All That You Need to Know About the Legal Aspects of Layoff
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All That You Need to Know About the Legal Aspects of Layoff Which Is Different from Retrenchment, Lockout, And Closure!!!!!


Karma Management Global Consulting Solutions Pvt. Ltd. one of the top 5 labour law consulting firms in the country, has recently hit upon yet another significant milestone in the journey of tying up with SUNDEEP PURI ASSOCIATES AND ADVOCATE, where both these Firms have formally joined hands together to collaborate and create a bigger alliance by scaling up its business on Pan India basis and Internationally to give greater reach of its services together,  to its hundreds of clients all over.

Sundeep Puri & Associates (S D Puri & Co.) with 55+ years of existence and helmed by Advocate Sundeep Puri & Advocate Ravi Paranjpe is one of the largest retainer firms in India specializing in “Employment Laws” advising the Corporate Sector. The Firm boasts of some clients being associated since the last 55+ years and the majority for the last 30-40 years. They have extensive experience in counseling Foreign MNCs & Indian MNC Clients having multi-locational Factories &/or Offices Pan-India on a daily basis on a wide range of “Employment & Labour” issues, keeping in view the cultural diversity of the workforce such as Acquisitions, Mergers, Consolidations, Reductions in the workforce, maintaining the union-free environment by not undermining the principles of collective bargaining and also preserving operational flexibility in unionized settings, providing tailor-made models for conflict-free, productivity conducive Industrial Environment, as also in respect to Applicability of the various labour laws. They believe in Solution oriented Practical Advice backed by Law.

On the other hand,  Karma Management Global Consulting Solutions Pvt. Ltd. since 2004 is backed by 25 years of prior experience since 1979 , operating on Pan India basis and Internationally in America and EMEA, helmed by Pratik Vaidya,  is a leading giant in payroll management, compliance and governance, human resource services, professional employment staffing, and onboarding, recruitment and talent acquisition, advisory and consultations thereby offering a plethora of services with quick turn-around solutions including in-house flagship AI/ML based tech solutions so as to help organizations of different types and stature to perform better in Human Resource ensuring Risk Management, Compliance and Governance across Environmental, Social and Corporate laws and grow bigger.

So in this regard, besides the business profile of Karma Global relating to labour laws, it will now focus whole time also on legal and paralegal issues and matters with the collaboration of Sundeep Puri & Associates who are already into legal matters such as disputes, litigation, and court cases.


Before We Go into Analysing of “Lay Off’, Let Us Understand the Difference Between “Layoff” And “Retrenchment”!
“Difference Between “Lay Off” And “Retrenchment”!


Introduction – Layoff

Layoff and retrenchment are covered in the Industrial Disputes Act of 1947.

Layoff refers to the removal of employees by the employer for reasons other than the employee’s fault.  Retrenchment refers to a situation where the employer removes his employees to increase profits and decrease losses. Even in retrenchment, there is no fault of the employee that results in the termination of the employment.


Understanding the concept of lay-off under the Industrial Disputes Act, 1947

Section 2 (kkk) of the Industrial Disputes Act, 1947 defines the term ‘Layoff’’ as the inability, failure, or refusal of the employer to provide employment to a workman whose name is mentioned in the muster roll of his industrial establishment and who is not retrenched due to the lack of power, coal, raw materials, accumulation of stocks, breakdown of machinery or natural calamity for any other relevant reason.


Conditions essential for a lay-off

There must exist an inability, failure, or refusal from the employer’s side to provide employment to the workmen.

Such inability, failure, or refusal must be due to lack of power, coal, raw materials, accumulation of stocks, breakdown of machinery or natural calamity for any other relevant reason.

Section 25A of the Industrial Disputes Act, 1947: non-applicability of compensation on industries

As per Section 25A, the compensation accrued from the layoff provisions mentioned in the said Act shall not apply to the following kinds of industrial establishments:

  • Such industrial establishments where less than 50 workmen worked on average during each working day in the preceding calendar month.
  • An industrial establishment where work is done seasonally or occasionally.
  • An industrial establishment that comes under the aegis of chapter V-B as included by the Industrial Disputes Amendment Act of 1976.


Section 25B of the Industrial Disputes Act, 1947: continuous service

As per Section 25B, a workman is said to render continuous service if he has worked for at least one year without any interruption.

There are two exceptions where even if a workman is not in continuous service shall be deemed to be in continuous service – they are –

  • If the workman was employed for the preceding 12 calendar months from the date on which such calculation is being made.
  • If the workman during such 12 months had rendered his services for 190 days or more in the case of being employed in a mine and 240 days in any other employment.


Conditions precedent for providing compensation to a laid-off workman

As per Section 25C of the said Act, the workman who is laid off is entitled to compensation that is equivalent to half of the total wages and allowance given for the said period of lay-off.

However, such compensation is subject to the following conditions –

  • The workman is not a badli or a casual worker.
  • The workman’s name must be mentioned in the muster roll of the industrial
  • The workman must have rendered at least one year of continuous service under such an employer.


Understanding the concept of retrenchment under the Industrial Disputes Act, 1947

Section 2(oo) of the Industrial Disputes Act, 1947 talks about retrenchment. As per the said section, retrenchment refers to the termination of a workman for any reason except for a form of punishment in furtherance of imposing disciplinary action.


Section 25F of the Industrial Disputes Act, 1947: conditions precedent to retrenchment

  • As per this Section, the employer must give one month’s written notice to the workman that includes the reasons for retrenchment, or in lieu of such notice, the workman must be paid wages for the period of the notice.
  • The employer at the time of retrenchment must pay the workman the compensation which is equal to the average pay of 15 days for each year of continuous service provided by the such workman.
  • The notice regarding retrenchment must be served to the appropriate Government as well.


Section 25G of the Industrial Disputes Act, 1947: procedure of retrenchment

The procedure of retrenchment as per this Section is as follows:

If an employer decides to retrench a workman belonging to a certain class of workmen working in the establishment of such employer, he must ensure to retrench such a workman who was considered as the last candidate to be employed for such work at the time of employment. Usually, the rule followed during retrenchment is that it must start with beginners or new workmen and then progress toward the experienced or senior workmen.


Industrial Disputes Act (1947): Lay-off, Retrenchment, and Closure! 

Lay-Off, Retrenchment, and Closure are three case scenarios contemplated in the Industrial Disputes Act, 1947, which essentially results in employees losing their jobs.  These are rather scenarios where situations compel an employer to resort to denying employment to their employees.



Essentially, a lay-off is a condition where employers are constrained to deny work to their workforce owing to conditions that bring forth a temporary inability to keep their business going. The said case scenario can happen only in a continuing establishment.


Special Provisions for Lay-Off:

The employer cannot, without prior permission from the appropriate government, lay off an employee featured on the muster rolls of the establishment

A copy of the said application has to be given to the concerned workmen as well. If the lay-off happened where the workmen (other than badli workmen or casual workmen) of an industrial establishment, being a mine, owing to reasons of fire, flood, or excess of inflammable gas or explosion, the employer, in relation to such establishment, shall, within a period of thirty days from the date of commencement of such lay-off, apply in the prescribed manner, to the appropriate Government or the specified authority for permission to continue the lay-off. The said application will be considered and a reasonable opportunity to be heard shall be given to the employer as well as the workmen. After considering the same, the appropriate government may or may not grant the employer to close down. Even here, if the government does not respond within sixty days of the application, the permission will be deemed to have been granted. There are provisions for review of the said decision by the authority suo-moto or in response to an application.


Compensation for Laid-Off period:

A workman who is laid-off is entitled to compensation equivalent to 50 percent of the total basic wages and dearness allowance for the period of lay-off. The said compensation can be availed only if the employee has done a continuous service of at least one year; Along with this, the muster rolls of the establishment should bear the worker’s name to avail of the compensation. A badli or casual worker cannot avail of such compensation. Refusal to accept alternative employment, absence from the establishment, strike, or deliberate slowing down of production could be grounds that would entail disentitlement to such compensation.

If such Lay-off exceeds 45 days, the employer can either keep paying such lay-off compensation or retrench the workers. Nonetheless, retrenchment should necessarily be applied abiding by the procedure set out by the statute; this will be described in detail in the upcoming section which deals with retrenchment.

In the case of lay-off, the employer is liable to pay compensation whereas in lock-out no such liability is imposed upon the employer if the lock-out is justified and legal. Lock-out is resorted to by the employer as a weapon of collective bargaining whereas lay-off is invariably caused by economic and trade reasons.


Cases on Lay-Off
  1. Rolling Mills (Private), vs Meher M.R. And Ors.: (1962) IILLJ 667 Bom

The tribunal held that the workmen were not entitled to lay-off compensation under Chap. VA of the Industrial Disputes Act, where the order to pay compensation by the labour court was declared illegal as in that establishment there were less than 50 workmen.

Workmen of The Straw Board v M/S. Straw Board Manufacturing (1974) I LLJ 499 (SC)

The Tribunal Court held in favour of the Company and stated that the closure was legitimate and it was not a case of lay-off, retrenchment or lock-out. The Tribunal further held that since it was a legitimate closure, the question of compensation could not be determined by it and the workmen were not entitled to any relief.


Workmen of M/S Firestone Tyre &. vs Firestone Tyre & Rubber Company 1973 Lab IC 851 (SC)

If, however, the terms of r employment confer a right of lay-off on the management, then, in the case of an industrial establishment that is governed by Chapter VA, compensation will be payable in accordance with the provisions contained therein. The sections dealing with the matters of lay-off in chapter VA are however applicable to a certain type of industrial establishment. Where the number of workmen was only 30, there were no standing orders certified under the industrial employment “standing orders” Act, 1946 nor was there any term of the contract of service conferring any right of lay-off, the workmen must be held to be laid off without any authority of law or power in the management under the contract of service. Such a case goes out of chapter V A.


28 Sae Mazdoor Union, Jabalpur vs The Labour Commissioner, Indore 2001 (3) MPHT 200

The fact that the situation of accumulation of stock would become inevitable if workers were not laid-off, off would be within the scope of reasons of sec 25M read with sec 2(KKK) of the Industrial Dispute Act 1947. Under the circumstances, the application for permission to lay off reflects a ground on the basis of which the labour commissioner could objectively consider the case for granting the said permission. Therefore, the permissions for lay-off granted by the Labour commissioner were not assailable.



Various Socially Beneficially Legislations Like the Industrial Disputes Act, Employee Compensation Act, Payment of Wages Act, and Minimum Wages Act, Have Proved to Be of Great Help to Workmen …!

it was a well-accepted fact that the growth of the national economy and development depends upon industrial growth which is in turn dependent upon the peaceful/harmonious relationship between the employer and employee.

With this view, various socially beneficial legislations like the Industrial Disputes Act, Workmen’s Compensation Act, Payment of Wages Act, etc. have been enacted from time to time along with the amendments which would suit the day-to-day changing trend.

As a consequence, the common law right of an employer to discharge and dismiss an employee, popularly known as the right to ‘hire and fire’ has been subject to various statutory limitations and conditions.

The Industrial Disputes Act, 1947 and the timely amendments in the Act, especially the provisions relating to retrenchment, and lay-off compensation has proved to be of great advantage to the workmen, in a country like India, wherein the bulk population is constituted of the labour class.

These workmen are solely dependent upon their wages for their livelihood. So taking into consideration the essence of wage earnings to the workmen for their livelihood, the legislature has amended the principal Act and inserted provisions relating to retrenchment, lay-off compensation, definition, the procedure to be followed in such cases, conditions precedent for retrenchment, lay-off, right of workmen to claim compensation, exceptions to compensation, reinstatement of a retrenched workman, relief in unjustified circumstances. The insertion of chapter V-B in the year 1976 by an amendment, special provisions relating to lay-off, and retrenchment have been incorporated.

Employers used these weapons (Retrenchment and layoff) commonly known as the “Downsizing Policy”, to lessen their workforce due to heavy expenses, company defaulters, downs in business, etc. In both techniques, employees are terminated from the” first 30 come last to go and last come first go method” But the difference between these two is that retrenched employees are promised legally that they will be recalled on the job (last go first come method) when the conditions of business get better but in lay off employees are terminated without any such promise after paying all their legal dues.

The employees should be informed well in advance about the layoffs. Prior warning or informing about the layoffs creates a chance for the employees to revolt against the Management, and cause damage or sabotage to the machinery and valuable assets of the company. This impact can be reduced by providing the employees with retraining and offering them adequate compensation and benefits.

Karma Global Tech Management LLC works across a wide variety of industries, constantly looking for ways to offer new services and increase its global businesses.

In order to serve today’s technology to techy-savvy clients and employees, Karma Global planned much ahead of its time by adapting to processes and systems to accommodate the quickly changing markets.

As Industry is continuing to get more and more competitive, Karma Global is bridging the gap, setting itself in tune with the latest technology trends in order to maintain a competitive advantage for all of its over 400 domestic and global clients.

Automation and AI –  Karma Global was among the first to improve efficiencies, the first in the vendor auditing process to fully automate and streamline any and all processes surrounding the auditing business of entities and vendors.

The chatbot and AI did a fabulous job of giving machine output, with a quicker pace, cheaper rate, and more accurate level of auditing and reporting.

This helped in elevating the roles of our Auditors to focus on complex tasks that require more brainpower or the human touch, leaving some of its tasks to the capabilities of the machine.

Incorporating chatbots in customer service allowed time for our expert representatives to spend time dealing with more complex issues which could ultimately add to the user experience and this is what set us apart from others.

Automating repetitive processes in our systems helped us free the valuable time of our expert staff allowing them to reach out to more clients.

For this purpose, Karma Global has both full-time related staff and also indirect staff who are freelancing with us for enhancing our IT capabilities to the next level on the cloud platform.

Also, clients with issues such as litigation, disputes, closure, lockdown, retrenchment, and layoffs could take the help of Karma Global in sorting this out since it now has a formidable partner by the name of Sundeep Puri & Associates to provide further solutions on such or any legal entanglements.


Proprietary blog of Karma Global Tech Management LLC

This blog has been collated and compiled by the internal staff of Karma Global with the knowledge and expertise that they possess, for its monthly newsletter Issue 07 of January 2023 in case of specific or general information or compliance updates for that matter, kindly reach out to the ……….


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