Retrenchment – Mandatory conditions to be complied to be on the right side of the Law

Nowadays due to pandemic situation and lockdown many industries are closing down. Now the question comes how to part with workers in such uncertain situation. Here are some check points & Law Points which every Employer & HR Personnel must remeber;

Retrenchment – Mandatory conditions to be complied to be on the right side of the Law;👨‍⚖

The law relating to retrenchment is stated under section 25F of the Industrial Disputes Act whereas section 25G is for the procedure for retrenchment. Under section 25F of the Industrial Disputes Act the employer is under obligation to pay retrenchment compensation along with the notice or rather before the notice keeping in continuous service for not less than one year under an employer until the workman has been given one month’s 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 notice.

There have been large number of cases by High Courts and Supreme Court where the compensation has not been paid simultaneously which have resulted into reinstatement of the workman and generally with full back wages.

The Supreme Court has held that a plain reading of section 25F of the Industrial Disputes Act, 1947 makes it clear that the requirement prescribed by it is a condition precedent for the retrenchment of the workman, and non-compliance with the said condition renders the impugned retrenchment invalid and inoperative. The mandatory language of section 25F of the Industrial Disputes Act, plain and unambiguous in effect, leaves no manner of doubt that the payment of compensation, as required by it, is a condition precedent to retrenchment. In another case, it has been clarified that if the retrenchment is invalid notwithstanding the fact that the amount of compensation can be recovered under section 25F of the Industrial Disputes Act, 1947.

This has also happened that Hongkong & Shanghai Banking Corporation had to pay Rs. 1,07,73,736/- (Rupees One Crore Seven Lakh Seventy Three Thousand Seven Hundred Thirty Six only) to an employee merely for non-payment of retrenchment compensation on her termination.

1. JK Iron & Steel Co. Ltd., Kanpur vs. Iron Steel Mazdoor Union, Kanpur (1955) 2 SCR 1315 : 1956 (1) LLJ 227 : AIR 1956 SC 231.

2. State of Bombay vs. Hospital Mazdoor Sabha, AIR 1960 SC 610 (1) LLJ 251 : 1960 (17) FJR 423.

 

By Dayanand N. Mangaonkar