Issue-III

September 2008

LABOUR BULLETIN LAY-OFF UNDER THE INDUSTRIAL DISPUTE ACT, 1947

Contents Introduction............................................ 2 M eaning of lay-off and continuous service...................................................... 2 Compensation for Lay-Off.................. 3 Workman not entitled to Compensation ........................................ 4 Special Provisions relating to Lay-Off5 Conclusion .............................................. 5

1. 2. 3. 4.

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Issue-III

September 2008

INTRODUCTION
The Industrial Disputes Act, 1947 (the Act) governs the various provisions pertaining to lay-off of workmen. The scope of this Act is to achieve harmony between employers and workmen and promote economic and social justice, thereby, classifying the Act as a w elfare legislation. The preamble of the Act clearly states that the objective of the Act is to make provision for the investigation and settlement of industrial dispute. This show s that the intention of the legislature is to safeguard the right of w orkmen and the industrial establishment1. Industrial Dispute is defined under Section 2(k) of the Act. It lays dow n certain pre-requisites that must exist to constitute an industrial dispute. There can be no lay-off if the dispute does not fall within the ambit of Section 2(k). Further, the application of the Act is limited to industries as defined under Section 2(j). How ever, in cases where it is difficult to distinguish betw een an industrial and a non-industrial activity, the dominant nature of the activity helps in determining the true scope of industry2. The present bulletin touches upon the meaning of lay-off as per the Act and deals w it h the issue of compensation resulting from such lay-off. Since most establishments are interested in know ing the monetary impact of laying-off w orkmen while reducing headcount, this bulletin provides an insight on that process.

1.

Meaning of lay-off and continuous service

Previously, lay-off w as a practice that had no provision for compensation. How ever, in 1953, the President promulgated the Industrial Disputes (Amendment) Ordinance which made a provision for payment of compensation for lay-off. This ordinance w as repealed and replaced by Indu strial Disputes (Amendment) Act, 1953. Lay-off is a practice w hereby the employer cannot give employment to w orkmen for various reasons including shortage of raw materials, coal or power, accumulation of stocks, break-down of machinery etc, or for any other connected reason. It has been defined under Section 2(kkk) of the Act. If a w orkman, w hose name is on the muster rolls of the industrial establishment presents himself for work and is not given

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is defined under Section 2(ka) of the Act. It states that any establishm ent or undertaking in w hich any business, trade, or manufacturing (collectively know n as industry) is carried on is an industrial establishm ent. How ever, if any unit of an establishm ent can be severed as an industry, then it will be deemed to be a separate industrial establishm ent. Also, the dom inant nature of the activities will have to be considered if the establishm ent carries on m ore than one activity. 2 In Bangalor e Water Supply v. A. Raja ppa, AIR 1978 SC 548, the Supreme Court held that where complex activities, som e of which qualify for exem ption, others not, involve employees of the total undertaking, som e of whom are not workm en, even then the predom inant nature of the services w ill be the true test to determ ine an industry. The w hole undertaking w ill be an industry although those w ho are not workm en by definition m ay not benefit by status.

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September 2008

employment w ithin tw o (2) hours of presenting himself, he shall be deemed to have been laid-off for that day. All industrial establishments in India have to ensure compliance w ith the various labour legislations, including the Act. The application of the provisions pertaining to lay-off is restricted by virtue of Section 25A. It states that industrial establishments w ith below fifty (50) w orkmen on an average per working day in the preceding calendar month, or industrial establishments w hich are of a seasonal character, or industrial establishments to w hich Chapter 5B3 of the Act applies, w ill not be bound by Section 25C to 25E (both inclusive). This implies that such w orkmen: (a) (b) (c) will not be entitled to any compensation for being laid off. will not be entered into the muster rolls of the employer. will not fall under any of the exceptions to avail compensation.

It is important to note that w orkmen are entitled for compensation only if they have been in continuous service. Defined under section 25B of the Act, a w orkman is said to be in continuous service if he provides uninterrupted service, which includes interrupted service due to sickness, accident, strikes w hich are not illegal, lock out or cessation of work not due to the fault of the w orkman. In other w ords, the duration w hen the w orkman is out of the office on account of illness is not excluded while computing continuous service. The service is construed as continuous for a period of 1 year if the w orkman works in the previous year for: 190 days- below the ground in a mine. 240 days- in any other job. The service is construed as continuous for a period of 6 months if the workman w orks in the preceding 6 months for: 95 days- below the ground in a mine. 120 days- in any other job.

In Sur Enamel & Stamping Works Ltd v. Their Workmen4, the Supreme Court held that before a workman can be considered to have completed one year of continuous service in an industry, it must be show n that he was employed for a period of at least twelve (12) calendar months and during those tw elve (12) calendar months he had w orked at least tw o hundred and forty (240) days.

2.
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Compensation for Lay-Off

chapter deals w ith special provisions relating to lay-of f, retrenc hm ent, and closure in certain establishm ents. It applies to industrial establishments in which have atleast 100 w orkmen em ployed on an average per w orking day for the preceding 12 m onths. 4 (1963) 2 LLJ 367, 379 (SC), per D as Gupta J.

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September 2008

Laying-off w orkmen results in depriving them of the opportunity to w ork and earn wages5. Therefore, it becomes the duty of the employer to provide compensation to the w orkmen if their case falls within the scope of the Section 25C6 of the Act. How ever, no compensation can be aw arded in advance of actual lay-off on grounds of social justice7. This particular section states that any w orkman: (a) (b) whose name is borne on the muster-rolls of an industrial establishment and, who has completed atleast one (1) year of continuous service under the employer,

shall be paid compensation for the period during w hich he w as laid-off, w hich shall be equal to fifty (50) percent of the total of the basic w ages and dearness allowance that should be payable to him had such workman not been so laid-off. Maintaining muster-rolls is a universal practice by industrial establishments. Its purpose is to record the attendance of w orkmen employed. How ever, the purpose is not limited to the same. It also acquires importance w ith respect to lay-off of w orkmen. If the name of the w orkman is not mentioned on the muster-rolls of an establishment, he cannot get laid-off under the Act. According to Section 25D, it is the duty of the employer to maintain muster-rolls of w orkmen and failure to comply with this provision can attract penalty under Section 31(2)8 of the Act. If during the one (1) year period of continuous service, the w orkman is laid-off for more than fortyfive (45) days, no further compensation w ill be paid if there is an agreement in that respect betw een the workman and the employer. Upon the expiry of this period, the employer can retrench the w orkman and the compensation then paid w ould exclude the amount already paid during the forty-five (45) day period of layoff. Further, if the workman is a badli w orkman or a casual w orkman, he w ould fall outside the ambit of Section 25C. How ever, if a badli w orkman has completed one (1) year of continuous service in the industrial establishment, he w ill be treated as a permanent w orkman for all purposes9.

3.

Workman not entitled to Compensation www.psalegal.com

Section 25E of the Act highlights situations w hen a w orkman is not entitled to compensation even after being laid-off. This section 25E works like an exception to Section 25C. A w orkman is not entitled to compensation if:

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Pharm aceutical Ltd. v. RN Kulkarni & Co (1966) 1 LLJ 560, 562 (Bom ), per Mody J.

6 This section deals w ith the right of com pensation for workm en who are laid-off. 7 KT Rolling Mills v. MR Meher (1962) 2 LLJ 667 (Bom) (FB), per Shah J; Central

India Spg, Wvg & Mfg. Co. Ltd v. Industrial Court (1959) 1 LLJ 468 (Bom ) (D B), per Mudholkar J. 8 Section 31(2) provides for a penalty of Rs. 100 to cover those offences for w hich no specific penalty is provided. 9 E nglish Electric Co. of India Ltd v. Industrial Tribunal Madras (1987) 1 LLJ 141, 153 (Mad) (D B), per Chandurkar CJ.

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Issue-III

September 2008

(a) he refuses to accept any alternate employment offered by the employer in the same establishment, or in any other establishment of the same employer, provided such establishment is within a five (5) miles radius from the previous establishment. Further, such alternate employment should not call for any special skill or experience and the employer must pay at least the same w ages a s were previously paid to the w orkman. (b) he does not present himself for w ork at the establishment at the appointed time during normal working hours at least once a day; (c) such lay-off is due to a strike or slow ing-dow n of production by w orkmen in another part of the establishment. The burden of proof is on the employer to show that the w orkman is disentitled to claim compensation because his case falls under the purview of Section 25E10.

4.

Special Provisions relating to Lay-Off

Section 25M in Chapter 5B11 of the Act further points out that prior approval from the appropriate government is required to lay-off a workman w hen the industrial establishment (not being of a seasonal character or in w hich work is performed only intermittently), has more than hundred (100) w orkmen employed on an average per w orking day for the preceding twelve (12) months. The appropriate government has the final authority to decide whether the establishment is in fact seasonal or not and such decision shall be final12. It also provides stringent penalties for contravention of the provisions13 of Chapter 5B along w ith providing compensation to the workman for any illegal lay-off14.

CONCLUSION
While setting up any industrial establishment in India, lay-off provisions acquire importance especially since most labour law legislations are very pro-w orkmen. Laying-off is a power in the hands of the employer but it has to be exercised judiciously in accordance w ith the applicable legal regulations. The monetary penalty for contravention of these provisions is not a lot but it can impact the establishments goodw ill and reputation. Further, improper laying-off of w orkmen can lead to strikes and lock-outs, w hich can result in significant business loss for the establishment. Therefore, there is reason enough for every
10 In RS Rekchand Mohota Spg and Wvg Mills Pvt Ltd v. Labour Court 1968 Lab IC 480, 484 (D B), per Paranjpe J and Z andu Pharm aceutical Works Ltd v. RN Kulkarni & Co (1966) 1 LLJ 560, 562 (Bom), per Mody J, it was held that it is open to the em ployer to repudiate the claim (of the w orkm an for compensation) by showing that the w orkman w as disentitled to claim com pensation because his case falls w ithin any of the three clauses of Section 25E of the Act. 11 ibid., at 3 12 Section 25K(2) in Chapter 5B of the Act. 13 Section 25Q in Chapter 5B states that w here an em ployer lays-off a w orkman under Section 25M w ithout prior perm ission of the approp riate government , he shall be punishable w ith imprisonment for a term w hich m ay extend to 1 m onth, or w ith fine w hich may extend to Rs. 1000, or w ith both. Clearly, the m ere fact that lay-off takes place w ithout the required perm ission is reason enough to attract the penalty under Section 25Q . There is no need to establish any intention. 14 Section 25M(8) of the Act states that the em ployer w ill be liable to the w orkm en for all the benefits under any law for the tim e being in force as if they had not been laid-off for the period of such illegal lay -off i.e. cont rary to provisions of Chapter 5B.

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Disclaimer This bulletin is for inform ation purposes and should not be construed as legal advice.
PSA 2008

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Issue-III

September 2008

establishment in India to follow and adhere to labour legislations to ensure harmony amongst its w orkmen and facilit ate smooth running of their business activities.

(Dhruv Suri)

(Dhruv Suri, a Final year law student of University School of Law & Legal Studie s, GGSIPU, who is currently pursuing his internship at PSA, has prepared this bulletin under the guidance of Ms. Priti Suri).

Contact Priti Suri E-mail p.suri@psalegal.com Tel: +91 11 4350 0501 6

Disclaimer This bulletin is for inform ation purposes and should not be construed as legal advice.
PSA 2008

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