This article is written by Shashank Singh Rathor. This article is all about the layoffs covered under the Industrial Disputes Act, 1947, and the Industrial Relations Code, 2020, which assure certain rights to the workmen and employers subject to certain restrictions.

It has been published by Rachit Garg.

Introduction

Have you ever heard of the term ‘Lay Off’’? Imagine you get up early in the morning to get ready for your office but unfortunately receive an email notification that says that the company decided to lay you off. What will your reaction be in the first place? Recently, many of the national and multinational companies laid off large chunks of people. According to a report by the Economic Times-Tech, Microsoft, Amazon, Meta, Dell, HP, Twitter, etc., are some of the famous names that laid off their employees in the recent past. As per the data available on Layoffs.fyi, a real-time layoff tracking platform, in 2022, globally, around 1,64,969 employees had been laid off. Aren’t the numbers shocking? But the more shocking thing is that these people were laid off on short notice. So, now the first question that pops up in mind is, how can these national and multinational companies do this to these people without facing any legal consequences? And now, what will happen to all these people? And how will they survive without getting paid for the next few months?  Also, for the period when they will be jobless? 

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Let all your queries get resolved through this article, and let’s understand the Indian perspective on laying off an employee.       

Layoff under the Industrial Disputes Act, 1947

Layoff is defined under Section 2(kkk) of the Industrial Disputes Act, 1947 (“Act”), which says that a workman is said to be laid-off when an employer fails, refuses or is unable to provide employment to the workman whose name is mentioned in the muster roll of an industrial establishment due to reasons beyond the employer’s control, such as insufficiency of coal, power or raw material, the accumulation of stocks, the breakdown of machinery, a natural calamity or any other same or correlated reason. That workman has not been retrenched due to the above-stated reasons.

In simple terms, a layoff is the incapacity of the employer to provide employment to the employee for a temporary period so that the employer can keep his business operational even in a time of scarcity. If the employer ends up shutting down the industrial facility and announces the lock-out of the industrial establishment, then the concept of layoff becomes irrelevant. Layoffs are not permanent, and they do not end the contractual relationship between the employer and employee. Layoff does not mean full termination of the employees; it means that they will not receive their full wages during that period. 

In the case of Priya Laxmi Mills Ltd v. Mazdoor Mahajan Mandal (1976), the term ‘Lay Off’ is interpreted in accordance with the dictionary “in its etymological sense” as a period in which the workers are temporarily discharged from doing their work. Thereafter, the Apex Court in Workmen of Firestone Tyre and Rubber Co. of India Ltd v. Mgmt (1973) ruled that ‘Lay Off’ is neither a full dismissal of a workman nor the temporary suspension of the contractual relation between the employer and employee; rather, it is constituted as temporary unemployment for the workmen. The Supreme Court further added that ‘Lay Off’ means the failure, unwillingness, or inability of the employer to provide employment to the workmen due to the reasons listed in the definition under the Section. The definition under the Act is explicit in nature and distinct from the Western understanding of layoff; there is no need to resort to other definitions.

Essential Conditions for layoffs

There are certain essential conditions that must be taken into account before laying off workers. The conditions are as follows:

  • The employer’s inability, failure, or refusal to provide the work to the workmen.
  • Such inability, failure, or refusal must be there due to the insufficiency of coal, power,  raw materials, accumulation of stocks, breakdown of machinery, a natural calamity or any other relevant reason.
  • A workman who has been laid off or deprived of employment must be someone whose name is on the record of the muster roll of his industrial establishment.
  • The workmen must not have been retrenched from the work.

Failure, refusal, or inability 

As per the definition provided in the Act, when the employer fails, refuses, or is unable to provide work due to the insufficiency of coal, power, raw materials, accumulation of stocks, breakdown of machinery or natural disaster, and any other situations that are beyond the control of the employer in his industrial establishment, the layoff done due to all these circumstances will be legally valid in itself. In a landmark judgement, Central India Spinning, Wearing and Manufacturing Co. Ltd., Nagpur v. State Industrial Court (1959), the Bombay High Court held that the key terms in the definition, i.e., “the failure, refusal, or inability of an employer” make it apparent that the unemployment caused to the workmen is irrespective of their action or inaction. 

For any other reason

The expression ‘for any other reason’ that is in the definition under Section 2(kkk) of the Act must be interpreted as ejusdem generis. In a landmark judgement, Management of K. Estate v. Rajamanickam (1960), the Apex Court elaborated that ‘Any other reason’ as defined under Section 2(kkk) of the Act, must be similar to the reasons that are explicitly mentioned in the clause that are insufficiency of coal, power, raw materials, accumulation of stocks, breakdown of machinery or natural disaster. The common feature of all these reasons has to be something that is beyond the control of the employer, which led to the layoff of the workmen. Accordingly, the expression ‘for any other reason’ must have similar characteristics.

When are workmen considered laid off

Criminal litigation

As per the explanation attached to Section 2(kkk), the workman whose name is mentioned in the muster roll of the industrial establishment and is willing to work and is present during the normal working hours of the day for the specific purpose he has been allotted with, but he doesn’t get the work within the two hours of his presence at the workplace then such workman is deemed to be laid off for that day within the context of this clause.  

If the workman, instead of being given employment at the start of the shift of any day, is asked to be present at the workplace in the second half of the shift for the purpose of work, then such workman is considered laid off only for one-half of that day.

Provided that if the workman has not been given work in any half of the day even after presenting himself at the workplace, then such workman is considered laid off for the whole of the day, and thereafter he shall be entitled to the full basic wages and dearness allowance for that part of the day.

Compensation to laid-off employees

Under the Industrial Disputes Act, 1947, there are provisions regarding compensation to the workman in certain circumstances that allow the workman to avail compensation from the employer, subject to some restrictions. The workman is allowed to take compensation from his employer if he has been laid off under the ambit of Section 2(kkk) of the Act, subject to certain conditions that need to be fulfilled. The conditions are as follows:    

Industries permitted to layoff workmen without any compensation: Section 25A, Industrial Disputes Act, 1947

Section 25A of the Act lays down certain industry establishments to which the provisions related to the workmen’s compensation shall not apply. Those industrial establishments are as follows:

  • Industrial establishments in which, on average, less than 50 workmen were there on any day in the preceding calendar month.
  • Industrial establishments of such nature in which the work is done either seasonally or intermittently.
  • Industrial establishments that come under the ambit of Chapter V-B of the Industrial Disputes Act, 1947.

Continuous Service: Section 25B, Industrial Disputes Act, 1947

Section 25B of the Act, lays down the definition of continuous service. As per the Section, a workman is said to be in continuous service if he has completed at least one year with that particular industrial establishment without any interruption; only then will that workman be entitled to take the compensation. The interruption of the continuous service is not affected by any kind of authorised leave, sickness, accident, legal strike, lock-out or cessation of work due to the fault of workmen.

There are two exceptions provided therein in the Section where even if the workman is not in continuous service, he shall be considered to be in continuous service. They are as follows:

  • If the workman was employed for the preceding 12 months from the date on which the calculation is being made.
  • If the workman is employed in the mine for a period of 190 days or more, and in case of any other employment served for a period of 240 days. 

As per the explanation attached to this Clause, the following days shall be taken into consideration to determine the number of days the workman worked for the employer:

  • The number of days during which the workman had been laid off under a standing order, agreement, this Act, or any other law relevant to the industrial establishment.
  • The number of days during which the workman was on paid leave.
  • The number of days during which the workman was on rest due to any temporary disability caused during his course of work at the job.
  • In the case of a female employee, the maximum number of days she spent on maternity leave was up to 12 weeks.

Conditions to comply with for getting Compensation: Section 25C, Industrial Disputes Act, 1947

According to, Section 25C of the Act, the workman who has been laid off is entitled to receive 50 percent of his total basic earnings and a dearness allowance for the duration of the layoff. 

However, this compensation right given to the workman is subject to the following conditions:

  • The workman is not a badli or a casual worker. A badli worker is someone who has been hired in place of another worker whose name is borne on the muster roll of the industrial establishment. However, such a worker won’t be considered a badli worker if he completes the duration of one year with that particular industrial establishment. 
  • Workman’s name must be on the muster roll of the industrial establishment. 
  • The workman must have computed the duration of one year at that particular establishment as an employee.

In one of the landmark judgements, Veiyre v. Fernandes (1956), the question before the court was whether the law only confers the right to compensation to the employee and there is no right given to the employer to lay off the employee. The Bombay High Court ruled that the legislature, while making the law, intended to grant the right to employers to lay off employees, and there is no binding obligation on their part to keep employment and give full year’s wages to employees. Hence, the retrenchment of the employees after giving them layoffs and retrenchment compensation was held to be legitimate.    

Conditions where a worker is not entitled to lay off compensation

Section 25E of the Act lays down certain circumstances where the workman is not entitled to receive any lay-off compensation from the employer; those conditions are as follows:

  • If the workman refuses to accept the alternate work given to him, provided that:

The alternate employment given to him is in the same establishment he was working in. Also, the alternate employment given to him is in the alternate establishment but under the same employer within a radius of 5 miles from the establishment where he was working before.

The new work assigned to the workman by the employer does not require any special skill set or previous experience in comparison to the work the workman can do. Provided that there will be no deduction in the wages, the workman will be entitled to the same wages he was getting in his previous employment for the employer.

  • If the workman does not present himself at the appointed time and workplace once a day.
  • The workman is not entitled to layoff compensation if he has been laid off due to a strike or slowdown in another part of the industrial establishment.

Duty of employer to maintain muster roll: Section 25D, Industrial Disputes Act, 1947

Section 25D of the Act, states that it is the duty of the employer to maintain a muster roll and keep a proper record of the workmen who present themselves during the working hours of the establishment. It is important to note that the workmen have to be present at the workplace during the working hours of the establishment; otherwise, they won’t be eligible to receive compensation. The employer should maintain the muster roll properly; otherwise, he cannot take the defence under Section 25E, for not providing compensation to the workmen. 

Prohibition of lay off: Section 25M, Industrial Disputes Act, 1947

During the 1970s, there was a major lay-off which led to mass unemployment at that time. This led the government to introduce provisions prohibiting unhealthy lay-offs by employers. A new chapter, Chapter V-B was introduced in the Industrial Disputes Act, 1947, by the Industrial Disputes Amendment Act, 1976. 

Section 25M of the Act puts certain restrictions on the employer while laying off the workman. It is important to note that these restrictions are only applicable to industries that have more than 100 workmen and do not operate seasonally. Moreover, the employer cannot lay off an employee whose name is mentioned in the establishment’s muster roll except when the cause of that layoff is a lack of power or a natural disaster. If the work is related to mining, then the cause can also be an explosion, fire, an excess of inflammable gas, or a flood.

As per Section 25M, the employer can lay off the employee after obtaining permission from the concerned government or the authority as specified by the government. The procedure for the same purpose is as follows:

  • The employer has to write an application to the concerned authority specified by the government or government itself, citing the reason for the lay-off of the workman and a copy of the application must be provided to the workman. 
  • After obtaining the application, the concerned authority or government itself can inquire about and investigate such lay-off. 
  • After such investigation, the order of the concerned authority or the government shall be communicated to the employer and the workmen being laid off. 
  • Thereafter, the order of such concerned authority or the government shall be deemed conclusive and will be binding for a period of one year from the date of such order.

It is important to note that if the concerned authority or the government does not communicate its decision regarding lay-off within 60 days from the date of filing the application, then such an application for lay-off will be deemed granted. Moreover, the order of the concerned authority or the government can be referred to the tribunal for adjudication, or it can be reviewed by its own motion or through the application given by the employer or workman.

If the employer refuses to comply with the order given by the concerned authority or the government and lay-off his employees even after the refusal of the concerned authority or the government, then such non-adherence will be considered illegal, and the workman who is the victim of such a layoff will be entitled to the benefit provided in the law. However, a workman will not be considered laid off if the employer provides alternate employment for him. 

In the landmark judgement, Papanasam Labour Union v. Madura Coats Ltd. (1995), the question before the division bench of the Apex Court was whether Section 25M is constitutionally sound or not? The Supreme Court, while upholding the constitutional validity of the Section, held that the basic objective of the Section is to avoid the hardship faced by workmen due to the unhealthy lay-off and to encourage the industrial amity. Further, the Apex Court specified that there is no requirement of taking prior approval in extreme cases, as mentioned under Sub-Section (3). For the purpose of avoiding illegal or unhealthy lay-offs and industrial peace, such a provision was held not to be unconstitutional and arbitrary in nature. The same view was adopted in the case of Ashok Kumar Jain v. State of Bihar (1995), it was held that the constitutional validity of the provision was already decided by the Supreme Court, and that is sound in itself. 

Consequences of violation of law: Section 25Q, Industrial Disputes Act, 1947 

Section 25Q of the Act lays down that when an employer violates the provisions mentioned under Section 25M in such circumstances, he will be held liable for the punishment under this Section 25Q, which is imprisonment, which may extend to one month, a fine, which may be extendable up to one thousand, or both.

Lay-Off under the Industrial Relations Code, 2020

In the month of September 2020, the Parliament passed the Industrial Relations Code 2020 (“Code”), which aims to replace the following three acts that are as follows:

  • Industrial Disputes Act, 1947 
  • Trade Unions Act, 1926
  • Industrial Employment (Standing Orders) Act, 1946.

Section 2(t) of the Industrial Relations Code, 2020, defines layoff, which is more or less similar to the definition that is provided under Section 2(kkk) of the Industrial Disputes Act, 1947. Section 2(t) of the Code states that layoff means the failure, refusal or inability of an employer, on account of the shortage of coal, power or raw materials or the accumulation of stocks or the break-down of machinery or a natural calamity or for any other connected reason, to give employment to a worker whose name is mentioned in the muster rolls of his industrial establishment and who has not been retrenched.

The Industrial Relations Code majorly deals with the by-laws related to layoffs and various other industrial laws as mentioned herein above. The Code in itself mentions that the aim of this code is to “consolidate and amend the laws relating to Trade Unions, conditions of employment in industrial establishments or undertakings, the investigation and settlement of industrial disputes, and matters connected therewith or incidental thereto.”

Critical analysis of the Industrial Relations Code, 2020 

Chapters XI and X of the Code specifically deal with the laws related to layoffs, retrenchment and closure. Surprisingly, the makers of the Code made minimal changes in the laws when they had the opportunity to universalise the application of laws to every industrial establishment, so the rights of the employer and workman remain unharmed in every type of industrial establishment. However, the makers left the provisions the same as in the existing laws. The only major and troublesome change that has been amended is that the threshold limit for the applicability of the labour laws as per the Industrial Disputes Act, 1947, is increased from 100 or more workmen to 300 or more workmen. This means that the employers need not obtain prior approval from the concerned authority specified by the government or the government itself for layoffs, retrenchments, and closures if the employees in their particular industrial establishments are less than 300. The Central Government’s take was already defensive, regarding the official approval procedure as unnecessary. It explicitly maintained that the tedious procedure of obtaining official approval from the concerned authority specified by the government or the government itself adds to the losses and liabilities of the firms. Although the focus should have been to make the approval-taking procedure speedy and hassle-free. Easing the norms related to layoff, retrenchment, and closure may lead to the misuse of the law by the employer and ultimately the sufferer will be a workman.

Suggestions

The current laws, including the new Indian Relations Code, 2020, are efforts made to improve labour welfare, but there are still chances of improvement. 

There are a few suggestions that can lead to the betterment of the laws pertaining to the layoff of the workman and safeguard the rights of vulnerable workmen against exploitation and unhealthy layoffs by employers. The suggestions are as follows:- 

  • Firstly, the Parliament shall bring the necessary amendments to the present laws to protect the rights of the workmen irrespective of the type of industrial establishment they belong to, as the workmen of every type of establishment are vulnerable to exploitation by their employers.
  • The government must protect the workmen during the pandemic period from layoffs in the industries through timely economic and policy intervention. 
  • Civil society groups and trade unions need to strengthen the workmen for timely compensation and reinstatement of workmen.
  • The agencies need to collect data regarding layoffs of workmen on a regular basis and in a definite time interval that will lead to more effective policymaking for the benefit of the vulnerable workman.
  • Last but not least, besides the industry-awarded compensation, the government should also produce more welfare schemes for laid-off and retrenched workmen to support themselves for the deficit of 50% wages to some extent.

Conclusion

It is very clear that every workman out there working in any industrial establishment is the backbone of it. Industrial establishments must not ignore their workmen just for the sake of profit and strictly avoid unhealthy layoffs just to gain a little more. Inter alia, the government should also bring the necessary amendments into force to protect the rights of workmen as there are still various loopholes in the current provisions of labour protection laws. Our country has one of the largest workforces in the world. As per the data provided by the Ministry of Education, Skill Development and Entrepreneurship, India has a population of more than 600 million people who are aged between 18 and 35, with almost 65% of people below the age of 35. As per the report, the demographic dividend of India is speculated to persist at least until 2055-56 and will peak around 2041, when the portion of the working-age population, i.e., the 20–59 age group, is expected to hit 59%, which is huge in itself. Considering the above-mentioned data, the government should better take care that the laws must be of such nature that won’t lead to the exploitation of workmen due to unhealthy lay-offs by the employer, and they must also ensure that the provisions pertaining to the labour laws provide equal protection to the employer and the workman. 

Frequently Asked Questions (FAQs)

What is the difference between layoff and retrenchment?

  • The termination done due to the layoff is temporary, while in the case of retrenchment, the termination of the employee is permanent.
  • In case of a layoff, the workmen are appointed back after the layoff time period ends. On the other hand, in cases of retrenchment, the employment of the employee gets terminated with immediate effect; thereafter, there is no further relation between the employer and the employee. 

What is the difference between layoff and lockout?

  • Lock-out is the act done by the employer to pressurise or coerce the labour, on the other hand, layoff is for trade reasons that are beyond the control of the employer.
  • Lock-out occurs due to the industrial dispute and continues during the period of dispute; on the other hand, layoff is done irrespective of any dispute between the employer and the workmen and is not concerned with the dispute with the workmen.

What is the difference between lockout and closure?

  • Lock-out is temporary; on the other hand, closure of the industrial establishment is permanent.
  • Lock-out is a condition generally used by an employer to pressurise or coerce the employee; on the other hand, closure is done due to heavy losses or trade reasons. 
  • Lock-out generally occurs due to industrial disputes; on the other hand, in cases of closure, there need not be any dispute. 

References

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