Settlement To Workers - CiteHR
Labour Law & Hr Consultant
Senior Officer - Hr

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Dear Sir,
As our company is going through tough situation, and we were not able to pay salary before 7th of every month. We didn't see any significant improvement from past 4 years. So, Management have planned to reduce the work force for 3 shifts to one shift a day. Our factory workers strength is 45. When we informed it to workers well in advance, they started demanding lifetime settlement for all 45 to leave the company. Can anyone guide me with the legal procedure to proceed in this matter.
Company cannot pay lifetime settlement. It can pay the gratuity one by one. Most of them were working for 19 years in this company. They have a strong labour union. Company financial statement shows that it is making huge loses. Production dropped to 10%.

Dear Stephen,
From your narration it is discernible that the Company has reached the point of no return. You have not mentioned anything about the constitution of the Company ie., whether a Limited Company or a partnership firm or a sole proprietary concern.Whatever it be, the management can not starve the workmen nor it can send them out empty-handed.Even in the event of closure, the first charge will be in terms of the dues of workmen.So your management needs to realize the gravity of the situation.If the management is still hopeful of revival by means of right-sizing the no of people in tune with the present scale of operations, they may weigh the option of voluntary seperation in a phased manner in consultation with the trade union. Else, go in for closure under Sec.25FFA of the Industrial Disputes Act,1947. Whatever be the chosen choice, the management should find the wherewithal.


There is nothing like "life time settlement". The management can follow the provisions of Industrial Disputes Act and can pay either closure compensation, or retrench the workmen by paying the retrenchment compensation which is 15 days pay for every completed years of service, gratuity and all other legal dues payable to workmen. In your case, since you are wanting to run only one shift with 45 workers, you have an option to retrench the surplus workmen by paying them the compensation and all other legal dues payable under law.

It is advisable to enter in to a settlement with the Union. The management can offer some more compensation in addition to what is payable under the ID Act.

We had adopted a policy called "Rationalisation without tears" by paying the workmen up to one and half months pay for every completed year of service and some ex-gratia amount as full and final settlement of the case. However, this depends upon the paying capacity of the organization and all other compelling factors.

You should critically analyse all the factors and take appropriate decision by involving the Union and also the Office of Labour Commissioner as a party to the settlement. .


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