Layoff Dilemma: How Should We Compensate Permanent Employees During a Temporary Shutdown?

I am working as an HR Executive in a textile company. My company wants to close the entire production department for 4 days due to an excess of finished goods. In this layoff case, what will be the compensation for the workers? All workers are permanent employees with fixed salaries, not on a per-day basis.

Please guide me.

Awaiting your reply.

Regards,
Bharti Makawana

Please find the excerpt from the Industrial Disputes Act, 1947.

1) Any workman whose name is borne on muster rolls and who presents himself for work on any day and is not given employment within 2 hours shall be deemed to have been laid off for that day.

2) If a workman not given employment is asked to present himself during the second half of the shift and given employment then, he shall be deemed to be laid off only for 1/2 of that day.

3) If he is not given employment even after so presenting himself, he shall not be deemed to have been laid off for the second half of the shift, and shall be entitled to full wages and dearness allowance for that part of the day.

Important Interpretation:

- The muster roll is a record of only those workmen who are employed on a regular basis.
- Lay off means to discontinue work or activity, to dismiss/discharge temporarily.
- The definition clause does not confer any power on the management to lay off workers, as held in Workman V Firestone Tire & Rubber Co. (1976) I. LLJ 493.

Regards,
Niraj Sharma

Layoff Compensation Details

Layoff compensation is equal to 50% of the basic salary and dearness allowance. It is payable to all employees who have completed at least one year of service with the company. A total of 240 days of work, including paid holidays, paid leaves, and leaves due to employment injury, shall constitute a year of service.

The right of employees mentioned above is applicable only to establishments employing 50 or more workers. This means that if an establishment employing fewer than 50 employees declares a layoff, all employees who are laid off are to be paid full wages as decided in Workmen Vs Firestone Tyre & Rubber Co [1976(1)LLJ493 SC].

The right to lay off is not a common right available in all cases, which can be exercised in difficulties, but it is restricted to situations such as the inability of the employer to provide employment to workers due to a shortage of raw materials, power, accumulation of stock, breakdown of machinery, or natural calamity.

Regards,
Madhu.T.K

I believe that in cases where the number of workmen is less than 50, the applicability of layoff will depend on the applicable Standing Orders. If there are no such orders in place, then the decision should be based on the terms of employment. Otherwise, full wages should be paid as was decided in Workmen Vs Firestone Tyre & Rubber Co [1976(1)LLJ493 SC].

I am new to this forum, so if I am wrong, seniors, please correct me.

In case of a layoff, you are required to pay 50% of wages to the workers. Depending on the size of the workforce, you may need approval from the labor department. The department is not likely to give approval as it makes the industrial scenario look bad.

Alternative to Layoff: Block Closure

What many companies have started to do is opt for a block closure. This is a move negotiated with the union, where the company agrees to close the plant for 4 days (maybe more). They agree to pay the salary for half the days, and the workers apply for leave for the remaining half days. In effect, the cost is the same, but you avoid actually doing a layoff. For the workers, it is a little better as there is no pay cut that a layoff involves.

See if that works for you.

Scope of Certified Standing Orders and Layoffs

There is no scope for certified standing orders for an establishment employing fewer than 50 workers. Taking approval for laying off is applicable to establishments employing not less than 100 employees. For establishments employing 50 or more, only an intimation is required to be given to the labor department. At the same time, nothing in these will apply to establishments employing fewer than 50 workers.

The earlier interpretation was that since sections pertaining to layoff, retrenchment, and closure are not applicable to establishments employing fewer than 50 workers, no compensation was payable. However, the decision in Firestone Tyre's case became a landmark judgment which ruled that a small establishment should not go for layoff, and if workers are laid off, they should be given full wages.

Regards,
Madhu.T.K

Oh! Small firms cannot do layoffs? I didn't know that aspect.

The applicability of layoffs depends on many factors, such as the size of the company, the number of employees, the duration of employees' working periods, compensations, and is also subject to employment agreements. Please let me know if you need any further assistance.

Thank you so much for your reply, but I still have confusion. If the gross salary of one technician is ₹10,000 per month, what will be the payment in case of a layoff period (4 days closed in a week)?

Awaiting your reply.

Regards,
Bharti Makawana

Layoff Wages Calculation

Layoff wages will be 50% of the employee's basic salary and Dearness Allowance (DA). If the employee is on a consolidated pay, the entire amount should be considered as the layoff qualifying salary. Layoff pay is not applicable for days when the factory is closed due to holidays or the weekly closing day/off day.

Regards,
Madhu.T.K