Facing Retrenchment: How to Handle a Shortfall in Your Severance Package?

Hi,

I need your expert advice on the following: My company has been on a retrenchment spree and downsizing itself. The issue is in the appointment letter; it states 3 months' notice or 3 months' salary on either side during separation. However, currently, it has been offering only 2 months' salary as a settlement. How should one proceed and settle this amicably?

Thanks.

You have not provided the total number of people employed in your establishment in the workmen cadre. If it is less than 100 on average per working day in the preceding 12-month period, Section 25F will apply; if it is 100 or more, then Section 25N of the Industrial Disputes Act, 1947, will be applicable before retrenching any workman who has been in continuous service for at least one year. The conditions, among others, include notice or notice pay in lieu of notice and retrenchment compensation at 15 days' average pay for every completed year of continuous service or any part thereof exceeding 6 months. In the case of establishments with 100 or more workmen, the notice period is 3 months, or 3 months' notice pay in lieu thereof.

Your company's appointment letter cannot contain any stipulations that contradict the provisions of the law applicable in this regard.

Thank you, sir, for the very useful information. Would the above rule apply to confirmed employees (with a 6-month confirmation period) who have less than one year of service when the retrenchment is initiated?

Secondly, if the discussions with the company for a 3-month settlement instead of the current 2 months they are offering do not yield positive results, what course of action can one take? Is there a consumer court or an equivalent body that the employee can approach for help?

Compensation and Notice Pay Clarification

The compensation part of my answer has not reached you fully, as revealed by your response. The two months' salary now proposed by your management as a settlement amount is only notice pay upon your resignation. Therefore, you would not be eligible for any terminal benefits other than gratuity if eligible.

Legal Requirements for Retrenchment

In the case where the total strength of the establishment is 100 or more, your management will have to obtain prior permission from the government, which is synonymous with impossibility. Retrenchment without permission is punishable and illegal as well. On the contrary, if the exit of surplus employees is due to a mutually agreed voluntary separation scheme, the compensation package could be at least equal to the retrenchment compensation fixed under the Act.

Jurisdiction and Legal Proceedings

The Consumer Court has no jurisdiction in matters of industrial disputes. You will have to raise a dispute under Section 2K of the Industrial Disputes Act, 1947, initially before the conciliation officer, and subsequently, upon reference by the government, you will have to present your case before the Industrial Tribunal.

Eligibility for Retrenchment Compensation

An employee with less than one year of service is not eligible for retrenchment compensation and, therefore, cannot be retrenched.