Lay Off Pro3

INTRODUCTION  The Industrial Industrial Disputes Act, Act, 1947 (the “Act”) governs governs the various various provisions pertaini pertaining ng to lay -off -off of  workmen. The scope of this this Act is to achieve achieve harmony harmony between employers employers and workmen and promote economic and social justice, thereby, classifying the Act as a welfare 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 shows that the intention of the legislature is to saf eguard saf eguard the right of workmen and the industrial establishment 1. “Industrial Dispute” is defined under Section 2(k) of the Act. It lays down 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). However, in cases where it is difficult to distinguish between an industrial and a non-industrial activity, the “dominant nature” of the activity helps in determining the true scope of industry.  The present bulletin bulletin touches touches upon the meaning of lay-off lay-off as per the the Act and deals deals with the issue of of compensation resulting from such lay-off. Since most establishments are interested in knowing the monetary impact of laying-off workmen while reducing headcount, this bulletin provides an insight on that process.  a temporary interruption of the employment relationship at the direction of the employer layoff –  a  because of lack of work.

lay-off” lay-off” (with its grammatical variations and cognate expressions) means the failure, refusal or inability of an employer on account of shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery 2[or natural calamity or for any other connected reason] to give employment to a workman whose name is  borne on the muster rolls of his industrial establishment establishment and who has not been retrenched 25Q. Penalty for lay-off and retrenchment without previous permission. Any employer, who contravenes the provisions of section 25M or section 25N shall be punishable with imprisonment for a term which may extend to one month, or with fine which may extend to 1000 rupees, or with both

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If the lay-off could be held to be in accordance with the terms of the contract of service, no compensation at all could be allowed under section 33C(2) of the Act. But if company had no power to lay-off any workmen, there is no escape from the position that the entire sum payable to the laid-off workmen, except the workmen who have settled or compromised, has got to be computed and quantified under section 33C(2) of the Act of the period of lay-off; Workmen of Fire-stone Tyre & Rubber Co. v. Firestone Tyre ft Rubber Co., AIR1976 SC 1775.

Temporary layoff Requirement of notice, content of notice and employer’s responsibility Under the Code, an employer who wishes to maintain the employment relationship may temporarily lay off an employee. However, the Alberta Court of Appeal has determined that a valid notice of temporary layoff must:

• be in writing, • state that it is a te mporary layoff notice and its effective date, and • include sections 62, 63 and 64 of the Code. If these conditions are not met, the employee may have been unjustly or constructively dismissed. Some courts have also held that while the Code permits an employer to temporarily lay off an employee in the absence of a collective agreement or contract allowing layoff, the employee maintains the right to sue for constructive or wrongful dismissal if laid off in those circumstances. A temporary layoff cannot be more than 59 days in duration. On the 60 th consecutive day of temporary layoff, the employee’s employment terminates and the employer must pay the employee termination pay on that day, unless: • wages or benefits continue to be paid on behalf of the emp loyee; or • there is a collective agreement that provides other recall rights that are longer than the 59 days. During the 59-day period, an employer may recall the employee with one week written notice. Should the layoff extend past the 59 days, the employment terminates and termination pay appropriate to the length of service of the employee is required. The employment of an employee may be terminated while on temporary layoff, however the employee is entitled to termination pay. If an employer recalls an employee on a temporary layoff and requests the employee return to work and the employee fails to return within the time specified in the notice by the employer, the employee would not be entitled to any termination notice or termination pay, provided that the temporary layoff notice is valid. It is in the employer’s best interest to retain a copy of the written request/notice.

Special layoff rules for school employees and school bus drivers Because of the recognition that the summer break in the school year may exceed 59 days, section 63(1) of the Code which provides for the payment of termination pay on the 60th consecutive day of a temporary layoff does not apply to school employees, including school bus drivers. Section 5.1 of the Employment Standards Regulation permits a temporary layoff to exceed 59 days during the time between the end of a school year and the beginning of the next school year, if certain conditions are met.

1. Meaning of lay-off and continuous service Previously, lay-off was a practice that had no provision for compensation. However, in 1953, the President promulgated the Industrial Disputes (Amendment) Ordinance which made a provision for payment of compensation for lay-off. This ordinance was repealed and replaced by Industrial Disputes (Amendment) Act, 1953. Lay-off is a practice whereby the employer cannot give employment to workmen 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 workman,  whose name is on the muster rolls of the industrial establishment presents himself for work and is not givenemployment within two (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 with 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 with below fifty (50) workmen on an average per working day in

the preceding calendar month, or industrial establishments which are of a seasonal character, or industrial establishments to which Chapter 5B 3 of the Act applies, will not be bound by Section 25C to 25E (both inclusive). This implies that such workmen: (a) will not be entitled to any compensation for being laid off. (b) will not be entered into the muster rolls of the employer. (c) will not fall under any of the exceptions to avail compensation. It is important to note that workmen are entitled for compensation only if they have been in continuous service. Defined under section 25B of the Act, a workman is said to be in continuous service if he provides uninterrupted service, which includes interrupted service due to sickness, accident, strikes  which are not illegal, lock out or cessation of work not due to the fault of the workman. In other words, the duration when the workman 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 workman 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 works 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 Workmen 4, 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 shown that he was employed for a period of at least twelve (12) calendar months and during those twelve (12) calendar months he had worked at least two hundred and forty (240) days. • •

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2. Compensation for Lay-Off 3 This

chapter deals w ith special provisions relating to lay-of f, retrenc hment, and closure in certain establishments. It applies to industrial establishments in which have atleast 100 w orkmen employed on an average per w orking day for the preceding 12 months.

Laying-off workmen results in depriving them of the opportunity to work and earn wages 5.  Therefore, it becomes the duty of the employer to provide compensation to the workmen if their case falls  within the scope of the Section 25C6 of the Act. However, no compensation can be awarded in advance of actual lay-off on grounds of social justice 7. This particular section states that any workman: (a) whose name is borne on the muster-rolls of an industrial establishment and, (b) who has completed atleast one (1) year of continuous service under the employer, shall be paid compensation for the period during which he was laid-off, which shall be equal to fifty (50) percent of the total of the basic wages 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 workmen employed. However, the purpose is not limited to the same. It also acquires importance with respect to lay-off of workmen. If the name of the workman 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 workmen 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 workman is laid-off for more than fortyfive (45) days, no further compensation will be paid if there is an agreement in that respect between the  workman and the employer. Upon the expiry of this period, the employer can retrench the workman and the compensation then paid would exclude the amount already paid during the forty-five (45) day period of layoff. Further, if the workman is a “badli” workman or a casual workman, he would fall outside the ambit of Section 25C. However, if a “badli” workman has completed one (1) year of continuous service in the industrial establishment, he will be treated as a permanent workman for all purposes 9.

3. Workman not entitled to Compensation Section 25E of the Act highlights situations when a workman is not entitled to compensation even after being laid-off. This section 25E works like an exception to Section 25C. A workman is not entitled to compensation if: (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 wages a s were previously paid to the workman. (b) he does not present himself for work 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 slowing-down of production by workmen in another part of the establishment.  The burden of proof is on the employer to show that the workman is disentitled to claim compensation because his case falls under the purview of Section 25E 10.

4. Special Provisions relating to Lay-Off Section 25M in Chapter 5B 11 of the Act further points out that prior approval from the “appropriate government” is required to lay -off a workman when the industrial establishment (not being of a seasonal character or in which work is performed only intermittently), has more than hundred (100) workmen employed on an average per working 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 final 12. It also provides stringent penalties for contravention of the provisions 13 of Chapter 5B along with providing compensation to the workman for any “illegal” lay -off 14.

CONCLUSION  While setting up any industrial establishment in India, lay-off provisions acquire importance especially since most labour law legislations are very pro-workmen. Laying-off is a power in the hands of the employer but it has to be exercised judiciously in accordance with the applicable legal regulations. The monetary penalty for contravention of these provisions is not a lot but it can impact the establishment’s goodwill and reputation. Further, improper laying-off of workmen can lead to strikes and lock-outs,  which can result in significant business loss for the establishment. Therefore, there is reason enough for every

Are there any exceptions to the requirement noted above for an employer to give an employee a written notice of termination or layoff? Yes, an employer can terminate or lay off an employee without notice where:  the termination of employment is due to the completion of a definite assignment the employee was hired to perform over a period not exceeding 12 months;

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 the employee has completed a term of employment fixed in the employment contract, unless the employee is employed for a period of three months beyond that period;

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 the employee retires under an established retirement plan;

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 the employee is doing construction work in the construction industry;

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 the termination or layoff results from the normal seasonal reduction, closure or suspension of an operation; or

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 the employee has refused reasonable alternative employment offered by the employer instead of being terminated or laid off.

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In addition, an employer can lay off an employee without notice where:  the layoff is for a period not exceeding six days, or

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 there is lack of work due to any unforeseen reason: Please contact the Employment Standards Branch for clarification of “unforeseen reason”. •

When Termination of Employment is Illegal in Law [4]

Workmen get protected under various legislations in India. Under section 9A of IDA it becomes difficult to vary the terms and con ditions of the workman. It will be illegal to retrench and lay off if statutory conditions are not fulfilled and prescribed compensation is not paid to the workmen. In certain cases Appropriate Government’s prior permission is also required.  Hiring and Firing in India 525 Termination of employees not workmen will be governed by the terms of their appointment letter / employment contract and follows, an y termination not as  per their contract may be construed to be illegal. 2.3 Lay-Off and Retrenchment of Workman in Private Sector [4] Section 2 (kkk) defines “lay-off” the failure of the employer to provide employment due to shortage of raw material, power etc. but who has not been retrenched. Section 2 (oo) defines “retrenchment” as termination o f a workman for any reason whatsoever otherwise than voluntary retirement, reaching age of superannuation, non renewal of contract or termination due to continued illhealth. Section 2 (oo) (bb) –   provides for 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. 2.4 Chapter VA and VB of IDA with Reference to Lay-off, Retrenchment, Transfer and Closure [4,7]

2.4.1) Chapter VA applies to industrial establishment - in which less than fifty workmen on an average working day have been employed in the preceding calendar month and which are seasonal in character.

Section 25C- A workman laid-off under this Chap ter is entitled to fifty percent of his basic wages and dearness allowance. The workman who has been in continuous service for at least one year (a year  being defined as 240 days of actual work) is terminated, covered under chapter VA, the conditions listed below will have to be fulfilled. Section 25F- Workman cannot be retrenched unless the employer has complied with – (i) giving one months notice in writing, (ii) paid compensation equ ivalent to 15 days average pay (for every completed year of continuous service) or any  part thereof in excess of six months and (iii) notice in the prescribed manner to the appropriate Government. CHAPTER V B Chapter VB applies to industrial establishment in which no t less than one hundred workmen were employed on an average per working day for the  preceding twelve months.

Section 25M – Prohibits the employer to lay- off except with the prior  permission of the appropriate Government unless it is due to the shortage of  power or due to natural calamity.[4,7] Section 25N –   No workman to which this chapter applies can be retrenched until the employer (i) has given three months notice in writing with reasons for retrenchment and (ii) prior permission has been obtained from the appropriate Government (‘specified authority”). [4,7]  Jyoti Vishwakarma 526 An extremely compelling case has to be made out in the application to the appropriate Government, but even so the Government rarely grants this  permission. [4,7] Several amendments are on the anvil which will give the freedom to the employers by not being required to make an employee permanent, even if the employee has completed 240 days. [4] Labour laws in the Special Economic Zone (SEZ) are to be amended substantially with amendment in the Contract Labour (Regulation and Abolition) Act, 1970 which will allow the emplo yers to follow a hire and fire  policy under certain conditions. [4,7] Every workman whose name is borne on the muster rolls of the industrial establishment and who presents himself for work at the establishment at the time appointed for the purpose during normal working hours on any day and is not given employment by the employer within two hours of his so presenting himself shall be deemed to have  been laid-off for that day within the meaning of this clause:

Provided that if the workman, instead of being given employment at the commencement of any shift for any day is asked to present himself for the purpose during the second half of the shift for the day and is given employment then, he shall be deemed to have been laid-off only for onehalf of that day: Provided further that if he is not given any such employment even after so presenting himself, he shall not be deemed to have been laid-off for the second half of the shift for the day and shall be entitled to full basic wages and dearness allowance for that part of the day;]

If the lay-off could be held to be in accordance with the terms of the contract of service, no compensation at all could be allowed under section 33C(2) of the Act. But if company had no power to lay-off any workmen, there is no escape from the position that the entire sum payable to the laid-off workmen, except the 1 Ins. by Act 36 of 1964, Section 18 (w.e.f. 19.12.1964). 2 Subs. by Act 46 of 1982, Section 17, for certain words (w.e.f. 21.8.1984). 3 Ins. by Act 46 of 1982, Section 17 {w.e.f. 21.8.1984).

The Industrial Disputes Act, 1947

workmen who have settled or compromised, has got to be computed and quantified under section 33C(2) of the Act of the period of lay-off; Workmen of Fire-stone Tyre & Rubber Co. v. Firestone Tyre ft Rubber Co., AIR 1976 SC 1775.

What are the requirements should an employer ch oose to terminate or layoff an employee? Where an employee has been employed with an employer for less than six months, the employer is not required to give the employee advance notice of the termination or layoff. Where an employee has been employed with an employer for a period of at least six months but less than  five years, the employer must give the employee at least two weeks written notice of the termination or layoff. Where an employee has been employed with an employer for a period of  five years or more, the employer must give the employee at least four weeks written notice of the termination or layoff. The employer may choose to pay the employee the wages the employee would have earned during the applicable two or four week notice period instead of providing a written notice. Period of employment

Layoff or termination

Less than 6 months

No notice required

More than 6 months, less than five years

2 weeks notice in writing, or 2 weeks pay

5 years or more

4 weeks notice in writing, or 4 weeks pay