LEGALINK CROSS-BORDER LAYOFFS QUESTIONNAIRE

Preliminary

Yes. Under Indian law, layoff (i.e. retrenchment/termination) of employees is governed by the Industrial Disputes Act, 1947 (the “ID Act”) and state specific Shops & Establishments legislations.

Kindly note that as such the term ‘layoff’ under Indian law is defined under the ID Act as the failure, refusal or inability of an employer on account of shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery or natural calamity or for any other connected reason to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched. Hence, the term ‘layoff’ under the ID Act is normally understood to mean a temporary layoff of the employee without terminating or retrenching the employee.

However, for the purposes of these questions, we proceed on the basis that the term ‘layoff’ refers to retrenchment or termination of workers on account of several reasons.

Applicability

The ID Act applies to all employees who satisfy the definition of ‘workmen’ under Section 2 (s) of the ID Act. A workman is any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person (i) who is subject to the Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of 1950), or the Navy Act, 1957 (62 of 1957); or (ii) who is employed in the police service or as an officer or other employee of a prison; or (iii) who is employed mainly in a managerial or administrative capacity; or (iv) who, being employed in a supervisory capacity, draws wages exceeding one thousand six hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.

The normally accepted test to determine the status of employees as workmen is whether the employees fall under any of the statutory exceptions on the basis of the job profile and nature of work performed; what is the dominant nature of the job performed; whether the dominant nature of the job performed falls under any of the headings contemplated by the provision i.e. manual, skilled, unskilled, technical, clerical or operational work; pay and duration of tenure are irrelevant factors for the determination of the status of an employee.

Retrenchment/Termination

Retrenchment means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include - (a) voluntary retirement of the workman; or (b) retirement of the workman on reaching the age of superannuating if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf; or (bb) termination of the service of the workman as a result of the non-removal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation in that behalf contained therein; or (c) termination of the service of a workman on the ground of continued ill-health.

Requirements in relation to retrenchment are governed by Sections 25-F and 25-N of the ID Act. Section 25-F applies to any workman who has completed at least 240 days of service in a year and requires one month’s notice in writing or payment of wages in lieu of such notice; retrenchment compensation at the rate of 15 days’ of wages for every completed year of service and notice to be served on the appropriate government or authority.

In the event of a workman working in either a factory or a plantation or a mine employing 100 or more workmen, in the case of retrenchment, if the workman has completed at least 240 days of service in a year, Section 25-N of the ID Act requires three months’ notice in writing or payment of wages in lieu of such notice; retrenchment compensation at the rate of 15 days’ of wages for every completed year of service and the prior permission of the appropriate government for such retrenchment.

Termination is also governed by the relevant shops and establishment legislations enacted by state legislatures which typically provide that dismissal or termination cannot be carried out without appropriate notice or payments in lieu of such notice.

It is also necessary to note that where an employee is sought to be dismissed or terminated for reasons of misconduct or other acts during the course of employment, it is imperative that such an employee is given an opportunity of being heard through a disciplinary enquiry.
 
Layoff

In the case of a temporary layoff without retrenchment i.e. in relation to layoff as defined above, Section 25-C of the ID Act requires every workman to be paid fifty percent of his basic wages for the period during which he is temporarily laid off. However, this only applies to establishments employing fifty or more workmen.

In the event of a workman working in either a factory or a plantation or a mine employing 100 or more workmen, in the event of such a temporary lay-off without termination, Section 25-M of the ID Act requires the prior permission of the appropriate government to be obtained prior to any such layoff, subject to certain other requirements of Section 25-M.

Yes. The ID Act provides employees classified as workmen, with the right to raise industrial disputes to challenge any termination which is perceived as wrongful. The appropriate government will refer such disputes to Labour Courts for adjudication.

Employees can also file complaints of unfair labour practices under the ID Act against certain actions by employers such as termination by way of victimization, on patently false reasons, in colourable exercise of the employer’s rights, amongst others.

Under Section 33 (3) of the ID Act, one per cent of workmen subject to a maximum of 100 workmen belonging to a registered and recognised trade union are considered as ‘protected workmen’ in respect of whom the employer is prohibited from taking any action against to alter the service conditions of such protected workman or to discharge or dismiss the protected workman. However, this prohibition is only for the time period during which an industrial dispute involving the protected workman is already pending.

Certain common errors made by employers leading to liability for wrongful terminations include:

(a) Failure to pay retrenchment compensation under the ID Act to retrenched employees

(b) Failure to correctly classify employees as workmen entitled to the benefits and remedies under the ID Act

(c) Terminating employees in a manner that attaches a stigma to their stint, without due enquiry and complying with principles of natural justice

Closure

The only other issue that arises in this context is in relation to closure of undertakings. Section 25-FFA of the ID Act requires serving of 60 day’s notice upon the government by an employer intending to close down an undertaking. However, this provision applies only to such establishments which employ 50 or more workmen.

In the event of a workman working in either a factory or a plantation or a mine employing 100 or more workmen, in relation to closure of such an establishment, Section 25-O of the ID Act requires that the prior permission from the appropriate government must be obtained at least 90 days before the effective date of the intended closure, subject to other requirements of Section 25-O. In addition, every workman in such an establishment must be provided with compensation at the rate of 15 days’ wages for every completed year of service.

Transfer

In the event of any transfer of an undertaking resulting in transfer of employees, in the event of a sale of a business, under Section 25-FF of the ID Act, the buyer is required to ensure that (i) the service of the workmen has not been interrupted by such transfer (i.e. the continuity of service is maintained); (ii) the terms and conditions of service of the workman after such transfer are not less favourable to the workman than those applicable to him immediately before the transfer; and (iii) the workman is paid compensation upon retrenchment at any point in the future in the manner provided under the ID Act. In the event that the buyer fails to comply with the above three conditions, the seller is required to comply with Section 25-F of the ID Act, and provide notice and compensation as prescribed to such workmen.