Dmc123
Associate Director Legal
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Anonymous
Dear Seniors,
Please advice, our company wants to downsize employees as we are out of business. but we have worker union. please suggest the legal procedure. we have a strength of 400 + workers. we want to keep the staff but worker are working with us from past 20-30 yrs.
DO we need to seek state govt permission for retrenchment?
Regards
Kusum Azad

From India, Gurgaon
Dear Kusum madam,
If the strength of workmen as per industrial disputes act exceeds 100 you are required to seek govt permission before retrenchment of workmen. Please examine how many employees fit the definition of workmen and then decide the further course of action. If they exceed 100 you have to apply for govt permission which will be decided on merits by the govt. Another solution is to slowly counsel employees about the current financial situation and business prospects and if they opt to resign you can reduce the strength and bring it below 100 if possible. If the workers have attained superannuation you can discontinue them or also go in for a good VRS scheme.

From India, Pune
The need to get the permission of the government will arise only if your company is either a factory as defined under the factories act or a mine as defined under the mines act or a plantation as defined under the plantation labour act and employs 100 or more persons. In other cases permission is not necessary.
From India, Madras
Retrenchment refers to discharge of surplus labour by the employer because of inevitable reasons. An employer has a right to organise his business in any lawful manner and may resort to termination of services due to losses as observed by the Apex Court in Management Of Gordon Woodroffe vs Presiding Officer, Principal decided on 5 August, 2004, extracted below.

In the landmark case of State Bank of India v. Sundara Money, the Supreme Court adopted the literal meaning of retrenchment, which is exhaustive and comprehensive, and held that the expression “for any reason whatsoever” was very wide and admitted almost no exceptions to it. Therefore, the word retrenchment means termination of a worker’s services for any reason whatsoever other than those specified in section 2(oo) of the Industrial Dispute Act (IDA), 1947 as extracted below:

The meaning of the word “industrial establishment” has been understood differently in different sections of Chapter VA and VB of the ID Act as stated by the Apex Court:

Supreme Court of India

The Management Of Indian Cable vs Its Workmen decided on 5 March, 1962

“Now what is an industrial establishment ? There is a definition of it given in the Explanation to s. 25 A(2) but that is limited to ss. 25C, 25D and 25E, There being no definition of the expression in that Act applicable to s. 25G, we must construct it in its ordinary sense, guided by such indications as the context might furnish. In Pravat Kumar Kar v. W.T.C. Parker (1), Harries, C.J., observed that the words "industrial establishment" meant the place at which the workmen were employed,..”

The procedure of retrenchment is to be understood from the following provisions of ID Act:

Industrial Disputes Act, 1947

The term retrenchment is defined as:

[(oo) "retrenchments" 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

43[(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 on that behalf contained therein; or]

(c) termination of the service of a workman on the ground of continued ill-health;]

For the purpose of section 25A and sections 25C, 25D and 25E, “industrial establishment” is defined sepatately:

25A. Application of sections 25C to 25E

(1) Sections 25C to 25E inclusive [shall not apply to Industrial Establishments to which Chapter VB applies, or]-

(a) to industrial establishments in which less than fifty workmen on an average per working day have been employed in the preceding calendar month; or

(b) to industrial establishments which are of a seasonal character or in which work is performed only intermittently.

(2) If a question arises whether an industrial establishment is of a seasonal character or whether work is performed therein only intermittently, the decision of the appropriate government thereon shall be final.

[Explanation: In this section and in sections 25C, 25D and 25E, "industrial establishment" means-

(i) a factory as defined in clause (m) of section 2 of the Factories Act, 1948 (63 of 1948); or

(ii) a mine as defined in clause (j) of section 2 of the Mines Act, 1952 (35 of 1952); or

(iii) a plantation as defined in clause (f) of section 2 of the Plantations Labor Act, 1951 (69 of 1951)]

How continuous service is to be computed:

25B. Definition of continuous service

For the purposes of this Chapter,-

(1) a workman shall be said to be in continuous service for a period if he is, for that period, in uninterrupted service, including service which may be interrupted on account of sickness or authorized leave or an accident or a strike which is not illegal, or a lock-out or a cessation of work which is not due to any fault on the part of the workman;

(2) where a workman is not in continuous service within the meaning of clause (1) for a period of one year or six months, he shall be deemed to be in continuous service under an employer-

(a) for a period of one year, if the workman, during a period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than-

(i) one hundred and ninety days in the case of a workman employed below ground in a mine; and

(ii) two hundred and forty days, in any other case;

(b) for a period of six months, if the workman, during a period of six calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than-

(i) ninety-five days, in the case of a workman employed below ground in a mine; and

(ii) one hundred and twenty days, in any other case.

Explanation: For the purposes of clause (2), the number of days on which workman has actually worked under an employer shall include the days on which-

(i) he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under this Act or under any other law applicable to the industrial establishment;

(ii) he has been on leave with full wages, earned in the previous year;

(iii) he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and

(iv) in the case of a female, she has been on maternity leave; so, however, that the total period of such maternity leave does not exceed twelve weeks.]

Conditions precedent to retrenchment of workmen in any industry:

“25F. Conditions precedent to retrenchment of workmen

No workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until-

(a) the workman has been given one month’s 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 pay130[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 107[for such authority as may be specified by the appropriate government by notification in the Official Gazette].”

“25G. Procedure for 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.

25H. Re-employment of retrenched workmen

Where any workmen are retrenched, and the employer proposes to take into his employ any persons, he shall, in such manner as may be prescribed, give an opportunity 127[to the retrenched workmen who are citizens of India to offer themselves for re-employment, and such retrenched workmen] who offer themselves for re-employment shall have preference over other persons.”

The term “industrial establishment” has been defined for chapter V-B which includes, inter alia, factory, in which not less than [one hundred] workmen were employed on an, average per working day for the preceding twelve months. The provisions of sections 25B, 25D, 25FF, 25G, 25H and 25J in Chapter V-A shall, so far as may be, apply also in relation to an industrial establishment to which the provisions of this Chapter apply:

25K. Application of Chapter V-B

(1) The provisions of this Chapter shall apply to an industrial establishment (not being an establishment of a seasonal character or in which work is performed only intermittently) in which not less than [one hundred] workmen were employed on an, average per working day for the preceding twelve months.

(2) If a question arises whether an industrial establishment is of a seasonal character or whether work is performed therein only intermittently, the decision of the appropriate government thereon shall be final.

25L. Definitions

For the purposes of this Chapter,-

(a) "industrial establishment" means-

(i) a factory as defined in clause (m) of section 2 of the Factories Act. 1948 (63 of 1948);

(ii) a mine as defined in clause (j) of sub-section (1) of section 2 of the Mines Act, 1952 (35 of 1952); or

(iii) a plantation as defined in clause (f) of section 2 of the Plantations Labor Act, 1951 (69 of 1951);

(b) notwithstanding anything contained in sub-clause (ii) of clause (a) of section 2,

(i) in relation to any company in which not less than fifty-one percent of the paid-up share capital is held by the Central, Government, or

(ii) in relation to any corporation [not being a corporation referred to in sub-clause (i) of clause (a) of section 2] established by or under any law made by Parliament, the Central Government shall be the appropriate government.

Under section 25N, no workman employed in any industrial establishment to which the Chapter VB applies , who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until the conditions specified are complied with as extracted below:

25N. Conditions precedent to retrenchment of workmen

(1) No workman employed in any industrial establishment to which this Chapter applies , who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until,

(a) the workman has been given three 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; and

(b) the 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) has been obtained on an application made in this behalf.

(2) An application for permission under sub-section (1) shall be made by the employer in the prescribed manner stating clearly the reasons for the intended retrenchment and a copy of such application shall also be served simultaneously on the workmen concerned in the prescribed manner.

(3) Where an application for permission under sub-section(l) has been made, the appropriate government or the specified authority, after making such enquiry as it thinks fit and after giving a reasonable opportunity of being heard to the employer, the workmen concerned and the persons interested in such retrenchment, may, having regard to the genuineness and adequacy of the reasons stated by the employer, the interests of the workmen and all other relevant factors, by order and for reasons to be recorded in writing, grant or refuse to grant such permission and a copy of such order shall be communicated to the employer and the workmen.

(4) Where an application for permission has been made under sub-section (l) and the appropriate government or the specified authority does not communicate the order granting or refusing to grant permission to the employer within a period of sixty days from the date on which such application is made, the permission applied for shall be deemed to have been granted on the expiration of the said period of sixty days.

(5) An order of the appropriate government or the specified authority granting or refusing to grant permission shall, subject to the provisions of sub-section (6), be final and binding on all the parties concerned and shall remain in force for one year from the date of such order.

(6) The appropriate government or the specified authority may, either on its own motion or on the application made by the employer or any workman, review its order granting or refusing to grant permission under sub-section (3) or refer the matter or, as the case may be, cause it to be referred to a Tribunal for adjudication:

PROVIDED that where a reference has been made to a Tribunal under this sub-section, it shall pass an award within a period of thirty days from the date of such reference.

(7) Where no application for permission under sub-section (1) is made, or where the permission for any retrenchment has been refused, such retrenchment shall be deemed to be illegal from the date on which the notice of retrenchment was given to the workman and the workman shall be entitled to all the benefits under any law for the time being in force as if no notice had been given to him.

(8) Notwithstanding anything contained in the foregoing provisions of this section, the appropriate government may, if it is satisfied that owing to such exceptional circumstances as accident in the establishment or death of the employer or the like, it is necessary so to do, by order, direct that the provisions of sub-section (1) shall not apply in relation to such establishment for such period as may be specified in the order.

(9) Where permission for retrenchment has been granted under sub-section (3) or where permission for retrenchment is deemed to be granted under sub-section (4), every workman who is employed in that establishment immediately before the date of application for permission under this section shall be entitled to receive, 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.]

“25S. Certain provisions of Chapter V-A to apply to an industrial establishment to which this Chapter applies

The provisions of sections 25B, 25D, 25FF, 25G, 25H and 25J in Chapter V-A shall, so far as may be, apply also in relation to an industrial establishment to which the provisions of this Chapter apply.”

Chapter V-A of the IDAct requires an industrial establishment employing 50 or more workers, in case of valid retrenchment to provide the workers with 30 days’ notice and 15 days’ pay for every year of continuous work by the workmen at the establishment. But in respect of industry employing less than 50 persons also the retrenchment compensation and notice period is prescribed as held by Apex Court in Management Of Gordon Woodroffe vs Presiding Officer.

For an industrial establishment as defined in section 25L(a) which inter alia, includes factory employing 100 or more workers, the IDA, under Chapter V-B, requires prior permission from the Government before the establishment’s closure or retrenchment.

The procedure of retrenchment has been given under Section 25G. It is when 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, then in the absence of any such 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. Section 25F of the IDA provides mandatory conditions for retrenchment of workmen. It prescribes conditions to be complied with for terminating services. Any workman working in an industrial establisment for 240 days or more in the previous 12 months is entitled to claim retrenchment compensation.

The legal requirements with respect to termination of services are more onerous once an industrial establishment as defined employs more than 100 employees. In terms of the IDA, if an industrial establishment employs more than 100 employees, it may not retrench the services of any employee who has been in continuous service for not less than one year unless the (i) the employee has been given three months’ notice indicating the reason for retrenchment and the period of notice, and (ii) the prior permission of the concerned State Government has been obtained for the retrenchment (Section 25N).

If the permission is not obtained, the retrenchment will be deemed to be illegal from the date on which the notice was given and the employee will be entitled to all the benefits under law as if no notice had been given to him.

In respect of industry employing less than 50 persons also the retrenchment compensation and notice period is prescribed as held by Apex Court:

Supreme Court of India

Management Of Gordon Woodroffe vs Presiding Officer, Principal decided on 5 August, 2004

“The appellant before us was a trading agency being managed under the name and style of 'Gordon Woodroffe Agencies P. Ltd.' at the then Madras now known as Chennai. Said Company came to be closed w.e.f. 31.5.1984 because it had incurred heavy losses in its business. At that time the appellant had less than 50 workmen. It is also the case of the appellant that the closure being a genuine, it offered to all its workmen, closure compensation as prescribed by law and other legal entitlements like provident fund, gratuity etc. due to the workmen.

….

Therefore, we will have to consider whether consequent to such finding of the Labour Court, it can direct payment of further compensation over and above what is contemplated under the Act. The answer to this question is found in the two judgments relied on by learned counsel for the appellant before us. In the case of M/s. Om Oil and Oil Seeds Exchange Ltd. (supra), this Court held :

“ If the management was entitled to retrench 30 workmen and did so after paying wages for the period of notice and retrenchment compensation, we fail to appreciate the grounds on which an order for payment of 50 per cent of the wages in addition to retrenchment compensation may be made. Retrenchment compensation is paid as solatium for termination of service resulting in unemployment, and if that compensation be paid there can be no ground for awarding compensation in addition to statutory retrenchment compensation. If the Industrial Tribunal comes to the conclusion that an order of retrenchment was not properly made, and the Tribunal directs reinstatement an order for payment of remuneration for the period during which the employee remained unemployed, or a part thereof may appropriately be made. That is because the employee who had been retrenched for no fault of his had been improperly kept out of employment, and was prevented from earning his wages. But where retrenchment has been properly made and that order has not been set aside, we are not aware of any principle which may justify an order directing payment of compensation to employees properly retrenched in addition to the retrenchment compensation statutorily payable."

Thus the provisions with respect to termination of services of workmen are different for (a) industrial establishment which is a factory, a mine or a plantation (“Industrial Establishments”); and (b) other establishments as explained by the Apex court above and Industrial Establishments where less than 50 workmen are employed as observed by apex court in Management Of Gordon Woodroffe vs Presiding Officer. Since details of your organization are not given therefore, the relevant provisions explained may be referred to.

i) In case of workmen employed in Industrial Establishments where more than 100 workmen are employed the workmen who have been in continuous service for more than one year cannot be retrenched without prior notice of 3 months or wages in lieu thereof. The prior permission of the appropriate Government must be obtained. A copy of the application should simultaneously be served on the workmen also. All the retrenched workmen shall be entitled to retrenchment compensation equivalent to 15 days’ average pay for every completed year of continuous service or any part thereof in excess of 6 months.

ii) In case of workmen employed in other establishments and Industrial Establishments employing less than 50 workmen the retrenched workmen who have been in continuous service for more than one year shall be entitled to one month’s notice or payment in lieu thereof. The workmen will also be entitled to retrenchment compensation equivalent to 15 days’ average pay for every completed year of continuous service or any part thereof in excess of 6 months. Further, notice of retrenchment should also be provided to the appropriate government. Ordinarily the workmen who were employed last should be the first to be retrenched. Apart from the legal requirements prescribed under the Industrial Disputes Act, in number of cases it has been held that the relevant provisions of the Shops and Establishments Acts in respect of termination will also be applicable except the dual compensation is not contemplated in case the establishment in question qualifies to be a shop or commercial establishment under the respective legislations.

Thus exclude those workmen from retrenchment procedure who fall in near future in the following categories as stated in section 2(oo):

(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 on that behalf contained therein; or]

As far as employees other than workman are concerned, they will be governed by Shops and Establishment Act.

Thanks

Sushil

From India, New Delhi
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