Industrial Dispute Act 1947 Lay Offs, Retrenchment and Closure

31/12/2020 0 By indiafreenotes

The term ‘lay-off’ has been defined under section 2 (kkk) of the Industrial Disputes Act, 1947, thus lay-off means the failure, refusal or inability of an employer on account of the shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery or natural calamity or for any other unconnected reason to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched.

Essentials of lay-off:

(i) There must be failure, refusal or inability on the part of the employer to give employment to a workman.

(ii) The failure, refusal or inability should be on account of shortage of coal, power or raw materials or accumulation of stocks or breakdown of machinery, or natural calamity, or any other connected reason.

(iii) The workman’s name should be on the muster rolls of the industrial establishment.

(iv) The workman should not have been retrenched.

Lay-off is a measure to cope with the temporary inability of an employer to offer employment to a workman to keep the establishment as going concern. It results in immediate unemployment though temporary in nature. It does not put an end to the employer-employee relationship, nor does it involve any alteration in the conditions of service.

Further, lay-off occurs only in a continuing business. When the industrial establishment is closed permanently or it lock-out is declared by the employer, the question of lay-off has no relevance. Lay-off is justified only when it is in conformity with the definition given under Section 2 (kkk) of the Industrial Disputes Act.

Compensation for Lay-Off (Rights of Workmen):

According to Section 25 C of the Industrial Disputes Act, a workman who is laid-off is entitled to compensation equivalent to 50 per cent of the total basic wages and dearness allowance for the period of lay-off.

This right of compensation is, however, subject to the following conditions:

(i) He is not a badli or a casual workman.

(ii) His name should be borne on the muster rolls of the establishment.

(iii) He should have completed not less than one year of continuous service under the employer.

A badli workman means a workman who is employed in place of another workman whose name is borne on the muster rolls of the establishment. However, such a workman ceases to be a badli workman on his completion of one year of continuous service in the establishment.

A workman is entitled to lay-off compensation at the rate equal to fifty per cent of the total of the basic wage and dearness allowance for the period of his lay off except for weekly holidays which may intervene. Compensation can normally be claimed for not more than forty-five days during any period of twelve months.

Even if lay-off exceeds forty-five days during any period of twelve months no compensation is required to be paid for the excess period if there is an agreement to that effect between the workman and the employer.

If the period of lay-off exceeds forty-five days, the employer has two alternatives before him, namely:

(i) to go on paying lay-off compensation for such subsequent periods

(ii) to retrench the workman.

Duties of the Employer in Connection with Lay-Off:

The following duties are laid down for the employer in connection with a lay-off:

(a) The employer must maintain a muster roll of workmen and to provide for the making of entries therein by workmen who may present themselves for work at the establishment at the appointed time during normal working hours notwithstanding that workman in any industrial establishment have been laid off.

(b) The lay-off must be for the reasons specified in Section 2(kkk).

(c) The period of detention of workmen if stoppage occurs during working hours should not exceed two hours after the commencement of the stoppage.

(d) The compensation for lay-off must be at the rate and for the period specified in Section 25-C of the Industrial Disputes Act.


The term “Retrenchment” has been given a very wide meaning under Section 2(oo) of the ID Act to include termination by the employer for any reason whatsoever, other than a punishment given in disciplinary proceeding.

The provision further states that Retrenchment does not include:

  • Voluntary retirement;
  • Retirement on reaching age of superannuation;
  • Termination of service of workman as a result of non-renewal of contract of employment;
  • Termination of workman due to continuous ill-health

Conditions have to be fulfilled for retrenchment

Section 25F of the ID Act is a very essential provision for law relating to retrenchment.

If the conditions or requirements given in this provision are not followed by the employer, then the retrenchment of employee will be illegal and invalid.

According to this provision, a workman employed in any industry who has been in continuous service for not less than one year under an employer cannot be retrenched unless:

  • 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 the notice;
  • The workman has been paid compensation at the time of retrenchment;
  • Notice in the prescribed manner is served on the appropriate Government.

Retrenchment of White-Collar Employees

The term white collar employees have nowhere been expressly defined under the Indian Law. However, white collar employees are those who work in the managerial capacity.

Thus, the employees who don’t fall under the definition of “workman” under Section 2(s) of ID Act are white collar employees. The definition of workman any person (including an apprentice employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute.

The definition of “workman” specifically excludes those persons who are employed in managerial or administrative capacity.


The Act defines “Closure” as the permanent closing down of a place of employment or part thereof. Here, the employer is constrained to close the establishment permanently. Nonetheless, the due procedure has to be complied with when it comes to rolling out a plan of closure; the said procedure, as set out by the Act, has been detailed below. These procedures, nonetheless, do not apply to an undertaking set up for the construction of buildings, bridges, roads, canals, dams or for other construction work.

Sec. 25FFF. Compensation to workmen in case of closing down of undertakings.

(1) Where an undertaking is closed down for any reason whatsoever, every workman who has been in continuous service for not less than one year in that undertaking immediately before such closure shall, subject to the provisions of sub- section (2), be entitled to notice and compensation in accordance with the provisions of section 25F, as if the workman had been retrenched: Provided that where the undertaking is closed down on account of unavoidable circumstances beyond the control of the employer, the compensation to be paid to the workman under clause (b) of section 25F shall not exceed his average pay for three months.

1 Explanation. An undertaking which is closed down by reason merely of

(i) financial difficulties (including financial losses); or

(ii) accumulation of undisposed of stocks; or

(iii) the expiry of the period of the lease or licence granted to it; or

(iv) in a case where the undertaking is engaged in mining operations, exhaustion of the minerals in the area in which such operations are carried on; shall not be deemed to be closed down on account of unavoidable circumstances beyond the control of the employer within the meaning of the proviso to this sub- section.

Special Provisions: The employer intending to do a closure of his establishment has to necessarily apply at least ninety days in advance to the appropriate government. A copy of the said application has to be given to the representatives of the workmen as well. 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 from application, the permission will be deemed to have been granted. A similar provision for review of the decision exists even here.

Continuous Service

One year of continuous service entails an entitlement for compensation under the Industrial Disputes Act. A workman is said to be in continuous service if he is for that period in uninterrupted service. Interruption owing to sickness authorised leave, an accident, a strike which is not illegal, a lock and a cessation of work which is not due to the fault of the workman will not be taken into consideration for calculating the period of continuous service.

A workman could be deemed to have had one year of continuous service even if the worker hasn’t had a year of continuous service if the worker was in employment for twelve calendar months preceding the date with reference to which calculation is to be made, and in the course of these twelve months, he actually worked for not less than one hundred and ninety days in the case of employment in a mine and two hundred and forty days in any other case.

The said continuous service shall also include the days laid off, days on earned leave and days taken off owing to temporary disablement owing to accident arising out of or in the course of employment. Maternity leave taken, not exceeding twelve weeks shall also be counted in continuous service in case of female workers.