Confused About Layoff Compensation in Service Industry Shutdowns? Need Your Guidance

Dear Seniors,

Kindly help me as I have a slight confusion on layoff compensation/retrenchment compensation in the service industry in case of shutting down the entire unit. I understand the norms related to the manufacturing industry, and I can also handle it by offering extra money and encouraging resignations instead of layoffs. However, I am looking for advice or data on the rules and regulations laid down by the government on compensation in the service industry as I don't want to overlook them. This is my first question on citehr, and I hope I will receive the best guidance.

Thanks,
Tapan Pandit

Though the interpretation of the term "industry" was very narrow in the beginning, with the passage of time and following several rulings, the term has been given a wider meaning to include the service sector as well. Therefore, wherever an employer-employee relationship is present, or wherever the prime objective of 'service' is profit, or wherever capital is invested, the Industrial Disputes Act, 1947 will be applicable. Layoff and retrenchment, being subjects of the ID Act, the service sector is not exempted from payment of compensation prescribed under it. However, an amicable settlement in this regard with employees by which they are prepared to resign shall be a good initiative provided that amounts sufficient to compensate for the loss of salary for the time being are paid to them.

Regards,
Madhu.T.K

Is the act, specifically in the case of a layoff/retrenchment, applicable to all employees or only a class of employees? In the service industry, as there is no manufacturing activity, an employee is not defined as a worker. In that case, will the act still be applicable?

Regards,
Swati

Dear Swati,

There is no difference between the service industry or manufacturing process. We only decide ourselves whether someone is staff, an employee, or a worker. Legally, as per the Industrial Disputes Act, it is categorized as workmen or working in a supervisory or managerial capacity. The Industrial Disputes Act is applicable to all persons working as workmen. Therefore, it is not the designation that determines it but the nature of the job that decides who is a workman.

Thank you,
JS Malik

Thank you, Mr. Malik. I need further elucidation. Will an ITI-trained person or a diploma holder in engineering who is working as directed on making industrial drawings qualify as a workman? He has no managerial responsibilities or powers, though he does sport a fancy designation.

Regards,
Swati

Designation will not matter if the employee does not wield managerial responsibilities. He will be treated as a workman, provided all other terms for being considered as "Workman" under the ID Act are fulfilled.

Dear Seniors,

In this case, may I request clarification on what would be the minimum retrenchment compensation applicable for the service industry employees if we are shutting down one unit of the company due to heavy losses. Kindly suggest.

Thanks,
Tapan Pandit

Dear Pandit,

Please go through Chapter VA & VB of the Industrial Disputes Act, 1947. You will find the answer to your query.

R.N. Khola
Senior Associate