Facing Workforce Reduction: How to Navigate Legal Challenges and Employee Demands?

Workforce Reduction and Legal Guidance Needed

As our company is going through a tough situation and we were not able to pay salaries before the 7th of every month, we haven't seen any significant improvement over the past four years. Therefore, management has planned to reduce the workforce from three shifts to one shift per day. Currently, our factory workforce consists of 45 employees. When we informed the workers well in advance, they started demanding a lifetime settlement for all 45 to leave the company. Can anyone guide me on the legal procedures to proceed in this matter?

The company is unable to provide a lifetime settlement but can pay gratuity one by one. Most of the employees have been with the company for 19 years. They are supported by a strong labor union. The company's financial statements indicate significant losses, and production has dropped by 90%.

Thank you,

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, i.e., whether it is a Limited Company, a partnership firm, or a sole proprietary concern. Whatever it may be, the management cannot starve the workers nor can it send them out empty-handed. Even in the event of closure, the first charge will be in terms of the dues of the workers. Therefore, your management needs to realize the gravity of the situation.

If the management is still hopeful of revival by right-sizing the number of people in line with the present scale of operations, they may consider the option of voluntary separation in a phased manner in consultation with the trade union. Alternatively, they can opt for closure under Sec. 25FFA of the Industrial Disputes Act, 1947. Regardless of the chosen path, the management should ensure they have the necessary resources to support their decision.

There is nothing like "lifetime settlement." The management can follow the provisions of the 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 year of service, gratuity, and all other legal dues payable to workmen. In your case, since you want to run only one shift with 45 workers, you have the option to retrench the surplus workmen by paying them the compensation and all other legal dues payable under the law.

It is advisable to enter into 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 "Rationalization without tears" by paying the workmen up to one and a half months' pay for every completed year of service and some ex-gratia amount as a 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 analyze all the factors and make appropriate decisions by involving the Union and also the Office of the Labor Commissioner as a party to the settlement.

Regards,
Cyril