Industrial Conflict &

Industrial Dispute
Santanu Sarkar, PhD

Retrenchment [Sec 2 (oo)]

Termination of service may be by way of

Punishment (Dismissal)
Discharge (Simpliciter not for punishment)
Retirement (Superannuation)
Resignation (Abandonment of service)
Retrenchment

RETRENCHMENT
Business itself is being continued but a portion of the staff / labour
force is discharged as surplusage & termination on account of closure
cannot be treated as retrenchment

DEFINITON (Two parts):

1. What retrenchment means
2. Excludes termination of service from the ambit of retrenchment

Retrenchment [Sec 2 (oo)]

PHRASEOLOGY - For any reason whatsoever leads to conflict in judicial

opinions

Term retrenchment cannot include discharge of employees on closure of business

Surplusage in a running business / industry is the very basis of retrenchment

Whether automatic termination of service on expiry of contractual period (by

efflux of time)

No notice is necessary if retrenchment is u/Agreement which specifies date for

termination of service;
if company had not chosen to renew the Contract of Employment (CoE), then
termination by efflux of time would fall within the purview of retrenchment.

Sec 2(oo) lays down following exceptions & if case falls under any of the
following categories the termination cannot be treated as retrenchment:

Termination by way of punishment

Voluntary retirement
Retirement on superannuation, if there is a stipulation in the CoE
Termination as a result of non-renewal of contract when it is stipulated in
the CoE [Sec 2(oo)(bb)]
Termination on the ground of continued ill health.

Employers Trick
To come out of the Clutches of Sec. 2 (oo)
In event of APPOINTMENT by calling it:

Temporary (1 yr. clause),

Badli,
Casual (Nature of work),
Probationer (Sec 2(oo)(bb)) &
Adhoc (Sec 2(oo)(bb))

In event of TERMINATION:

Verbal,
U / SOs,
Effect of abandonment of service,
Loss of confidence

Contractual Termination
Contractual termination Sec 2 (oo)(bb)
a.

Included by Amending Act, 1984 to carve out an exception in the case

of retrenchment

b.

Stipulation for terminating services should be contained therein & not

elsewhere, then only it will attract (bb)

c.

Contract of employment following aspects to be dealt carefully:

What it includes like records in terms of agreement between employer &

workmen for wages, period of employment, not oral, in writing or express /
implied

Law regards contract of employment as a personal matter between the

parties sometimes, it is also a result of collective bargaining

In order to reduce the controversy & ID arising out of the terms contained in
letter of appointment we have standing orders

CoE includes LoA, CSO / MSO, Service Rules

(oo) (bb) contract of employment provides for (i) appointment for a specified
period on probation; (ii) termination by employer on 1 months notice as
discharge simpliciter.

Retrenchment Compensation (Sec 25 F)

SCOPE of Sec 25 (F)
1.
2.
3.
1.

Retrenchment Notice (RN)

Retrenchment Compensation (RC)
Notice to Appropriate Government (NAG)

RETRENCHMENT NOTICE

1 months Notice of Retrenchment (RN) in writing with reasons for retrenchment in the notice to
workman who is to be retrenched

1 months wages in lieu of 1 month notice (Notice Period): Golden Rule Wage in lieu of Notice

Full months wages without any deduction, without any adjustment, even to include increment if falling
due in that month

Two clauses are alternative

2.

RETRENCHMENT COMPENSATION

Payment to workman is a condition precedent; mandatory condition non-compliance will render

retrenchment null, void & non-existing in law

Calculated @ 15 days (average pay not last months salary) for every completed year of
continuous service / any part in excess of 6 months

Continuous service definition in Sec 25 B is tailored for purposes of Chapter V-A only

3.

Notice to the Appropriate Government / Such Authority

Retrenchment Compensation (Sec 25 F & Sec 25 N)

No workman shall be retrenched UNITIL

UNITIL signifies condition precedent to retrenchment of workman

RN & RC are mandatory & condition precedent; if these conditions are not
complied with retrenchment turns null, void & non-existing

Under Chapter V-B* [Sec 25N] notice to appropriate government (NAG) is

both condition precedent and mandatory.

However, notice to appropriate government (NAG) is neither a condition

precedent & nor mandatory (Conditions Precedent are confined to Clauses (a)
& (b) & not extended to (c) of Sec 25F) under Chapter V-A

* Application of Chapter V-B: Sec 25 K

Maharashtra General Kamgar Union v. Indian G Industrial Ltd. 2000

There was no functional integrality amongst the three units / factories (at
Mumbai, Jodhpur, and Ahmedabad).
Contract labour or Mathadi workers and the HO staff cannot be counted to
satisfy the mandatory test of 100/more workmen u/Sec 25K.
Further burden of proof is upon the Union to establish the fact that 100/more
workmen were employed so as to attract Sec 25 K

Procedure for Retrenchment (Sec 25 G)

LAST COME FIRST GO

Courts have long before evolved a principle which safeguards the interest of
workers against the arbitrary discretion of the employer in the matter of
effecting retrenchment

This principle does not allow employer to adopt a pick-&-chose method

Where all things are equal ordinarily, the workman who has come last
(employed last) will go first

This provision requires employer to

Classify or categorized his workmen, like clerks, typists, stenos, mechanics,

welders, etc., and
Come with a seniority list (at least 7 days before retrenchment [Central Rule 77 /
Bombay Rules]) (including workmen whove not completed 240 days)

Two features of Sec 25 G:

Voluntarily adopting a particular principle / procedure of retrenchment in

consultation with workmen (trade unions)
When no procedure for retrenchment is voluntarily adopted then statutory
provisions laid down by Sec 25 G shall come into operation

Continuous Service (Sec 25 B)

Special definition for the purpose of Chapter VA only

Uninterrupted Service: the interruption of service on account of any of the following

reasons, namely

Sickness
Authorized leave
An accident
A strike which is not illegal
A lock out,
A cessation of work which is not due to any fault of the workman

Shall be added back in computing the continuous service

Sub-section (2): if the services are uninterrupted, subsection (1) will apply but if
services are interrupted then subsection (2) will apply. Subsection (2) deals with 2 sets
of periods:

Period of 1 year if the workman has worked for a period of 1 year

Period of 6 months if has worked for 6 months

Distinction between Subsection (1) and (2):

Subsection (1) does not specify the term period which may be one year (October till
September) = 12 months / 1 calendar year, (Jan Dec) or 240 days or 190 days
Subsection (2) specifically to period of 12 months / 6 months which will counted backward
from the date of retrenchment

Acceptance, if Estopped?

Acceptance of RC is no bar in raising an ID on the

legality of retrenchment

Because:
Because

Retrenchment which void ab-initio and non-est does not

snap off the relationship of master and servant between
the employer and workmen

Umesh Chandra Pandey v. State of U.P., 1991

There cannot be estoppel against the Statute

The rule of Estoppel / Waiver cannot be applied when on
account of economic suffocation, a workman cannot
refuse to accept RC

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Closure
[Sec 2 (cc) and Sec 25 FFA, 25FFF, 25O]

Permanent closing down of a place of employment or part thereof

Mackinon Mackenzie Ltd. vs. G.S.Raj & Ors.

In case of closure, there is an end to the whole or to part of the industry

on the other hand retrenchment is a termination of surplus or other
employees during the subsistence of an industry. Therefore, if the
industry itself is no longer in existence there cannot be any subsisting
employment from which workman can be retrenched.

In case of closure of a business house which includes closure due

to recession, Sec 25FFF would come into operation (notice &
compensation to workers)

u/Sec 25 FFA, a sixty days notice is to be given of intention to close

down any undertaking

Sec 25 O lays down the procedure for closing down an undertaking

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Closure

Permanent / temporary closure definition doesnt indicate

Partial closure of a part that has independent functioning

Closure of a part of a business is an act of management which is entirely
at the sweet discretion of the employer. The court cannot even in
reference order u/Sec 10(1) interfere & direct an employer to continue
the whole / part of the business which the employer has decided to shut
down

Mens-rea motive is not as important as factum of closure

Indian Hume Pipe Co. Ltd. v. their Workmen, 1969 IT
Andhra Prabha Ltd. v. Madras Union of Journalists, 1968 SC
Kalinga Tubes Ltd. v. Their Workmen, 1969 SC

Court should enquire if closure is genuine & bonafide or a

camouflage of a lock-out (General Labour Union v. B. V. Chavan,
1985 SC) & (Mazdoor Congress v. W.L. Bhalchandra, 1993)

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Express News Paper Ltd. v. Their Workmen, 1962 SC

Tatanagar Foundry Co. Ltd. v. Their Workmen, 1970 SC

Closure

Lock-out

Closes down business permanently, finally &

irrevocably

Employer does not & has no intention to close

down business itself

No intention on his part to restart work

(Management of Hindustan Steel Ltd. v. Their
Workmen, 1973 SC)

Has a clear cut intention not to close down

business itself but to run it as soon as industrial
dispute is over

In both closure & lock-out employer stops running business & so he closes his business
but
Business itself is closed down permanently & so
consequently business premises is closed down

Business premises is closed temporarily as

business itself is not closed down

Intention
Permanently close down the business

Close the business temporarily

Object / Reason
Reason be anything but not for 1 for lock-out

Collective bargaining particularly to compel

employees to accept terms-conditions in
employment

From Right Perspective

Right tovery align to Fundamental Right

Not so in case of Lock-out

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Closure Sec 25 FFF

OBJECT & REASONS:

en-mass termination & in turn creates large scale unemployment, sudden

involuntary unemployment
to provide for such an involuntary unemployment
to create a sense of security in workmen
to raise the position and status of labour

Undertaking stand the test of scrutiny (used in Sec 25FF, 25 FFA, 25O, 25R):
Defined in Sec 2 (ka)
Word Industry has to qualify both Establishment as well as Undertaking
(Workman of Straw Board Mfg Co. Ltd. v. SBMCL, SC 1974)
One unit has such componential relation that closing of one must lead to the closing of
other
If undertaking is a part of the industry, then prove Undertaking is a separate & distinct
business / commercial / trading of industrial activity

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Closure Sec 25 FFF

Closed down for any reason whatsoever

Motive is not relevant on issue of closure (for any reason whatsoever)
Partial closure (challenge) part of business was continuing & hence
retrenchment & not closure
Closure by stages process of closure (Workman of Straw Board Mfg Co. Ltd.
v. SBMCL, SC 1974)

Commencement of liquidation proceedings not amount to closure as closure

must relate to closure of establishment
Right to closure followed by employers duty - FR

Proviso to Explanation (EXCEPTION)

On account of unavoidable circumstances maximum closure compensation is average

pay for three months like closure on account of employees indiscipline

Cannot be called unavoidable in case of

Financial difficulties / losses

Accumulated stock
Expiry of lease period
Exhausting of minerals (Mine)

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Closure Notice & Compensation

Employer before closing down must:
Seek approval from the appropriate government (Chapter VB)
Serve notice to workmen as contract of employment does not get
automatically termination
Pay closure compensation @ retrenchment compensation
Without prior permission of appropriate government in the event of
.?
Sec 25 (7): natural calamity, accident in the undertaking, death of
employer.

Closing down a fundamental right, hence, legislature cannot prevent it

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Methods of Settling IDs

Methods

Negotiation
Mediation
Arbitration
Conciliation
Adjudication

Authorities
Board
Court
Conciliation officer
Labour Court
Industrial Tribunal
National Tribunal
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Award & Settlement

Award
Interim / final determination of any
industrial dispute / of any question by any
LC, IT or NT

Settlement
Arrived at in course of conciliation proceedings
Written agreement between employer &
workmen

Arbitration award
Not always in the nature of interim relief
Award passed by the Tribunal on merits on
consideration of evidence on record
Rejection of reference for default of
workman

Settlement is a written one variation /

modification by an oral agreement
Settlement accepted by majority of workers
Tribunals interference with it on basis of
subjective view or minoritys opposition
Memorandum of settlement signed by office
bearers of Union Settlement

No dispute award
Tribunals decision as to scope of
reference under which the order of the
Tribunal is made

Settlement arrived in a conciliation proceedings

on a holiday held ipso facto ..

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