Retrenchment in Labour Law – An Analysis

Retrenchment in Labour Law: The concept of ‘retrenchment’ under the Industrial Dispute Act, 1947 is not confined to the termination of services but encompasses all terminations

The statement is saying that the term “retrenchment” under the Indian Industrial Dispute Act, 1947 is not limited to only situations where an employer is terminating workers due to surplus labour. Instead, it includes all types of terminations of employment except those specifically excluded in the Act’s definition of retrenchment. This can be analysed in the light of the following explanation.

As per Section 3 (1) of the Industrial Disputes Act of 1947, industries with more than a hundred employees must obtain government approval before making any retrenchments and employees are entitled to three months’ notice before such action.

Retrenchment definition

The modification to the Industrial Disputes Act of 1947 included Section 2(oo). The provision was added to the Industrial Disputes Act of 1976 by the way of an amendment. Section 2(oo) of the Act defines the term ‘retrenchment’. The term retrenchment in labour law can be referred to as the permanent termination of the employment of the employee for any reason other than disciplinary action.

Exceptions to the definition of retrenchment are:

• If the worker willfully resigns from the service, then such voluntary retirement will not be covered.
• If the employee retires after attaining the age of superannuation.
• If the employee is restricted from work as a result of failure to renew the contract of employment.
• Termination due to the employee’s continuing bad health.

Case laws

In the case of Managing Director, Karnataka Handloom Development Corporation Limited v. Sri Mahadeva Laxman the respondent was appointed for fixed working hours as an expert weaver. His service was discontinued after the expiry of the contract period. The respondent raised an industrial dispute. The court directed his reinstatement and held that the respondent was not a worker but employed on contract on a time-barred action. Termination of service of a workman for any reason other than those except in Section 2(oo) amounts to retrenchment.

The retrenchment principle of ‘first come, last go’ and ‘last come, first go’ are well- known in industrial law. The principle of ‘last come, first go’ states that in the
case of retrenchment, the employer has the power to decide which of the employees are to be retrenched. The rule acts as a healthy safeguard if there is any kind of discrimination against the worker in case of retrenchment. The principle of retrenchment is that management should start with the latest recruit and progressively retrench employees higher up as per the seniority list.

In the case of Brohan Kumar v. Barauni Oil Refineries, it was decided that in the absence of any agreement between the employer and the workers, the employer must use the “last come, first served” principle in the case of an employee’s retrenchment.

Retrenchment compensation is the compensation that an employer is liable to pay to a retrenched worker. Under the Industrial Dispute Act, 1947, an employer is liable to pay retrenchment compensation to a retrenched worker in the following circumstances:

1. When an employer terminates the services of a workman for any reason other than misconduct.
2. When an employer terminates the services of a workman on account of the non-renewal of the contract of employment between the employer and the workman.
3. When the employer reduces the number of workmen for any reason whatsoever.
4. When an employer terminates the service of a workman as a measure ofpunishment unless the misconduct is of such a nature that it requirestermination of service.

It’s important to note that the act also prohibits the retrenchment of workmen who are absent from work due to injury sustained during the course of their employment and also the retrenchment of workmen during the pendency of any conciliation proceedings before a conciliation officer or a labour court or national tribunal.

In view of the above, it can be said that in order for retrenchment to be considered valid under the Industrial Disputes Act, 1947 of India, the employer must give notice, pay compensation, obtain government approval,and exhaust other alternatives before retrenching any worker.