Facing Downsizing: What Are the Legal Steps for Retrenching Surplus Workers?

Dear Seniors,

Our company is facing financial problems and downsizing. Therefore, our management wants to reduce the surplus workers through retrenchment.

Questions:

- Is it mandatory to inform the labor department during the retrenchment process?
- Is it legally fair to reduce the surplus workers through retrenchment due to financial downsizing?
- If so, is the labor department empowered to verify the company's financial statements, balance sheets, etc., in this regard?
- During the retrenchment process, should we issue a notice of one month or three months to all the concerned workers?

Thank you,
Amit

Dear Amit, whenever you raise a question to be answered, it is always important that you furnish all the relevant particulars. Otherwise, the answer, if any, itself will give room for further questions. Therefore, unless you furnish the following particulars, your question cannot be answered appropriately:

Type of Establishment

(1) The type of your establishment, i.e., whether a factory, mine, or a plantation.

Number of Employees

(2) The average number of employees employed in your establishment in the cadre of workman [as per sec. 2(s) of the ID Act 1947] during the preceding 12 months.

I appreciate your immediate response with relevant details. Since the average number of workmen, as per your statement, is around 350, your factory is covered by the provisions of Chapter V-B of the ID Act, 1947, in respect of retrenchment. Therefore, it is mandatory to obtain prior permission from the Appropriate Government. For the procedural formalities like notice, etc., in this regard, it is better for you to go through the provisions of the Act.

Retrenchment and Its Implications

Retrenchment, even if it is due to inevitable circumstances beyond the control of the employer, is a sudden deprivation of livelihood, and the legal compensation in this regard would be viewed as mere pittance by the workmen likely to be affected. Therefore, it is natural for workmen to fight tooth and nail through their trade unions before the concerned authority.

Owing to the apprehension of popular apathy and political criticism, the Government would also hesitate to grant permission for retrenchment, however justifiable the reasons are. Therefore, it is always preferable to negotiate with the workmen through their representative trade unions and forge an acceptable scheme of voluntary separation by ensuring a package of higher compensation to the outgoing workmen under the scheme.

As a rejoinder, I would like to add that I am unsure whether the UP Industrial Disputes Act, 1947, is still in force or has been repealed due to the ID Act, 1947. If it is still in force, the questioner needs to refer to the relevant sections under the State Act.