Labour Law- I

CENTRAL UNIVERSITY OF SOUTH BIHAR

SCHOOL OF LAW & GOVERNANCE

LABOUR & INDUSTRIAL LAW
PROJECT

Meaning & Justification of Lay- off & Retrenchment

Under the Supervision of –Dr. Digvijay Singh

SubmittedBy:-
RAJEEV RAJ
B.A., LL.B:- viith Semester
Enrollment- CUSB1513125033

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 Labour Law- I

ACKNOWLEDGEMENT

You are most welcome in my project work of “Labour & Industrial Law” on the topic “Meaning
& Justification of Lay-off & Retrenchment”. This project is given by our respected subject
Assistant professor “Dr. Digvijay Singh” and first of all I would like to thank him for providing
me such a nice topic and making me aware as well providing me a lot of ideas regarding the topic
and the methods to complete the project.

I would like to thank all the Library staffs who helped me to find all the desired books
regarding the topic as the whole project revolves around the doctrinal methodology of research. I
would like to thank to my seniors as well as class mates who helped me in the completion of this
project. I would also like to thanks to Google, Wikipedia, into legal world as well as other web
sites over web which helped me in the completion of this project. Last but not the least; I would
like to thank all who directly or indirectly helped me in completing of this project.

I have made this project with great care and tried to put each and every necessary information
regarding the topic. So at the beginning I hope that if once you will come inside this project you
will be surely glad.

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 Labour Law- I

Table of Content

Abstract ………………………………………………………………………………4
Introduction…………………………………………………………………………..5-6
Lay- off…….…………………………………………………………………………..7
Meaning of lay- off……………....................................................................................7-8
Prohibition of lay- off 25M……….. …………………………………………………8-10
Compensation for the period of lay- off….…………………………………………..10-11
Section 25 A ……………………………………….…………………………………11
Application of sections 25C to 25E...………………….……………………………..11
Section 25A (2)……………………………………….……………………………….12
Section 25B Continuous Services……..………………………………………………12-13
Section 25C, Right of workman laid- off for compensation……………………………13-14
Section 25 D, Duty of an employer to maintain muster rolls of workmen………………14
Section 25 E, Workmen not entitle to compensation in certain case…….………………14-15
Retrenchment …………………………………………………………………….………..16
Section 25F, Conditions precedent to retrenchment of workmen…………………………16-17
Section 25FF Compensation to workmen in case of transfer of undertakings……………17-18
Section 25G, Procedure for retrenchment ………………………………………………….18-19
Section 25H, Re-employment of retrenchment workmen…………………………………..19
Section 25N, Conditions precedent to retrenchment without previous permission………….19-21
Section 25 Q, Penalty for lay-off & retrenchment without previous permission……………..21
Conclusion …………………………………………………………………………………….22

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Abstract
Lay-off is a measure to cope with the temporary inability oof an employment to offer employment
to a workman to keep the establishment as going concern. It results in immediate unemployment
though temporary in nature. It does not put an end to the employer- employee relationship, nor
does it involve any alteration in condition of service. Further, lay-out occurs only in a continuing
business. When the industrial establishment is permanently or it lock- out is declared by the
employer, the question of lay- off has no relevance. Lay- off is justified only when it is in
conformity with the definition given under section 2 (kkk) of thr industrial dispute Act 1947. The
right of woekmen to lay-off compensation is designed to recieve the hardship caused by
unemployment due to no fault of the employee. The provision for payment of compensation for
lay- off compensation and it does not mean that the employer can pay, lay- off compensation and
declare lay- off. Payment of compensation is not a condition precedent to lay-off.
Retrenchment generally means discharge of surplus of staff by the employer on
account of a long period of lay-off or rationalization or production process or improved machinery
or automation of machines or similar other reasons. It is adopt as an economy measure. The
subsisting employer workmen relationship is however terminated in case of retrenchment.

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Introduction
In the perspective of lay-off, in the day-to-day running of business, management is often compelled
to take measures to effect economy and avoid waste. Some of these actions have a direct bearing
on the workmen employed by it. For instance, management may not temporarily require the
services of certain workmen on account of shortage of coal, power, raw material, accumulation of
stock, breakdown of machinery, strike by workmen in interdependent sections of the
establishment, or for any other similar reason. Under these situations, an employer does not
temporarily need the services of the normal strength of the workmen. In these circumstances, he
may well terminate the services of surplus workmen. But because he expects to resume his normal
work and the workmen wish to continue to work, the institution of lay-off has been evolved.
Herein, workmen are not discharged but nevertheless, they do not receive their full wages. It is
because of this anomaly that the right of lay-off compensation has been established by practice,
contract, standing orders or statutory provisions. With the introduction of industrial adjudication
system on an all-India basis, workmen sometimes take advantage of the existing legal provisions.
Their attitude of taking advantage of the existing legal provisions is strongly demonstrated by their
response to lay-off. An early attempt was made to suggest that management's action in laying-off
its workmen amounted to a lockout1. Further, quite apart from the general prohibition contained
in Section 23, both lay-off and lockout were held to be within the mischief of Section 33 (2).
However, after the Amending Act of 1953, which defines lay-off and provided compensation
therefor, workmen generally claimed that lockout amounted to lay-off and consequently, the
locked out workmen were entitled to lay-off compensation.
It is unfortunate that the provisions relating to lay-off compensation were
incorporated in the Industrial Disputes Act 1947, only after 6 years of the operation of adjudication
system on an all-India basis. During this long period, several cases involving lay-off came before
the tribunals and courts and they decided the question of payment of compensation. But a stud of
the awards and decisions reveals that there was no uniformity in the rates of compensation. Further,
norms were irreconcilable. Quite apart from these difficulties, the Industrial Disputes Act, 1947 as
amended in 1953, did not contain any provision for preventing lay-off. There had been many cases
of large scale lay-offs in big industrial concerns in the 19705. This caused great hardship to
workmen. In order to avoid this hardship, the National Apex Body as well as the state labour
ministers urged the Central Government to bring out certain measures for having a check on such
arbitrary action of the management. Accordingly, the Parliament enacted the Industrial Disputes
(Amendment) Act, 1976 which made the prior approval of the appropriate government necessary
in industrial establishments employing 300 or more workmen2. The 1982 and 1984 Amendment

1
Annamalai Timber Trust Ltd (1950) LLJ994 (IT)
2
Section 25M

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not only extended the provisions contained in 1976 Amendment to industrial establishments3
employing 100 or more workmen but has made a drastic amendment after taking into account the
observations of the Supreme Court in Excel Wear case4.

In context of retrenchment with the cessation of World War II and re-

establishment of normal transport facilities, new and improved machinery began to flow into the
country. These in turn resulted in rationalization of production processes and retrenchment of
surplus labour. The Situation was, however, met by the State interference in regulating the
employer’s right to retrench their workmen directly through the Ministry of labour and indirectly
through 'the industrial tribunals. This situation continued till 1953. In 1953, a grave situation arose
in textile mills resulting in retrenchment of a large number of workers employed therein. This led
to the promulgation of the Industrial Disputes (Amendment) Ordinance number 5 of1953.
Subsequently, these measures with a number of innovations and refinement50.50 incorporated in
the Industrial Disputes (Amendment) (Act 42 of 1953). Though the 1953-Amendment Act
provided for notice and retrenchment compensation it did not contain any provision for preventing
retrenchment. Cases of large scale retrenchment were reported time and again. Consequently, the
state government an: national apex bodies approached the Central Government to take legislative
measures for preventing arbitrary action of the management in retrenching its workmen.
Accordingly the Industrial Disputes (Amendment) Act, 1976 was enacted.
By this amendment, a new Chapter V-B has been added to the Industrial Disputes
Act, 1947 and this Chapter applies to industrial establishments which are factories, mines and
plantations, employing 300 or more workmen. For purposes of these new provisions, the central
sphere has been widened and the Central Government would also be the appropriate government
in respect of (i) companies in which not less than 51 per cent of the paid-up share capital is held
by the Central Government and, (ii) corporations established by or under any law made by
Parliament, despite the fact that insofar as other provisions of the Industrial Disputes Act are
concerned, some of these establishments are in the state sphere. This legislation makes it obligatory
for the employers of these industrial establishments to obtain previous permission of the specified
authority before retrenching any workmen. The specified authority has to give his decision within
a period of 2 months and the previous approval for closure within 90 days of the date of intended
closure. The Act also provides for certain transitional provisions in respect of continuing lay-off,
retrenchments and closures where the period of notices already sent have not expired and also in
respect of retrenchment. Now, decision will have to be communicated within 2 months. A new
provision has also been made in the Act for restarting of an already closed down undertaking under
certain special circumstances. The penal provisions in the Act for violation of any of these new
provisions are much more stringent than those already existing in the Act. The maximum penalties
provided are imprisonment for a term which may extend to one year in fine which may extend to
Rs5000 or with both. For continuing offences, the fine for each day of contravention after
conviction is Rs20005.

However, the Industrial Disputes (Amendment) Act, 1982 extended the aforesaid special
provisions of retrenchment to industrial establishments employing 100 workmen. Two years later,
the Industrial Disputes (Amendment) Act, 1984 curtailed the scope of retrenchment by inserting a

3
Under section 25L
4
Excel wear v. Union of India, (1978)2 LLJ 527 (SC)
5
Statement of object and reasons, Gazette of India

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new clause (bb) in Section 2 (00). Further, the proviso to clause (a) of Section 25-F was omitted.
Moreover, Section 25-N dealing with the conditions-precedent to retrenchment of workmen was
substituted and Section 25 Q dealing with penalties for retrenchment was amended.

Lay-off
According to Section 2 (kkk) salient features of lay-off are as following:
1) An employer, who is willing to employ, fails or refuses or is unable to provide
employment for reasons beyond his control.
2) Any such failure or refusal to employ a workman may be on account of:-
i. shortage of coal, power or raw materials, or
ii. the accumulation of stock, or
iii. the breakdown of machinery, or
iv. natural calamity, or
v. for any other connected reasons.

3) A workman who is so deprived of employment must be such whose name is borne on the
muster rolls of his industrial establishment.
4) The workman must not have been retrenched.

Meaning of Lay-off
"Lay-off" means putting aside workmen temporarily. The duration of lay-off should not
be for a period longer than the period of emergency. The employer-employee relationship does
not come to an end but is merely suspended during the period of emergency.
In Central India Spinning, Weaving and Manufacturing Co. Ltd., Nagpur v. State
Industrial Court6, the Bombay High Court held that the key to the definition is to be found in the
words, "the failure, refusal or inability of an employer". These words make it clear that the
unemployment has to be on account of a cause which is independent of any action or inaction on
the part of the workmen themselves. It is not a right but an obligation imposed on the employer
for the benefit of the workmen (M.A. Veiyra v. C.P. Fernandes and another)7. Far from laying
off of an employee being a right, it is really an obligation. The very essence of lay-off is that it is
temporary stoppage and that within a reasonable period of time the employer expects that, the
business or industry would continue and his employees who have been laid- off will be restored

6
(1959) I LLJ 468 Bom
7
AIR 1957 Bom. 100
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to their full rights as employees. Further, in definition of lay-off there is no indication whatever
that it should continue for a particular period of time.

Workman of Dewan Tea Estate v. The Management

The Supreme Court considering the management’s right to lay-off observed;
Whether it can be said that Section 25 C recognizes a common law right of the
industrial employer to lay-off his workmen? This question must, in our opinion, be answered in
the negative. When the laying-off of the workmen is referred to in Section 25 C, it is the laying-
off as defined by Section 2 (kkk), and 50, workmen who can claim the benefit of Section 25 C
must be workmen who are laid-off for occasions contemplated by Section 2 (kkk).
The Court added: If any case is not covered by the standing orders, it will necessarily be governed
by the provisions of the Act and lay-off would be permissible only where one or the other of the
factors mentioned by Section 2 (kkk) is present and for such lay-off, compensation would be
awarded under Section 25 C.

Workmen v. Firestone Tyre and Rubber C0.8

The Supreme Court explained the aforesaid observation to indicate that: If the power of lay-off
is there in the standing orders but the grounds of lay-off are not covered by them, rather are
governed by the provisions of the Act, then lay-off would be permissible only on one or the other
of the factors mentioned in Clause (iii). But there is no provision in the Industrial Disputes Act
specifically providing that an employer would be entitled to lay-off his workmen for the reasons
prescribed by Section 2 (kkk). In case of compensation of lay-off, position is quite different:
If the terms of contract of service or the statutory terms engrafted in the
standing orders do not give the power of lay-off to the employer, the employer will be bound to
pay compensation for the period of lay-off which ordinarily and generally would be equal to the
full wages of the concerned workmen. If, however, the terms of employment confer a right of lay-
off on the management, then, in the case of an industrial establishment which is governed by
Chapter V-A, compensation will be payable in accordance with the provisions contained therein.
But no compensation will be payable in the case of an industrial establishment to which the
provisions of Chapter V-A do not apply and it will be so as per the terms of employment.

Prohibition on Lay-off. Section 25-M

Till 1976, there was no provision for preventing lay-off in the Industrial Disputes Act, 1947.
In the 1970s, a number of cases of large-scale lay-off were reported. This resulted in all-round
demoralizing effect on the workmen. In order to prevent avoidable hardship and to maintain higher
tempo of production and productivity, the Industrial Disputes Act, 1947, was amended in 1976
whereby restrictions were imposed on the employer’s right to lay – off by Section 25 M. However,
following the decision of the Supreme Court in Excel Wear case some high courts9 declared invalid

8
(1976) I LJ493 (SC)
9
The Madras High Court in K Gurumurthy v. Simpson co., (1981) 2 LLJ 360 held that Section 25 M was ultra vires
the Consttitution.

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the provisions contained in Section 25 M was re-drafted and substituted by the Industrial Disputes
amendment Act, 1984 which came into force w.e.f. 18 August 1984. Section 25 M, applies to
every industrial establishment (not of seasonal character) in which not less than 100 Workmen are
employed on the average per working day for the preceding 12 months. Thus, Section 25 M, which
imposes prohibition on lay-off provides:

(1) No workman (other than a badli workman or a casual workman) whose name is borne on the
muster rolls of an industrial establishment to which this Chapter applies shall be laid- off by his
employer except 1[with the prior permission of the appropriate Government or such authority as
may be specified by that Government by notification in the Official Gazette (hereinafter in this
section referred to as the specified authority), obtained on an application made in this behalf, unless
such lay- off is due to shortage of power or to natural calamity, and in the case of a mine, such
lay-off is due also to fire, flood, excess of inflammable gas or explosion].

(2) An application for permission under sub- section (1) shall be made by the employer in the
prescribed manner stating clearly the reasons for the intended lay- off and a copy of such
application shall also be served simultaneously on the workmen concerned in the prescribed
manner.

(3) Where the workman (other than badli workmen or casual workmen) of an industrial
establishment, being a mine, have been laid- off under sub- section (1) for reasons of fire, flood or
excess of inflammable gas or explosion, the employer, in relation to such establishment, shall,
within a period of thirty days from the date of commencement of such lay- off, apply, in the
prescribed manner, to the appropriate Government or the specified authority for permission to
continue the lay- off.

(4) Where an application for permission under sub- section (1) or sub- section (3) has been made,
the appropriate Government or the specified authority, after making such enquiry as it thinks fit
and after giving a reasonable opportunity of being heard to the employer, the workmen concerned
and the persons interested in such lay- off, may, having regard to the genuineness and adequacy of
the reasons for such lay- off, the interests of the workmen and all other relevant factors, by order
and for reasons to be recorded in writing, grant or refuse to grant such permission and a copy of
such order shall be communicated to the employer and the workmen.

(5) Where an application for permission under sub- section (1) or sub- section (3) has been made
and the appropriate Government or the specified authority does not communicate the order
granting or refusing to grant permission to the employer within a period of sixty days from the
date on which such application is made, the permission applied for shall be deemed to have been
granted on the expiration of the said period of sixty days.

(6) An order of the appropriate Government or the specified authority granting or refusing to grant
permission shall, subject to the provisions of sub- section (7), be final and binding on all the parties
concerned and shall remain in force for one year from the date of such order.

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(7) The appropriate Government or the specified authority may, either on its own motion or on the
application made by the employer or any workman, review its order granting or refusing to grant
permission under sub- section (4) or refer the matter or, as the case may be, cause it to be referred,
to a Tribunal for adjudication: Provided that where a reference has been made to a Tribunal under
this sub- section, it shall pass an award within a period of thirty days from the date of such
reference.

(8) Where no application for permission under sub- section (1) is made, or where no application
for permission under sub- section (3) is made within the period specified therein, or where the
permission for any lay- off has been refused, such lay- off shall be deemed to be illegal from the
date on which the workmen had been laid- off and the workmen shall be entitled to all the benefits
under any law for the time being in force as if they had not been laid- off

(9) Notwithstanding anything contained in the foregoing provisions of this section, the appropriate
Government may, if it is satisfied that owing to such exceptional circumstances as accident in the
establishment or death of the employer or the like, it is necessary so to do, by order, direct that the
provisions of sub- section (1), or, as the case may be, sub- section (3) shall not apply in relation to
such establishment for such period as may be specified in the order.

(10) The provisions of section 25C (other than the second proviso thereto) shall apply to cases of
lay- off referred to in this section. Explanation.- For the purposes of this section, a workman shall
not be deemed to be laid- off by an employer if such employer offers any alternative employment
(which in the opinion of the employer does not call for any special skill or previous experience
and can be done by the workman) in the same establishment from which he has been laid- off or
in any other establishment belonging to the same employer, situate in the same town or village, or
situate within such distance from the establishment to which he belongs that the transfer will not
involve undue hardship to the workman having regard to the facts and circumstances of his case,
provided that the wages which would normally have been paid to the workman are offered for the
alternative appointment also.

.Compensation for the Period of Lay-off

1 Under the Standing Orders. - Most standing orders contain a clause providing for lay. off. It
also generally provides for the manner in which lay-off compensation should be paid. Where the
relevant clauses of the standing orders provide for lay-off and the compensation therefor, the
question of compensation will be determined by such standing orders. But in case of contiict
between the provisions of standing ordersand the statutory provisions for lay-off compensation,
the latter will override the former. If the standing orders of the establishment merely provide for
the reasons for which lay-off may be declared by the employer and do not provide the manner in
which the compensation shall be paid to the laid-off workmen, the compensation shall be Paid to
them in accordance with Section 25-C provided, of course, the lay-off is covered under Section 2
(kkk).

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2 Under Section 25 C of the Industrial Disputes Act. - To ensure a minimum earning during
forced unemployment when workmen's names are borne on muster rolls, the Industrial Disputes
Act, 1947 provides for payment of compensation equal to 50 per cent of the total of the basic wage
and dearness allowance, for all days during which he is laid-off; provided he has completed
continuous service of one year Or more. However, under proviso to Section 25-C (1) if during any
period of 12 months, a workman is laid-off for more than 55 days, no compensation shall be
payable toa workman in respect of any period of lay-off after the expiry of 45 days if there isan
agreement to that effect between the workman and the employer. Alternatively, the employer may
retrench the workmen at any time after the expiry of 45 days. If the workmen is retrenched under
such circumstances, compensation paid to him for having been laid-off during the proceeding 12
months may be set-off against compensation payable for retrenchment.

Section 25-A.
Application of Sections 25-C to 25-E
According to sub-section (1) of this Section.
Sections 25-C to 25-E inclusive shall not apply to industrial establishments to which Chapter V-b
applies or,-
a) to industrial establishments in which less than fifty workmen on an average per working
day have been employed in the preceding calendar month, and
b) to industrial establishments which are of a seasonal character or in which work is
performed only intermittently.
Thus where the exemption under Section 25-A applies, the workmen
are not entitled to lay-off compensation and the Tribunal has no right to grant relief on
fanciful notions of social justice (South India Corp. & others v. All Kerala Cashewnut
Factory Workers' Federation10. Sub-section (1) exempts such establishments where on
an average less than fifty workmen have been employed. Therefore, if on any day more
than 50 persons were employed but on an average during the preceding calendar month
less than 50 persons are employed, provisions of Sections 25-C to 25-E would not apply,
and therefore no compensation for lay-off can be claimed (Tinkori Oil Mills Mazdoor
Congress v. Tinkori Sadhu Khan and Sons11. Where it is contested that less than 50
persons were employed in any industrial establishment, the period with reference to which
the number of employees is to be determined is the calendar month preceding the point of
time when the statutory right under Section 25-C arose (Kohinoor Saw Mills Co. v. State
of madras.12The two expressions "seasonal character" and "intermittent" are not defined
in the Act but they are not synonymous. 'Seasonal' implies dependance on nature over

10
(1960) I
LLJ 103 Ker
11
II FJR 197 LAT
12
1957 II LLJ 210 Mad.
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 Labour Law- I

which niether the employer nor the employee in the establishment has any control.
'Intermittent' means not continuous but falling after certain gaps or intervals.

Section 25-A (2)

This sub-section provides that "if a question arises whether an industrial establishment is
of a seasonal character or whether work is performed therein intermittently the decision of the
appropriate Government thereon shall be final. This sub-section comes into play in case of any
disputed claim to a right or any dispute about the liability thereof, although the dispute need not
be an 'industrial dispute' within the meaning of Section 2(k) of this Act. The appropriate
Government has jurisdiction to decide any such dispute, and the exercise of this function by the
Government is of a quasi-judicial nature because it has to give decision in a dispute between the
two parties. The decision has normally to be given after giving both the parties reasonable
opportunity to represent their case. The decision must be based on considerations relevant to the
dispute.

Section 25-B Continuous services

This section of the Act defines continuous service. The definition of 'continuous service'
as given in this section is applicable to this Chapter only. A workman shall be said to be in
continuous service for a period, if or that period his service is uninterrupted. It is also provided
that any interruption on certain accounts shall not be considered an interruption and the service
shall still be deemed to be continuous. These interruptions may be on account of:
1) sickness; or
2) authorized leave; or
3) an accident; or
4) a strike which is not illegal; or
5) a lock-out; or
6) a cessation of work which is not due to any fault on the part of the workmen.
Sub-section (1) provides that taking part in a strike which is not
illegal is not an interruption. In case of a person taking part in an illegal strike, an
employee may be dismissed on that account the service shall be deemed to be
continuous service. In case of second category of cases even though the service is
interrupted it shall be deemed to be continuous unless it has been terminated, for
instance, by an order of dismissal for taking part in an illegal strike (Jairam Sonu
Shogale v. New India Rayon Mills Co. Ltd.)13.

13
1958 I LLJ 28 Bom
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Sub-section (2) of this Section defines continuous service for a period of one year or a
period of six months. Clause (a) of sub-section (2) provides that a workman shall be deemed to
have been in continuous service for a year, if-
1) he has been in employment for 12 calendar months; and
2) he actually worked for not less than-
a) One hundred and ninety days in the case of a workman employed below
ground in a mine, and
b) Two hundred and forty days in any other case.

The following conditions must be fulfilled by a workman to entitle him for a continuous service
of six months. As provided by clause (b) of sub-section (2) these conditions are:-
1) The workman has been in employment for a period of six calendar months; and
2) Such workman has actually worked for not less than-
a) Ninety-five days in the case of his being employed below ground in a mine; and
b) One hundred and twenty days in any other case.

In Surendranagar Panchayat and another v. Jethabai Pitambarbhai14 respondent who

was a daily wager was terminated from service. The Labour Court held termination as illegal as it
was without notice or payment in lieu thereof as well as it ignored his seniority. The award was
also affirmed by the High Court.

Section 25-C. Right of workmen laid-off for compensation

This Section entitles a workman to get compensation from the employer for the period
he is laid-off. When the employer is unable to provide work to his workmen for reasons beyond
his control, he owes a duty to pay lay-off compensation to such workmen. Before a workman may
claim lay-off compensation he must fulfill the following conditions:
1) His name must be borne on the muster rolls of an industrial establishment;
2) He must have completed at least one year's continuous service (what he is continuous
service is defined in Section 25-B);
3) The workman must not be a badli or a casual workman.

If the above requirements, are fulfilled a workman whether laid-off continuously or intermittently,
shall be paid compensation. The compensation payable shall be for all days during which he is
laid-off, except for such weekly holidays as may intervene. The amount of compensation payable
shall be equal to 50% of the total of the basic wages and dearness allowance that would have been
payable to him had he not been so laid-off.
The above rule is subject to the following limitations:

14
(2006) I LLJ 268 (SC),
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 Labour Law- I

1) If during any period of 12 months a workman is laid-off for more that 45 days, no
compensation shall be payable in respect of any period of the lay-off after the expiry of
2) The 45 days provided that there is an agreement between the workman and the employer
to this effect. Thus compensation is payable for a maximum period of 45 days during a
period of 12 months and for a period longer than 45 days of there is no agreement to the
contrary between employer and workman.
3) Where a workman is laid-off for a period of 45 days during a period of 12 months, the
employer has a right to retrench such workman at any time after the expiry of 45 days of
lay-off. When an employer decides to retrench a workman he must comply with the
requirements of Section 25-F of the Act. Any lay-off compensation paid to the workman
during the preceding 12 months may be set off against the compensation payable for
retrenchment.

Section 25-D. Duty of an employer to maintain muster rolls of workmen

This Section imposes a duty upon the employer to maintain a muster roll for the purposes of this
Chapter. The employer shall also provide for making of entries in the muster rolls by workmen
who may present themselves for work at the appointed time during normal working hours. Every
Workman who has been laid-off is required to present himself for work at the establishment on
each working day at the appointed time. He shall make entry in the muster rolls maintained by the
employer. A workman who does not so present himself and sign the muster rolls shall not be
entitled to claim lay-off compensation. The duty imposed upon the employer by this section is also
mandatory and non-compliance will debar the employer to take advantage of Section 25-E (ii) of
the Act.

Section 25-E. Workmen not entitled to compensation in certain cases

Section 25-E provides that a laid-off workman shall not be entitled to compensation:-
1. if he refuses to accept alternative employment provided that such alternative employment
is offered:
a) in the same establishment or in any other establishment belonging to the same
employer situated in the same town or village or situated within the radius if five
miles from the establishment to which he belongs; and
b) if in the opinion of the employer, the alternative employment does not call for any
special skill or previous experience and can be done by the laid-off workman; and
c) if the wages which would normally have been paid to the workmen in his previous
employment are offered for the alternative employment also;

2. If he does not present himself for work at the establishment at the appointed time during
normal working hours at least once a day;

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3. If the lay-off is due to strike or slowing down of production on the part of workmen in
another part of the same establishment.
Clause (ii) requires a workman to present himself for work at the establishment daily, if he
does not he cannot claim lay-off compensation. But his absence does not disentitle him to
reinstatement after the lay-off is over.
Clause (iii) says that the employer is exonerated from his liability to pay compensation
where lay-off is due to strike or slowing down of production on the part of the workmen in another
part of the establishment15.

15
Lone Tree Estate v. Industrial Tribunal, 1962, II LLJ 319 Kerala
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 Labour Law- I

Retrenchment
Retrenchment connotes it is ordinary acceptation that the business itself is being continued,
but that a portion of the staff of labour force is discharged as surplusage.16 It means disharge of
surplus labour or staff by the employer for any reason whatsoever.17 The order of termination must
be actuated with a motive of economy. Section 2(oo) which defines the term "retrenchment" may
be analysed as follows:
1) Retrenchment means the termination by the employer of the service of a workman;
2) The termination may be for any reason whatsoever;
3) But the termination should not be as a measure of punishment by way of disciplinary action.

The following are not retrenchment:

a) Voluntary retirement of a workman, or
b) Retirement of a workman on reaching the age of superannuation if the contract of
employment between the employer and the workman concerned contains stipulation in
that behalf; or

bb) Termination of the service of a workman as a result of the non-renewal 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.
Termination of service, Voluntary Retirement Scheme, continued ill-health, contract of
employment under clause (bb), contract of employment, voluntary resignation are important points
discussed whether they are included in the exception to retrenchment under Section 2(oo) or not.

Section 25-F. Conditions precedent to retrenchment of workmen

It lays down the requirements for a valid retrenchment. However, these conditions apply
in case of retrenchment of an employee who has been in continuous service for not less than one
year.18 The section prescribes three conditions for a valid retrenchment, namely:-
a) The workman should be given one month's notice in writing indicating the reasons of
retrenchment. Retrenchment should be effected after the expiry of the period of notice.

16
Piparaich Sugar Mills Ltd. v. Piparaich Sugar Mills Unsion, AIR 1957 SC 95.
17
Harprasad Shiv Shanker v. A.D. Diwekar, AIR 1957 SC 121
18
Mohan Lal v. Bharat Electronics Ltd. 1981, II LLJ 70 SC
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 Labour Law- I

If no such notice is given, the workman must be paid in lieu of such notice wages for the
period of notice.
b) The workman has been paid, at the time of retrenchment, compensation, equivalent to
fifteen days' average pay for every completed year of continuous service or any part
thereof in excess of six months.
c) Notice in the prescribed manner is served on the appropriate Government or such
authority as may be specified by the appropriate Government by notification is the
Official Gazette. Provisions relating to notice of retrenchment are contained in Rule 76
of the Industrial Disputes (Central) Rules, 1957.

The requirement of paying compensation is a mandatory pre-condition for retrenchment of

a workman, therefore, its non-compliance will render a retrenchment invalid19, and would attract
the penalty under Section 31(2) of the Act20. If retrenchment is proved unlawful, the workman has
a right to reinstatement with continuity of service and right to wages for such period.
Termination of service of a workman for any reason other than those accepted in Section
2(oo) amounts to retrenchment. If pre-requisites for a valid retrenchment have not been complied
with, the termination of service would be void ab initio. Therefore, the workman would be entitled
to a declaration that the workman continued to be in service with all consequential benefits21, and
if he was not paid all the benefits including salary he shall be entitled to recover the same as
arrears22.

Section 25-FF. Compensation to workmen in case of transfer of undertakings

Section 25-FF provides that in case of transfer of ownership or management of an
undertaking from one employer to another every workman:-
a) shall before such transfer be entitled to notice, and
b) shall also be entitled to compensation in accordance with the provisions of Sections
25-F as if the workman to compensation had been retrenched.

To entitle a workman to compensation under this section the following conditions must be
simultaneously complied with, namely:
1) a transfer of ownership, or management of undertaking from one employer to another either
(i) by agreement or (ii) by operation of law;
2) the undertaking in question must be an industry within the meaning of Section 2(j) and the
workman should be a workman within the meaning of Section 2(s); and

19
D.C. & G. Mills v. Shambhu Nath, AIR 1978 SC 88; State of Bombay v. Hospital Mazdoor
Sabha, 1960 I LLJ 251 SC
20
Melby D'Cruz v. Travancore Mineral Ltd., 1967 II LLJ 637 Kerala
21
Mohan Lal v. Bharat Electronics Ltd. 1981 II LLJ 70 SC
22
Deshraj Sood v. Industrial Tribunal and others, 1985 I LLJ 74 Patna
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 Labour Law- I

3) The workman must have put in a continuous service of not less than one year in that
undertaking immediately before the transfer of ownership or management of the
undertaking.

The proviso to Section 25-FF lays down that a workman shall not be entitled to benefits
under this section in case of change of employers by reason of the transfer of:-
1) the service of the workman has not been interrupted by the transfer;
2) the terms and conditions of service applicable to the workman after such transfer are not in
any way less favourable to the workman than those applicable to him immediately before
the transfer; and
3) the new employer is under the terms of such transfer or otherwise, legally liable to pay to
the workman, in the event of his retrenchment, compensation on the basis that his service
has been continuous and has not been interrupted by the transfer.

For the application of Section 25-FF it is necessary that the ownership or management of
an undertaking must have been transferred from one employer to another. In case of transfer of
ownership or management not covered by the proviso to this section, the employees become
entitled to notice and compensation, and provisions of Section 25-F are also attracted because the
transfer results in the retrenchment of employees. Reference to Section 26 is made only for the
purpose of calculating the amount of compensation payable to workmen23.

Section 25-G. Procedure for retrenchment

The well recognised principle of retrenchment in industrial law is 'first come last go' and
'last come first go'. This principle has been incorporated in Section 25-G of the Act. The procedural
protection provided under this section can be claimed by a workman on the fulfillment of the
following conditions, namely:-
1) The workman must be a workman within the meaning of Section 2(s) of the Act;
2) The workman should be an Indian citizen;
3) The workman should be employed in an establishment which is an industry within the
meaning of Section 2(j) of the Act;
4) The workman should belong to a particular category of workmen in the industrial
establishment; and
5) There should be no agreement contrary to the principle of 'last come first go' between the
employer and workman. Any provision in the standing orders to the above effect shall be
deemed to be agreement for the purposes of this section.

23
Ankapalla Co-operative Agricultural and Industrial Society v. Its Workmen 1962 II LLJ 621 SC).

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 Labour Law- I

For the application of Section 25-G all the above five conditions must be simultaneously
complied with. If these conditions are fulfilled, the principle of 'last come first go' shall be
ordinarily adhered to by the employer. The use of the word "ordinarily" connotes that the above
procedure can be departed from where circumstances specially applicable to the industry in
question so demand. But in case of any departure from the establishment principle of retrenchment,
the reasons therefore must be recorded by the employer. Thus, of any departure from the above
principle is possible in two cases, namely:-
1) by an agreement to the contrary between the workman and the employer; and
2) for any other reasons to be recorded by the employer.

It is noteworthy that the above principle has to be applied with respect to different
categories of workmen employed in an industrial establishment and not to the whole of the
establishment.

Section 25-H. Re-employment of retrenched workmen

This section of the Act is based on known principle that when a workman has been
retrenched by employer on the ground of surplus staff, such workman should first be given an
opportunity to join service whenever an occasion to employ another hand arises. This section
imposes a statutory obligation on the employer to give opportunity to the retrenched employees to
offer themselves for re-employment. In order to claim preference in employment under this section
a workman must satisfy the following conditions:
1) he should have been retrenched prior to re-employment;
2) he should be a citizen of India;
3) he should offer himself for re-employment in response to the notice by the employer;
4) he should have been retrenched from the same category of service in the industrial
establishment in which the re-employment is proposed.

Only a 'retrenched' workman can claim benefit under Section 25-H. A dismissed,
discharged or a superannuated workman has no claim for preferential re-employment. When notice
is given to a workman and he fails to offer himself for re-employment, he will be disentitled from
claiming the benefit under this section.

Section 25-N. Conditions precedent to retrenchment of workmen

(1) No workman employed in any industrial establishment to which this Chapter applies, who has
been in continuous service for not less than one year under an employer shall be retrenched by that
employer until,

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 Labour Law- I

(a) the workman has been given three months' notice in writing indicating the reasons for
retrenchment and the period of notice has expired, or the workman has been paid
in lieu of such notice, wages for the period of the notice; and
(b) The prior permission of the appropriate Government or such authority as may be
specified by that Government by notification in the Official Gazette (hereafter in this section
referred to as the specified authority) has been obtained on an application made in this behalf.

(2) An application for permission under sub- section (1) shall be made by the employer in the
prescribed manner stating clearly the reasons for the intended retrenchment and a copy of such
application shall also be served simultaneously on the workmen concerned in the prescribed
manner.

(3) Where an application for permission under sub- section (1) has been made, the appropriate
Government or the specified authority, after making such enquiry as it thinks fit and after giving a
reasonable opportunity of being heard to the employer, the workmen concerned and the persons
interested in such retrenchment, may, having regard to the genuineness and adequacy of the
reasons stated by the employer, the interests of the workmen and all other relevant factors, by order
and for reasons to be recorded in writing, grant or refuse to grant such permission and a copy of
such order shall be communicated to the employer and the workmen.

(4) Where an application for permission has been made under sub- section (1) and the appropriate
Government or the specified authority does not communicate the order granting or refusing to
grant permission to the employer within a period of sixty days from the date on which such
application is made, the permission applied for shall be deemed to have been granted on the
expiration of the said period of sixty days
.
(5) An order of the appropriate Government or the specified authority granting or refusing to grant
permission shall, subject to the provisions of sub- section (6), be final and binding on all the parties
concerned and shall remain in force for one year from the date of such order
.
(6) The appropriate Government or the specified authority may, either on its own motion or on the
application made by the employer or any workman, review its order granting or refusing to grant
permission under sub- section (3) or refer the matter or, as the case may be, cause it to be referred,
to a Tribunal for adjudication: Provided that where a reference has been made to a Tribunal under
this sub- section, it shall pass an award within a period of thirty days from the date of such
reference.

(7) Where no application for permission under sub- section (1) is made, or where the permission
for any retrenchment has been refused, such retrenchment shall be deemed to be illegal from the
date on which the notice of retrenchment was given to the workman and the workman shall be
entitled to all the benefits under any law for the time being in force as if no notice had been given
to him.

(8) Notwithstanding anything contained in the foregoing provisions of this section, the appropriate
Government may, if it is satisfied that owing to such exceptional circumstances as accident in the
establishment or death of the employer or the like, it is necessary so to do, by order, direct that the

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 Labour Law- I

provisions of sub- section (1) shall not apply in relation to such establishment for such period as
may be specified in the order.

(9) Where permission for retrenchment has been granted under sub- section (3) or where
permission for retrenchment is deemed to be granted under sub- section (4), every workman who
is employed in that establishment immediately before the date of application for permission
under this section shall be entitled to receive, at the time of retrenchment, compensation which
shall be equivalent to fifteen days' average pay for every completed year of continuous service or
any part thereof in excess of six months

Section 25-Q. Penalty for lay-off and retrenchment without previous

permission
Any employer who contravenes the provisions of Section 25-M or Section 25-N shall be
punishable with imprisonment for a term which may extend to one month, or with fine which may
extend to one thousand rupees, or with both.

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 Labour Law- I

Conclusion

Lay-off is a measure to cope with the temporary inability oof an employment to offer employment
to a workman to keep the establishment as going concern. It results in immediate unemployment
though temporary in nature. It does not put an end to the employer- employee relationship, nor
does it involve any alteration in condition of service. Further, lay-out occurs only in a continuing
business. When the industrial establishment is permanently or it lock- out is declared by the
employer, the question of lay- off has no relevance. Lay- off is justified only when it is in
conformity with the definition given under section 2 (kkk) of thr industrial dispute Act 1947. The
right of woekmen to lay-off compensation is designed to recieve the hardship caused by
unemployment due to no fault of the employee. The provision for payment of compensation for
lay- off compensation and it does not mean that the employer can pay, lay- off compensation and
declare lay- off. Payment of compensation is not a condition precedent to lay-off. An employer,
who is willing to employ, fails or refuses or is unable to provide employment for reasons beyond
his control.Any such failure or refusal to employ a workman may be on account of shortage of
coal, power or raw materials, or the accumulation of stock, or the breakdown of machinery, or
natural calamity, or for any other connected reasons. A workman who is so deprived of
employment must be such whose name is borne on the muster rolls of his industrial establishment.
The workman must not have been retrenched. Lay-off" means putting aside workmen temporarily.
The duration of lay-off should not be for a period longer than the period of emergency. The
employer-employee relationship does not come to an end but is merely suspended during the
period of emergency.
Retrenchment generally means discharge of surplus of staff by the employer on
account of a long period of lay-off or rationalization or production process or improved machinery
or automation of machines or similar other reasons. It is adopt as an economy measure. The
subsisting employer workmen relationship is however terminated in case of retrenchment.

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 Labour Law- I

REFERENCES
Books and authors
 Labour and industrial laws, 10th edition, centeal law agency by Dr. V.G. Goswamy.
 Labour and industrial laws, 4th edition, lexis nexis by Avtar Singh and Harpreat Kaur
 Industrial relations and labour laws6th edition by S.C Srivastava
 Labour and industrial laws by prof. K.M. PILLAI
 Labour and industrial laws, 10th edition universal law publishing by H.L.Kumar

WEBSITES

 www. Wikipedia org.

 www.indiankanoon. Org.
 www. Lawmin.in

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