Retrenchment is a defined term, and the definition is wider than the ordinary meaning. It covers termination by the employer for any reason whatsoever, other than as punishment inflicted by way of disciplinary action, but it excludes voluntary retirement, superannuation, the non-renewal of a contract on its expiry or its termination under a stipulation in it, the completion of the tenure of fixed term employment, and termination on the ground of continued ill-health. So an ordinary redundancy, a performance related exit dressed up as a redundancy and a "role elimination" are all retrenchment.
The three conditions precedent
Where a worker has been in continuous service for not less than one year, the Code says the employer shall not retrench until all three of the following are satisfied.
- One month's notice in writing indicating the reasons for retrenchment, and the period of notice has expired, or wages for the notice period paid in lieu. The requirement that the notice state the reasons is often overlooked, and a letter that gives no reason does not comply.
- Compensation at the time of retrenchment, equivalent to fifteen days' average pay, or average pay of such days as the appropriate Government notifies, for every completed year of continuous service or any part of it in excess of six months. "Average pay" for a monthly paid worker is the average of the wages payable in three complete calendar months.
- Notice to the appropriate Government or the authority it specifies, in the prescribed manner.
Continuous service is defined for this purpose to include service interrupted by sickness, authorised leave, an accident, a legal strike, a lock-out or a cessation of work not due to the worker's fault. Where the service is not literally continuous, a worker who has actually worked two hundred and forty days in the preceding twelve months, or one hundred and ninety days in the case of below ground mine work, is deemed to have been in continuous service for a year. Days on authorised leave with full wages, days of lay-off and maternity leave count towards that total.
Where a worker is retrenched, the Code requires the employer to contribute to a worker re-skilling fund an amount equal to fifteen days' wages last drawn, or such other number of days as the Central Government notifies, and that sum is to be credited to the retrenched worker's account within forty-five days of the retrenchment. Separately, the employer must ordinarily retrench the last person employed in the category unless it records reasons for departing from that, and a retrenched worker has a right of preference in re-employment if the employer hires within a year.
What happens if the conditions were not met
Non-compliance does not merely give rise to a claim for the unpaid money. A retrenchment carried out without complying with the conditions precedent is open to challenge as invalid, and the relief sought in that case is reinstatement with back wages rather than the compensation itself. That is why the choice of relief has to be made deliberately: accepting the compensation and giving a general release makes reinstatement much harder to ask for later. Our guide on wrongful termination and employee rights in India sets out how those alternatives are pleaded.
A conciliation officer cannot hold proceedings on an industrial dispute more than two years from the date the dispute arose. Where conciliation fails, an application to the Tribunal must be made within ninety days of the date the failure report is received by the party. The repealed provision allowed three years to move the labour court, and a great deal of online material still says so. Do not plan around it.
Recovering money that is simply due
Where the amount is not really in dispute, there is a faster route than adjudication. Money due to a worker under a settlement or an award, or under the lay-off, retrenchment and closure chapters, can be recovered on an application to the appropriate Government, which certifies the amount to the Collector, who recovers it as an arrear of land revenue. That application has to be made within one year from the date the money became due, though it may be entertained later if the Government is satisfied there was sufficient cause for the delay. Keep that one year period in view separately from the two year and ninety day periods above.
The sequence to follow
- Ask in writing for the retrenchment letter, the reasons, the computation and proof of the notice to the Government
- Compute your own figure: average pay of three complete months, completed years, part years over six months
- Check the seniority list in your category, and whether anyone junior was retained
- Check whether anyone was hired into the same category within a year
- Note the date the dispute arose, and diary the two year and ninety day periods that day
- Do not sign a release until you have decided between money and reinstatement
If the employer's answer is that you were never a worker, that argument has to be met first, and our note on whether you count as a worker under the Industrial Relations Code sets out the evidence that decides it. For the wider changes that moved these provisions and shortened the periods, see our overview of what the four labour codes changed for employees.