Legal vs Illegal termination of employment

Can an employer terminate an employee anytime? What is the correct procedure of termination? How much compensation does the employer owe to incase of layoff or termination of a workman?

Don’t know? Here’s a deep dive into the bylaws of termination and layoff of workmen and related regulations and compensation. 

Definition of Workman

As per the Industrial Disputes Act, “workman” is 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, terms of employment be express or implied.”

Exceptions to the Workman Definition

1. The Army, Navy and Air Force Personnel 
2. Police Personnel
3. Anyone working in managerial or admin capacity
4. Anyone who is employed in supervisory category and earns gross wages more than Rs.10,000/- 

Layoff Vs Retrenchment

Layoff is failure, refusal or inability of an employer to give employment to a workman whose name is in the muster roll. It is usually due to shortage of raw material, breakdown of machinery, accumulation of surplus stock or due to a natural calamity. It is different from termination/retrenchment as layoff is temporary in nature.

While retrenchment is termination of the service of a workman for any reason whatsoever other than punishment inflicted by the way of disciplinary action. 

Rules of Layoff

1. Layoff should be justified & bonafide
2. Muster roll of such employees must be maintained
3. Employees should be informed when the company will be operational again and when he/she needs to come to mark the attendance in order to get the compensation.
4. If the layoff is for a long duration such as 4-5 weeks then the employer needs to provide at least 3 weeks time to the employee to join post the layoff.
5. Layoff compensation needs to be paid to the workman with 50% of Basic+DA wages for upto 45 days.
6. In case the situation of the company does not improve or is unable to provide employment then the retrenchment compensation can be set off against layoff compensation. For eg, the layoff compensation was Rs. 20000/- and the retrenchment compensation accounts to be Rs. 100000/-. Then, during the retrenchment the employer needs to pay only Rs. 80,000/- & the balance amount can be set off against retrenchment compensation.

Conditions for Valid Retrenchment

1. Retrenchment can be done due to any reason such as loss making business, restructuring of the business, poor economy etc. 
2. The employer needs to provide one month’s notice to the workman.
3. The employer has to pay the wages/salary for the notice period even if the workman was given a choice to discontinue his services.
4. Notice should clearly mention the date of termination. 
5. The employer also needs to pay a compensation of 15 days for every year of service.

Important Rules for Retrenchment

1. Rule 25D 

Every employer to maintain a muster roll

2. Rule 77 

Maintenance of seniority list of workmen.

The employer shall prepare a list of all workmen in the particular category from which retrenchment is contemplated, arranged according to the seniority of their service in that category and a copy of this list should be put pasted on a notice board.

3. Rule 25G

The rule of ‘last come first go‘ has to be complied with for the validity of the retrenchment. The rule is that the employers shall retrench the workman who came last, first, popularly as ‘last come first go’.

However, in extraordinary situations may justify variations to this rule. But there must be a valid reason for this deviation. For instance, a junior recruit who has a special qualification needed by the employer may be retained even though another who is one up is retrenched. 

4. Rule 25H

After effecting retrenchment, if the employer proposes to take into his employment any person. 

i) He shall give an opportunity to the retrenched workmen who offer themselves for re-employment; and 

ii) These retrenched workmen have preference over the new applicants. Thus, Section 25-H imposes a statutory obligation on the employer to give preference to retrenched workmen when he subsequently employs any person.

Other Benefits to be paid by the Employer

1. Gratuity – Payable if the employee has worked for more than 5 years.
2. Leave Encashment for accumulated Earned Leaves.
3. Bonus -Payable if the employee has worked for 30 years in the year.