Retrenchment Dilemma: Can I Let Go of Workers Without Government Approval?

I have 2 units under the common name "X". They are in the engineering industry manufacturing automotive components. One is situated in Bangalore, and the second one in Tumkur. My Bangalore unit has 80 employees, out of which 50 are workmen, and my Tumkur unit has 96 employees, with 88 being workmen. I transferred 12 workmen from Tumkur to Bangalore in November 2012.

Retrenchment Query

Can I retrench workmen from the Tumkur plant on the basis of "Last come, first go" without seeking government permission? For the purpose of the applicability of Chapter Vb of the ID Act, do we consider each factory separately or are both units clubbed? If I club both, then the workmen's strength becomes 138, in which case government permission becomes necessary. Can anyone please clarify?

Thanks.

You have not mentioned anything about the constitution of the units. By inference, if it is one company having two units engaged in the same manufacturing in two different places, Chapter V-B will be applicable because of functional integrality. On the contrary, if the two units engaged in the same manufacturing owned by the same individual or the same set of individuals are distinctly two different entities by virtue of their registration or incorporation, then Chapter V-B will not be applicable.

Both the units have the same name and therefore the incorporation is the same. They are called UNIT 1 and UNIT 2. The factory licenses are different. Both units manufacture automotive components and supply to one customer, but the products are different. Tumkur Unit has a separate customer code, and the Bangalore unit has a separate customer code. The manufacturing machines are similar.

Note: They have different factory licenses and are separated from each other by 75 km. However, we transferred 12 employees from Tumkur to Bangalore at the specific request of the workers.

Thank you in advance for your prompt response. Could you please clarify with the above inputs?

'Functional integrality' mentioned in my earlier reply means functional interdependence between the units. It is one among the various factors such as unity of ownership, unity of finance and accounting, identical service conditions of employees, proximity of location, exchange of materials of production, the type of products manufactured, sale of finished products, etc., to determine whether a particular unit among the several units owned by the same employer is a separate entity. Lots of judgments of the Supreme Court and various High Courts are available in this regard. So, my personal view is that your Tumkur unit is a separate unit and Chapter V-B is not attracted in the proposed retrenchment. However, you can do it with consultation of the trade union, if existing, or with the consent of the concerned workmen to avoid litigation or other problems. Better consult a senior counsel well-versed in labor matters.

Regards

I have seen your query and subsequent mail clarifying the doubts. As far as I understand, both units have different factory licenses and are separated from each other by 75 km. I am of the opinion that both units should be treated as separate entities, and the cases of both should be dealt with separately. Since the number of workmen in both units is less than 100, the application of Chapter VB will not come into effect. Before any retrenchment, you need to comply with the provisions contained in Chapter VA. You are within your right to retrench the workmen in the Tumkur plant based on the last come, first go principle without seeking government permission.

You mentioned that you transferred 12 workmen from Tumkur to Bangalore in November 2012. You may need to justify your actions in transferring these 12 workmen, as questions may arise about your bona fides, presuming that you took action to save these workmen from being retrenched. I agree with my colleague, Sh. Umakanthan, that you should involve the trade union, if existing, or with the consent of the concerned workmen to avoid litigation or other problems at a later stage.

Regards,
BS Kalsi

I support the views by BS Kalsi ji. You are requested to read the definition of Industrial Establishment as defined under Section 2 (ka), which is given verbatim.

Industrial Establishment or Undertaking

"Industrial establishment or undertaking" means an establishment or undertaking in which any industry is carried on:

Provided that where several activities are carried on in an establishment or undertaking and only one or some of such activities is or are an industry or industries, then,

- (a) If any unit of such establishment or undertaking carrying on any activity, being an industry, is severable from the other unit or units of such establishment or undertaking, such unit shall be deemed to be a separate industrial establishment or undertaking;

- (b) If the predominant activity or each of the predominant activities carried on in such establishment or undertaking or any unit thereof is an industry, and the other activity or each of the other activities carried on in such establishment or undertaking or unit thereof is not severable from and is, for the purpose of carrying on, or aiding the carrying on of, such predominant activity or activities, the entire establishment or undertaking or, as the case may be, unit thereof shall be deemed to be an industrial establishment or undertaking.

Your both units are severable from each other. There is no need to take permission. However, I support the advice given by Umakanthan ji and suggest taking the decision in consultation with the trade union, if any, or with the consent of the concerned workmen to avoid hassles.