Downsizing Dilemma: What Are the Legal Steps and Compensation for Letting Employees Go?

Dear Professionals,

If a company wants to downsize its employee strength due to restructuring, what is the legal procedure to terminate employees, and how much compensation do we have to pay for managerial and workman employee categories? Please advise.

You can consider offering a VRS Scheme or Golden Handshake.

Compensation Factors

But there is no rule as to how much compensation a company needs to pay. This depends on many factors, such as employees' service length (number of years they have been with the company, number of years left until they reach the age of superannuation), their cadre/position in the company, and above all, the company's ability to pay.

Regulations in Banking and Unionized Industries

In banks, there are rules and regulations governing VRS. In industries where registered unions are available, some kind of agreement will be entered into between union/workers' representatives and management, and accordingly, compensation will be decided and paid.

Please provide more information about your organization so that more specific information can be supplied.

Thank you, Radhakrishnan Sir, for your quick advice. However, our company is just a few years old, and the employee strength is only 19 on payroll. Management wants to reduce manpower by around 40% of the total strength. Management insists that I fire old senior employees first. Can I terminate senior employees as decided by management, and what reason for termination should I mention in the termination letter? Please advise.

The retrenchment in the workforce is part and parcel of restructuring. You need to follow the rules of retrenchment as per the ID Act. You should retrench the employees who were the last to join your company. It is important to understand that the category of employees subject to retrenchment cannot include new individuals once you have retrenched. Take your management into confidence to consider some packages for the employees likely to be retrenched. According to your posting, the maximum payout for retrenched employees is 105 days (90 days as notice pay and 15 days for retrenchment compensation), as the case may be. Maintain a positive attitude towards the workmen because they are key to the development of the business.