Retrenchment Challenges: How Can We Make the Process More Detailed and Fair?

Would like to be more detailed in retrenchment.

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I can help you with that. Could you provide more context or specific information about what you are looking to improve in relation to retrenchment?

Retrenchment means the termination of employment. The rules relating to retrenchment are provided in the Industrial Disputes Act, 1947, and rules framed thereon. According to the said Act, no employee who has been in continuous service of at least one year shall be terminated without giving one month's notice of the intention of the management to terminate his service. In the case of companies employing more than 100 workers to which chapter V B of the Act applies, three months' notice is to be served. In lieu of notice, pay for a sufficient number of months shall also be paid. One who has actually worked for 240 days (above the ground) and 190 days (below ground, mine) during the last 12 months shall be presumed to have continuous service.

An employee retrenched shall be eligible for retrenchment compensation at the rate of 15 days' wages for every year of service. In the absence of any agreement to the contrary, the last employee employed in a particular category shall be the first person to be retrenched. Similarly, if reappointed, the first person to be retrenched shall be given the first opportunity of being reappointed.

Regards,

Madhu.T.K

Hi Mr. Madhu,

I have a doubt here. In case of retrenchment, if one is liable for gratuity, then as you have written 'retrenchment compensation' at the rate of 15 days wages for every year of service, do we have to pay the employee RC as well as bonus at the time of retrenchment?

Secondly, what are the reasons that are justifiable for retrenchment as per the act?

Thirdly, as we see many companies are laying off people in the name of recession, is it retrenchment or termination or something else? Please clarify.

Thanks a ton in advance.

Rajeev Dixit
9901436213

Retrenchment compensation is apart from the gratuity payable. Gratuity becomes payable only when an employee is terminated after five years of service. Therefore, an employee who has worked for at least 5 years needs to be paid both retrenchment compensation as well as gratuity. It is implied that the settlement should include a bonus as well. There need not be any specific reason for retrenchment; it may be due to a recession also. If the employer wants to reduce the number of employees, they can retrench the excess employees but after complying with the rules laid down in the ID Act.

As such, prior intimation to the concerned employee and the government shall have to be made before terminating employees. If the company employs 100 workers, then not mere intimation to the Govt will be sufficient but permission by the government shall have to be obtained for retrenchment. Economic recession is not a ground that will waive an employer from paying compensation. Certainly, a provision to section 25FFF of the ID Act says that if an establishment is closed down due to 'unavoidable reasons,' then the compensation payable to the employees shall not exceed the average pay for three months. But economic recession and financial losses shall not be treated as reasons beyond the control of management.

Companies kicking people out of the establishments should understand one thing. If the employees have served for at least one year, they are entitled to compensation. There is no concession given to companies regarding Labor Acts. If an employee comes under the definition of an employee/workman, then they should be given compensation. The basic Act has set a salary ceiling for deciding whether one is an employee or not. But now there is no such ceiling. Anyone who is employed exclusively as a manager or in a supervisory capacity shall be exempted, but all others are covered.

Regards,
Madhu T.K

I have an MBA in finance but am currently working in the HR department. Can anyone suggest to me if this career path is good for my future? Please guide me.

With most companies either retrenching or freezing recruitment plans, human resources personnel across sectors are a worried lot. Recruitment-related HR executives are being moved to other HR functions like training and development and other day-to-day HR functions, or being taken on contract. If things worsen, there could also be layoffs.

A Sudarsan, vice-president of sales and marketing at Expertus HR (a wholly-owned subsidiary of US-based Expertus Inc), admits, "There will be layoffs in the near future, and companies will increase temporary staff. Meanwhile, I don't foresee any hikes for HR executives." Moreover, the mix of contractual employees in the HR team across various sectors is expected to increase. For example, Vodafone has 25 percent of its HR staff on a contract basis.

Visit the link below to learn more about retrenchment: [COST OF CITY GOVERNMENT; SUGGESTIONS FOR RETRENCHMENT BY EXPERIENCED M... - Article Preview - The New York Times](http://query.nytimes.com/gst/abstract.html?res=9F05EFDD123FEE3ABC4B53DFB467838B 699FDE)

Regards, Priyanka Vinda

Dear Mr. Madhu,

Could you also please advise on the rules of layoffs for confirmed employees as well as employees on probation? For instance, what should be the notice period? Do we need to provide one month's severance pay? What if the company asks the employees to leave without any notice? Our company has issued letters to employees with the subject line stating the re-organization of our technical staff.

Thank you.

Prinyanka's link seems to have no relevance to India.

Lay off: Lay off is possible when there is a recession. However, all employees except those purely in managerial/supervisory categories are to be laid off by following provisions in the Industrial Disputes Act. An employee who has been in service for at least one year (worked for at least 240 days in the preceding year) shall be laid off with payment of half the amount of normal wages for every day of lay off. In the case of establishments employing 100 employees (to which chapter VB of the ID Act applies), prior permission by the appropriate Govt. is also required. Only badli workers who have been employed to replace a regular worker for the time being and casual workers are excluded.

The term "temporary employee" should be confined to an employee who works on a temporary job, such as washing, repair work, etc. If an employee has been engaging in a permanent job for the last one year, they are also presumed to be a regular employee who should be paid lay off compensation and retrenchment compensation if retrenched. The term "probation" will not make any difference. If the terms of appointment say that no notice is required to terminate service during probation, it should be done for unsatisfactory performance and not for the reorganization of factory/office systems.

Regards,
Madhu.T.K

Dear Madhu sir,

Can you please provide the breakdown for 240 days, as mentioned in all the acts? How can we obtain that figure?

Regards,
Ansari

An employee is presumed to have worked for one year provided he had worked for at least 240 days (above ground) or 190 days (below ground). For calculating these 240/190 days, the number of casual or other eligible leave days availed by him during the year, the number of days he was laid off, the number of days he was on sick leave after any employment injury, and the number of days of maternity leave, in the case of a woman employee, will be treated as days worked. Therefore, taking all these into account, if the employee had at least 240/190 days, he is supposed to be served with notice and paid compensation.

Regards,
Madhu.T.K