Concept of Lay-off | Labour and Industrial Law - CLAT PG PDF Download

Introduction

A lay-off occurs when an employer is unable to provide work to their employees due to specific reasons such as shortages of materials or natural disasters. This situation can lead to involuntary unemployment for workers, which is why the concept of lay-off compensation is important.

• Lay-off compensation is designed to provide financial support to workers during periods of unemployment caused by factors beyond the employer's control. It serves as a safety net for employees who are temporarily unable to work due to circumstances like a breakdown of machinery or a lack of necessary resources.
• Understanding the historical background and legal framework surrounding lay-off compensation is crucial for both employers and employees. It helps ensure that workers are protected during challenging times and that employers adhere to legal obligations when facing unexpected disruptions in their operations.

Historical Background of Lay-off Compensation

• The freedom of contract theory, rooted in the laissez-faire principle, initially allowed employers to discharge workers due to reasons beyond their control, like machinery breakdowns. This exposed workers to frequent involuntary unemployment.
• Over time, with the decline of laissez-faire philosophy and increased State intervention in industrial relations, the employer's absolute power to discharge workers diminished.
• Employers could no longer sever the contract of service entirely but could only lay-off workers temporarily under certain circumstances.

Judicial Pronouncements and Post-Independence Scenario

• Before the definition of "lay-off" was incorporated into the Act, disputes related to lay-off were resolved based on judicial pronouncements.
• After independence, modernization in textile mills led to retrenchment and lay-off of workers without compensation in many cases.
• The lack of uniformity in compensation norms contributed to the deteriorating economic conditions of the labor class and prompted the need for social legislation like the present Act.

Industrial Disputes Act and Lay-off Regulation

• Originally, the Industrial Dispute Act did not address lay-off and retrenchment. However, situations like stock accumulation in textile mills led to large-scale lay-offs and retrenchments.
• To prevent industrial unrest, the 1953 ordinance was replaced by the Industrial Disputes (Amendment) Act, 1953, which introduced Chapter VA to regulate lay-off, retrenchment, transfer, and closure of undertakings.
• In 1976, Chapter VB was added, imposing stricter conditions on lay-off, retrenchment, and closure in certain establishments.

Definition of Lay-off in the Act

• Section (kkk) of the Act defines lay-off as the failure, refusal, or inability of an employer to provide employment to workmen due to reasons like shortage of resources, machinery breakdown, or natural calamities.
• A workman eligible for lay-off must be on the muster rolls of the establishment and not have been retrenched.

Application of Chapter VA

• Section 25-A specifies that the provisions of Sections 25-C to 25-E do not apply to industrial establishments with less than fifty workmen on average per working day or establishments of a seasonal character or with intermittent work.
• Industrial establishments are defined to include factories, mines, and plantations as per relevant Acts.

Distinction Between Lay-off and Lock-outs

• Lay-off occurs in a continuing business due to reasons like resource shortages, while lock-out involves the employer temporarily closing the business for reasons unrelated to those causing lay-off.
• In lay-off, the employer is liable to pay compensation, whereas in lock-out, no such liability exists if the lock-out is justified.
• Lock-out is a tool of collective bargaining, while lay-off is driven by economic and trade reasons.
• The Act prohibits and penalizes lock-outs, while lay-off does not have such provisions.

Distinction Between Lay-off and Retrenchment

• Lay-off is defined in Section 2(kkk) as a temporary inability of the employer to provide employment, while retrenchment, defined in Section 2(oo), involves permanent termination of employment.
• Lay-off is due to reasons specified in Section 2(kkk), whereas retrenchment is based on surplus labor.
• In lay-off, the labor force is not surplus, while in retrenchment, it is surplus.
• Lay-off suspends the employment relationship, while retrenchment terminates it.
• Lay-off is caused by uncontrollable trade reasons, while retrenchment is intentional to reduce surplus labor.
• Lay-off does not sever the employer-employee relationship, while retrenchment does.
• Lay-off compensation rights are more stringent, while retrenchment compensation rights are absolute.

Right of Workmen Laid Off for Compensation

• Section 25-C outlines conditions and extent of compensation for laid-off workers. After amendments in 1956 and 1965, key conditions include:
• Establishment must have employed fifty or more workmen on average during the calendar month preceding the lay-off.
• The industrial establishment must not be of a seasonal character or one where work is performed intermittently.
• The claimant should fit the definition of a workman and not be a badli or casual workman.
• His name must be on the muster roll, and he should not have been retrenched.
• He must have completed at least one year of continuous service, with each year under the same employer.
• Lay-off compensation must be half of basic wages and dearness allowance.
• Maximum entitlement period is forty-five days within any twelve-month period.
• No right to lay-off compensation for more than forty-five days during twelve months if there is an agreement to that effect.
• In the absence of a contrary agreement, lay-off compensation is payable for subsequent periods beyond 45 days if such periods are not less than one week at a time.
• Beyond 45 days, the employer can avoid liability by resorting to retrenchment after payment of retrenchment compensation.
• Lay-off should not be carried out with mala fide intentions, victimization, or ulterior motives.

Badli Workmen

• A 'badli workman' is a substitute worker who replaces another whose name is on the muster roll. The badli workman's name is not on the muster roll.
• A badli workman ceases to be such for the purpose of Section 25-C after completing one year of continuous service in the establishment.
• Once a badli workman completes one year of continuous service, he is entitled to work from the employer. If the employer fails to provide work, the badli workman is entitled to lay-off compensation if he has completed one year's continuous service with that employer.

Continuous Service

• A workman is entitled to lay-off compensation under Section 25C only if he has completed a minimum of one year's continuous service with the same employer.
• In 1964, section 25B was amended to its current form. Section 25C(I) defines continuous service, and Section 25B(2) defines 'continuous service of one year', while sub-clause (b) of section28B(2) defines 'continuous service of six months'.
• Continuous service means uninterrupted service. However, interruptions due to specific reasons such as sickness, authorized leave, accident, legal strike, lock-out, and cessation of work not caused by the workman's fault are still considered uninterrupted.
• Participation in an illegal strike does not automatically affect a workman's continuity of service unless the workman is actually dismissed for this reason.

Continuous Service of One Year

• Under Section 25B(2)(a) of the Act, a worker is considered to have continuous service for a period of one year if they:
• Have been employed for twelve calendar months; and
• Have actually worked for not less than:
  • 190 days in the case of employment below ground in a mine; or
  • 240 days in any other case.
• Both conditions (i) and (ii) must be met simultaneously. Therefore, if a workman is employed for 12 calendar months but works less than 190 or 240 days, they do not satisfy this provision.
• Similarly, if a workman works more than 190 or 240 days but is not employed for 12 calendar months, they do not meet the requirement.
• Before a workman can be considered to have completed one year of continuous service in an industry, it must be demonstrated that they were employed for not less than 12 calendar months and that during those 12 months, they worked for not less than 240 days. If the workman has not been employed for a period of 12 calendar months, it is unnecessary to check whether the actual days of work exceeded 240 days.

Continuous Service of Six Months

• Under Section 25-B(2)(B), a worker must:
  • Have been in employment for a period of six calendar months; and
  • Have actually worked for not less than 95 days in the case of employment in underground mining, or 120 days in any other case, to qualify for continuous service for a period of six months.

Period of Layoff Compensation

• Lay-off compensation is applicable for all days of layoff, with a maximum period of 45 days of compensation within any 12 calendar months.
• If the layoff exceeds 45 days within a 12-month period, the workman is entitled to the same rate of compensation for the period beyond 45 days, whether in continuation or on other occasions. However, such extended layoff periods must be a minimum of one week or more to qualify for compensation.
• In situations where the layoff exceeds 45 days, the employer has two options:
• Continue paying layoff compensation for subsequent periods.
• Retrench the workmen after 45 days of layoff, providing retrenchment compensation as per Section 25F.

Workmen Not Entitled to Compensation in Certain Cases

• According to Section 25E, a workman laid off is not eligible for compensation under the following circumstances:
• If the workman refuses to accept any alternative employment offered within the same establishment or any other establishment owned by the same employer, located in the same town or village, or within a five-mile radius, provided the alternative job does not require special skills or prior experience. The wages offered for the alternative employment must be the same as what the workman would normally receive.
• If the workman fails to report for work at the establishment during normal working hours at least once a day.
• If the layoff is a result of a strike or a slowdown of production by workers in another part of the same establishment.

Prohibition of Lay-off in Industries Covered by Chapter V-B

• Section 25M (1) states that no workman (except for badli or casual workers) listed on the muster rolls of an industrial establishment governed by this Chapter can be laid off by the employer without prior permission from the appropriate Government or a specified authority.
• Lay-off without permission is only allowed in cases of power shortage or natural calamities. In mines, lay-off can also be due to fire,flood,excess inflammable gas, or explosion.
• The employer must submit an application for permission, detailing the reasons for the intended lay-off, and a copy of the application must be served to the affected workmen.
• In cases where workmen (excluding badli or casual workers) in a mine are laid off due to fire, flood, excess gas, or explosion, the employer must apply to the appropriate Government or specified authority for permission to continue the lay-off within thirty days from the start of the lay-off.
• When an application for permission is made, the appropriate Government or specified authority will conduct an inquiry and provide an opportunity for the employer, workmen, and other interested parties to present their case. They will then decide to grant or deny permission based on the reasons for the lay-off, the interests of the workmen, and other relevant factors, with a written explanation for their decision.
• If no decision is communicated within sixty days of the application, permission is considered granted.
• The order granting or refusing permission is final and binding for one year from the date of the order.
• The appropriate Government or specified authority can review its decision or refer the matter to a Tribunal for adjudication. If referred, the Tribunal must make a decision within thirty days. If no application for permission is made, or if permission is refused, the lay-off is deemed illegal from the date of lay-off, and workmen are entitled to all benefits as if they were not laid off.
• In exceptional cases, such as accidents in the establishment or the death of the employer, the appropriate Government can issue an order exempting certain provisions from applying to the establishment for a specified period.
• Section 25-C provisions, except for the second proviso, apply to lay-off cases referred to in this section.
• A workman is not considered laid off if the employer offers alternative employment within the same establishment or another establishment owned by the same employer, as long as the transfer does not cause undue hardship and the wages are the same.