty under Section 31(2) of this Act.

It is to be noted that section 25-F is applicable only to the industrial establishments where the workmen are less than fifty on an average per working day employed in the preceding calendar month.

Section 25-N of the Industrial Disputes Act,1947 lays down the conditions precedent to retrenchment of workmen. .This section provides the requirements for a valid retrenchment of an employee who has been in continuous service for not less than one year. Following are the conditions prescribed for the valid retrenchment-

1. Three months’ notice in writing must be given to the workman in advance stating the reason for the retrenchment. If no notice is given to the workman, then the workman must be paid in lieu of such notice wages for the period of notice. Retrenchment should come to effect only after the expiry of the notice.

2. To serve the notice in the prescribed manner on the appropriate government or such authority specified by the appropriate government.

An application seeking permission for retrenchment shall be made by the employer in the prescribed manner stating the reasons and the copy of such application shall be served on the workman concerned.

The appropriate government shall conduct an enquiry and give a reasonable opportunity to hear the employer and the concerned workman. After considering all the reasons the appropriate government shall state the reasons in writing to grant the permission or to deny the permission and shall serve the copy of such order on the employer and the concerned workman.

Where an application has been made by the employer for permission and the appropriate government does not communicate any order within 60 days then it will be deemed that the permission has been granted.

The order of the appropriate government shall be binding on all the parties. The appropriate government may own its own or on application by the employer may review its order or refer the matter to the Tribunal for adjudication. The Tribunal shall pass an award within a period of 30 days from the date of such reference.

Where no such application has been made and the employer has retrenched the workman then such retrenchment will be illegal and invalid and the workman is entitled to compensation and other benefits.

The appropriate government may excuse certain procedures in case of an exceptional situation such as the death or accident of the employer.

It is to be noted that Section 25-N is applicable in those industrial establishments where the industrial establishment is not of seasonal character. Section 25-N is applicable to the industrial establishment where more than 100 employees have been engaged on an average per working day in the preceding calendar months.