Manufacturing Unit Relocation: What Compensation Should Affected Employees Expect?

Hello Friends, When a manufacturing unit is relocated to another location due to business strategy and ceases manufacturing operations at the old site, resulting in some positions becoming redundant, what should be the terminal benefits and compensation that a worker/employee is entitled to receive?

Statutorily, you need to follow the provisions of the ID Act 1947. Regarding establishments covered under the Industrial Employment (Standing Orders) Act 1947, its provisions need to be complied with. In addition, employees have to be paid all terminal dues.

Retrenchment Due to Relocation

The situation described in the post is that of retrenchment consequent on the relocation of the industrial establishment to another place.

If the total number of workmen in the unit is 100 or more, the employer has to apply for prior permission under section 25-N of the ID Act, 1947, to the appropriate Government with a simultaneous notice of three months to the employees likely to be retrenched.

If the strength is less than 100, no prior permission is required, and the employer can retrench the redundant employees by following the provisions of section 25-F of the Act under which the notice period is one month or one month's wages in lieu thereof.

However, in either case, the retrenchment compensation shall be the payment of 15 days' average wages last drawn for every year of completed service up to the date of retrenchment, in addition to statutory gratuity, leave with wages at credit, proportionate statutory bonus, etc., based on eligibility.

Sir, please elaborate on the criteria for the total number of workmen in question. Is it the combined total workmen of all units of the company? Does it also include official employees, or is it only for the concerned unit to be shifted? Kindly advise.

Respected Sir, Suppose the concerned factory in question of the company has 50 official staff and 60-70 workmen were employed in the past year, but the strength of workmen reduced to 40. Now, the factory is getting closed and shifted to another location 100 km away, near another factory of the company. The total strength of the company, including the Head Office, is more than 275. The office/HO will remain operational as usual, but the employees related to the factory will be retrenched.

Notice Period for Factory Closure
In this case, please provide insights on the notice period - whether 1 month or 3 months should be given before the closure of the factory at the main location.

Gratuity Entitlement for Workers
Additionally, the workers who have worked for 3-4 years but cannot complete 5 years of continuous service due to the sudden closure decision - should they be entitled to receive gratuity or not?

If the total number of employees working in the factory is 275, Chapter VB will apply in any case because there may not be 176 managers and 99 workers. I believe that a majority of your office staff may also come under the definition of workmen.

My dear anonymous friend,

Certain questions of law, at times, cannot be answered clearly in isolation from the facts underlying such questions. Your piecemeal queries after every response, without providing complete facts pertaining to the so-called Company, its H.O., and its branches, including different manufacturing facilities, compel me to suspect the very purpose of your questions, for which, in fact, I am very sorry.

Generally, questions in law can be purely academic or arise from real-life situations. Particularly in the latter case, transparency is of much importance to get an appropriate answer without the intention to circumvent the provisions of law. As citeHR is an open forum, the principles of ethics prevent the resource persons from encouraging such questions.

With the above caveat, let me browse over the various provisions of the ID Act, 1947 relevant to the thread under discussion, from which I hope you can derive the answer yourself.

Chapter V-A of the Act

Chapter V-A of the Act deals with layoff and retrenchment in general as well as in particular to certain industrial establishments.

Chapter V-B of the Act

Chapter V-B of the Act deals with special provisions relating to layoff, retrenchment, and closure in respect of certain industrial establishments.

Both chapters have their definitions of the term "industrial establishment" for the respective purpose of the chapter. If any difficulty in interpretation arises with reference to the purpose, it has to be resolved by referring back to the definition of the term "industrial establishment or undertaking" as defined under section 2(ka) of the Act.

Now, please decide for yourself by matching the actual facts of the issue.

Respected Sir,

Let me write to you in a clear-cut manner. It's a manufacturing and trading concern with headquarters (HO) and a manufacturing unit situated at location A. The company has grown very rapidly over the last 5-6 years and has crossed a turnover of 100 crores. It started another manufacturing unit at location B two years ago. Now, the company has initiated operations for another manufacturing unit at location C, which is near location B, and intends to close down the manufacturing operations of the first unit at A completely, while the HO at A continues to function as usual. This scenario has rendered the production staff redundant. In this situation, what notice period or payment in lieu of notice should be given—1 month or 3 months, in addition to other terminal benefits previously suggested?

Furthermore, for those employees who have already worked for 3-4 years and are close to completing 5 years but might miss out on gratuity benefits due to this strategic decision, even though they are not resigning voluntarily, I believe there are loopholes in our system. If I'm not mistaken, there was news that the government is considering changing the eligibility criteria for gratuity benefits from 5 years to 1 or 2, given that people tend to switch jobs more frequently nowadays.

I am eager to know how my query has been addressed in the new labor codes. Is the same information present in the IR Code, or has it been modified for the better?

Lots of respect!

Applicability of Acts Based on Employee Numbers

The applicability provision of any Act with reference to the number of workers employed can be interpreted differently. That is why, when such situations arise, the Trade Unions place demands to pay higher compensation than what is stipulated in the ID Act. If you say that putting all the employees in the HO and the factories, the number would cross 100, the applicability of Chapter VB is implied, and as such, three months' notice is invariably a liability on you. However, when you say that HO people are not retrenched following the closure of one of the units, the chapter will not be applicable. The applicability of a particular section or chapter is for the establishment and not to a particular division of the establishment. As such, I feel that you should give 3 months' notice.

Gratuity Entitlement

Gratuity is payable to those employees who have completed five years of service. It shall also be extendable to those who have completed four years and then 240 days in the running year. The law, which says that gratuity becomes payable to those who have served for one year or two years, has not been enforced yet. Even if such an enactment is enforced, it does not apply to all employees but only to those who have been appointed for a fixed term, and the gratuity becomes payable only when the employee leaves at the event of the employer not renewing the contract.

Union Concerns on Unit Closure

Again, the act of management closing the unit in the fifth year of its commencement is another act that will be questioned by the Union. I am sure that they will demand an amount equal to the gratuity lost due to this closure.

Thank you so much, Madhu T. K. Sir, for your brilliant inputs. It's indeed very logical and true! Can you please also provide insights on how demands for terminal compensations can be made in the absence of a trade union? It's very disappointing that even today, basic statutory benefits such as minimum wages, provisioned leaves, etc., are not diligently given, citing company policy as a reason. In fact, this is an enforcement issue by the competent authorities.

For the purpose of coverage, it should include the total number, including the contract workers.

Dear All, Whether the termination compensation is available to all those who get retrenched from all the departments such as production, quality, maintenance, stores, warehouse, purchase, etc., or is it limited strictly to workmen in this matter? Are executives, supervisors, and HODs also eligible to receive the compensation benefit?

Regards,

The provisions of the IDA, 1947 are applicable only to those employees falling within the ambit of the term 'workman' as defined under section 2(s) of the Act. Therefore, other employees, either retrenched along with the 'workmen' or otherwise, have to stake their claim for compensation only as per the terms of exit mentioned in their contracts of employment.

Dear Sir, There are many companies that are intentionally not issuing appointment letters despite frequent requests. In that case, how can they stake compensation?

Merely having the title of manager or HOD doesn't necessarily deprive someone working in the industrial establishment from compensation, as he does not have any cheque signing authority. As per my understanding, a pilot of a flight is also classified as a workman. In today's industrial establishment, there are many departments and numerous departmental heads and subheads in the organizational structure.

Please share your insights.

Thanks & Regards,

From all the posts, it appears that the mother organization (A) is the foundation of the organization. The organization, after making profits and increasing business, has started two more businesses at locations B & C. Probably, the locations of B & C are away from location A.

The organization is thinking to find out legal positions as well as to get a solution for the employees at location A for the compensation. My personal opinion is the organization should offer all employees of organization A to relocate to location B or C. If the employees do not agree, then offer them a compensation package better than statutory norms and as per the capacity to pay by the organization to all employees, including contractual laborers and staff. It should not be forgotten that the founder organization A is the main contributor to the growth of the business, and some benefits should be distributed to those employees who will lose their jobs.

An anonymous friend has raised many hypothetical questions one after another; the reasons are best known to him/her. In India, there are organizations that have several philosophies to run their organizations. Let us think with an open mind for the betterment of society in general. Considering the employees who will lose their jobs, what will be their socio-economic condition?

My request to the anonymous friend is to think openly, talk to decision-makers, and act as best as possible.

Regards, S K Bandyopadhyay

Appreciate the views shared by Mr. SKB. Really very nice and justified. However, as already queried in an earlier post:

1) What's the legal provision for the employees out of the workmen category?

2) As there are no appointment letters provided, how would compensation be decided? Is there any such provision/guidelines in the S & E Act to take care of? As per my understanding, some S & E Acts in respective states, the notice period is silent. For example, Maharashtra S & E Act 2017.

3) Are there any compensation guidelines prescribed in the S & E Act to address such issues?

Please guide.

Thanks & Regards,
Krushna Chandra Panda