Are Retrenchment Benefits Due When Employees Move to a New Contractor?

Dear HR People,

Due to the completion of contract work at a plant, we have given one month's prior notice to the employees. At the end, they are paid their monthly salary along with full and final settlement amounts (including leave and bonus). Another contractor acquired our contract and continues our work at the same plant and area with the same employees. However, the employees are now demanding retrenchment benefits from us. Is retrenchment applicable to these individuals?

Regards, Rakesh Kumar Sahoo

Dear Rakesh,

Please go through Section 2(oo)(bb) of the Industrial Disputes Act, 1947.

On completion of the contract coupled with its non-renewal, the contract labor cannot stake any claim for retrenchment compensation.

They should have been appointed on a fixed-term contract as per Section 2 (oo).

Termination and Retrenchment Concerns

As per the case details, it gives the impression that the termination of workmen happened due to non-renewal of the contract rather than the completion of work at the plant. However, you engaged another contractor for the same work in the same plant and the same area with the same employees.

The termination of service of a workman appointed for a fixed period due to non-renewal of the contract will amount to retrenchment. Section 2(oo)(bb) of the Act will not be attracted when the letter of appointment was a camouflage to circumvent the benefit of permanency, as held by the Kerala High Court (Manager, Jayabharath Printers & Publishers (P) Ltd., Kallai Road, Calcutta-2 vs. Labour Court, Kozhikode, 1993 LLR 413 (Ker. HC)). At the same time, the termination of a workman, though appointed for a fixed period with notional breaks, will also amount to retrenchment.

Your contractor has made a blunder, and as the principal employer, you allowed the employment of the same worker for the same work. Now, you must pay the retrenchment compensation at the rate of 15 days for every completed year of continuous service or any part thereof in excess of 6 months. It would be better for your management to pay to subside the claim of permanency that may arise.

Best regards,
[Your Name]

When PE is engaging the same contract labor through another contractor, it would have been better if PE took the initiative to advise all contractual workers to resign from the earlier contractor and issue new appointment letters from the new contractor simultaneously. Ultimately, the problem lies with PE, leading to unnecessary unrest.

S K Bandyopadhyay (WB, Howrah)

[Login to view]