Facing Department Closure Due to Costs: How Should We Proceed?

Procedure for Closing a Department

In our factory, there are different departments, and we want to close a particular department from that unit due to a lack of profitability. The reason is that producing the same product is more costly than in other units (e.g., salary, etc.). Kindly advise.

Regards,
Mohan

You could have provided further information such as details about your finished product, the specific department you intend to close, the number of employees currently working in that department, and the percentage of employees within that department compared to the total workforce in the factory.

Options for Managing Employees During Department Closure

When considering the closure of a particular department, there are two options available for managing the employees within that department. The first option involves transferring them to another department, provided they have the potential to work in a different area. For example, countries like Japan are known for fostering versatile workers, making transitions to new departments smoother.

The second option is to consider retrenchment. However, this can be a sensitive issue as it is important to determine whether the provisions of the Industrial Disputes Act, 1947 become applicable in this situation.

Product Life Cycle Management

Every product has a life cycle, and over time, it may no longer be economically viable to continue producing certain products. The evolution of a product line occurs gradually, and it is advisable that when a new product is introduced, consideration should be given to discontinuing older products. It appears that your company may not have prioritized product life cycle management adequately.

In any case, providing sufficient information is crucial in order to offer appropriate solutions.

Thanks,

Dinesh Divekar

Understanding Retrenchment and Department Closure

What you want to do is not allowed under the ID Act. You cannot remove someone just because their salary is high and you can get someone cheaper. Retrenchment has to be done on a last-in, first-out basis. Shutting down a department can be done for specific reasons. Lower profit due to higher salaries is definitely not one of them. Your best option is to offer a VRS to the workers. Make it attractive enough so most of them will opt for it.

Regards.

Closing down a particular department in a factory on the grounds of unviability cannot be a contentious issue as long as it does not result in the loss of employment for the workers employed there. The redeployment of these individuals to other departments should be smooth and feasible, as suggested by Dinesh. If it results in the retrenchment of some or all of the workers in that specific department, it could become a subject of industrial dispute, regardless of whether Chapters V-A or V-B of the Industrial Disputes Act, 1947 are applicable. Taking a proactive approach is the best course of action, as recommended by Saswata Bannerjee.