Downsizing Dilemma: Can We Adjust Notice Pay if an Employee Finds a New Job Quickly?

While asking an employee to leave due to downsizing, can we include in the FNF statement that if he finds a job earlier than two months, then our notice period pay will adjust accordingly? We don't want the employee to serve the notice period and want to relieve him immediately.

Dear Anonymous,

When you have planned to downsize, guide the employee to find a suitable job and provide support at the right time for their progress, life, and betterment. You are very considerate and gracious in this matter, so it is best to inform the employee and take necessary actions promptly. It is advisable to release them sooner rather than having a notice period.

Thank you.

Retrenchment and Notice Period Adjustments

The exit is necessitated by the right-sizing of the organization at the behest of the employer. Therefore, it amounts to reducing the surplusage of the employees, and as such, it amounts to retrenchment in respect of those employees falling within the definition of the term "workman" under section 2(s) of the Industrial Disputes Act, 1947. In such a case, you have to follow the provisions of section 25F of the Industrial Disputes Act, 1947, which prescribes notice or salary in lieu of such notice and payment of retrenchment compensation at 15 days' average wages last drawn for every year of service rendered by the employee. If you want to relieve the employee immediately, do it by paying the salary in lieu of notice plus the retrenchment compensation on the date of relief itself.

Handling Other Employees

Regarding other employees, you have to simply and strictly follow the clauses relating to exit in the contract of employment. If you are particular about relieving the employee forthwith, better pay him the notice salary and relieve him. If any one of such employees leaves in between before the expiry of the notice period, you have to pay him for the period he worked only.

Thank you for your response. My question was, can we mention this as terms of settlement: that notice period money will only be paid until he finds another job, in contrast to the two months mentioned in the appointment letter? Suppose he finds a job in a month, then we pay only for that month.

I think that I've already answered your question. To put it in other words, after the expiry of the notice period, whatever its duration may be, you are going to send him out. If he finds a job in the meantime and requests immediate relief, you are going to do the same by paying up to the date of his relief only. Therefore, there is no necessity of mentioning such a clause explicitly in the settlement.

Difference Between Retrenchment and Downsizing

Here, the case as given pertains to downsizing. Thus, retrenchment and downsizing are different categories. Retrenchment occurs because of economic and production issues, failure to upgrade technology in the industries, obsolete ways of working, when well-trained employees are in the pipeline, and the current workforce may not be suitable for the latest reforms. It involves curtailing operations from the earlier proposed state to the current situation.

On the other hand, downsizing happens due to an excess of employees, shifting operations from one level to another (complete shifting), or closing a unit of an organization that cannot be integrated into another unit. Both are technical terms and should not be used interchangeably. In this particular case, downsizing is the applicable term.

Handling Employee Transition During Downsizing

Therefore, as soon as the affected employee secures another job, they should be released without delay. They should receive their pay and allowances, equivalent to two months' salary. The service letter should acknowledge their good work and express gratitude for their services. The employee is not a burden; the organization is downsizing its operations. In retrenchment, employees are deemed surplus to the organization, leading to a reduction in workforce. Payment and settlements should be made according to the established procedures.

In downsizing, the company can facilitate interviews and guide the employees. In retrenchment, the employees may be encouraged to seek new opportunities.

In your case, downsizing is necessary due to operational reasons. It is crucial to provide guidance to the affected employees for a smooth transition.

Always be gracious.

Thank you all and Shri Gopinath. The downsizing is due to financial issues the company is facing, thus no fault of the employee. However, management decided to let him and his department be separated. Since his salary is on the higher side, they decided to put in this clause that the notice period is to be paid until he finds another job or 2 months, whichever comes first. I am of the opinion that he should be paid for 2 months since it's not him who decided to move out or to not work for the company during the notice. Let me know if I am wrong.