The word people use in a restructuring email and the word the statute uses are not the same word, and the gap is worth real money. Get the characterisation right before you do anything else.
Retrenchment, under Section 2(zh), is the termination by the employer of the service of a worker for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action. It excludes voluntary retirement, superannuation, non-renewal of a contract on its expiry or its termination under a stipulation in it, completion of the tenure of fixed term employment, and termination on continued ill-health. The employment ends.
Why the label costs you money
The right to be paid fifty per cent of basic wages and dearness allowance for days of lay-off sits in Sections 67 to 69 of the Code. Section 65 then says those sections do not apply to establishments governed by the special chapter, nor to establishments in which fewer than fifty workers on average per working day were employed in the preceding calendar month, nor to seasonal or intermittent establishments, and its explanation defines industrial establishment for those sections as a factory, a mine or a plantation. So an office has no statutory lay-off compensation at all, at any headcount. If an employer calls the exit a lay-off, pays nothing, and takes you off the payroll, it has not laid you off in law. It has retrenched you, and the retrenchment obligations are what apply.
The permission question runs on the same fault line. Section 77(3) confines the prior permission chapter to a factory, mine or plantation, so an information technology office is outside the three hundred worker permission regime whatever its size, and Section 70 is the operative protection. Our answer on whether government permission is needed before laying people off works through that clause.
What Section 70 requires
Where a worker has been in continuous service for not less than one year, the employer shall not retrench until all three of these are satisfied. One month's notice in writing indicating the reasons for retrenchment with the period expired, or wages for the notice period paid in lieu. Compensation at the time of retrenchment equivalent to fifteen days average pay for every completed year of continuous service or any part of it in excess of six months. And notice served on the appropriate Government or the authority it specifies. Section 71 adds the order: within a category, the employer shall ordinarily retrench the worker last employed in that category unless for reasons to be recorded it retrenches another. A breach of Section 70 is punishable under Section 86(3) with a fine of not less than fifty thousand rupees extending to two lakh rupees, though cognizance requires a complaint by or under the authority of the appropriate Government.
| Head | Entitlement | Source |
|---|---|---|
| Notice | One month in writing stating the reasons, or wages in lieu | Section 70(a), Industrial Relations Code |
| Retrenchment compensation | Fifteen days average pay per completed year and any part over six months | Section 70(b) |
| Order of selection | Last in first out within the category, unless reasons are recorded | Section 71 |
| Re-employment | Preference if the employer hires into the same category within one year | Section 72 |
| Re-skilling fund | Fifteen days wages last drawn, credited to your account within forty five days of the retrenchment | Section 83, Industrial Relations Code |
| Wages and settlement | Within two working days of retrenchment | Section 17(2), Code on Wages |
| Gratuity | Payable within thirty days of becoming payable, with interest for delay | Gratuity chapter, Code on Social Security |
The head almost nobody claims
Section 72 says that where a worker is retrenched and the employer proposes to take any person into employment within one year of the retrenchment, it shall give an opportunity to the retrenched workers who are citizens of India to offer themselves for re-employment, and those who do have preference over other persons. Set a reminder and watch the employer's own careers page. A company that cuts a team in September and posts the same requisitions in February has an awkward question to answer, and that fact is worth more in negotiation than in litigation.
The exclusions that can defeat the claim
Two of them do most of the damage. If your engagement was fixed term and the employer simply let the term run out, Section 2(zh)(iv) takes it outside retrenchment and no compensation follows on that account, although a fixed term employee now gets pro rata gratuity without five years of service. If the contract contained a stipulation for termination and the employer invoked it, clause (iii) may be argued, though the exclusion is for non-renewal on expiry or termination under a stipulation, not for an ordinary termination clause used to dress up a redundancy. And you must be a worker at all: Section 2(zr) excludes those employed mainly in a managerial or administrative capacity and those in a supervisory capacity drawing wages above eighteen thousand rupees a month. Note what the exclusion in Section 2(zh) does not cover. Retrenchment excludes only termination as a punishment inflicted by way of disciplinary action, so an employer cannot call the exit a performance decision and simultaneously deny that it was a termination for a reason other than disciplinary punishment.
Two clocks, and they are not the same
For a dispute about the legality of the exit, Section 53(1) bars conciliation more than two years after the dispute arose, the conciliation officer sends the failure report within forty five days under Section 53(5), and the application to the Tribunal must be made within ninety days of that report under Section 53(6). Anyone still advising three years is working from the repealed Industrial Disputes Act. For a pure money claim where the sum is due under the retrenchment chapter, Section 59(1) is faster and shorter: an application to the appropriate Government for recovery, which if satisfied issues a certificate to the Collector who recovers it as an arrear of land revenue, and that application must be made within one year of the money becoming due, extendable for sufficient cause. One year, not two. Our note on recovering money the employer will not pay sets out how that application is framed.
One last thing, and it is the thing that goes wrong most often. The severance letter usually comes stapled to a release. Sign that and the contractual heads and the challenge to the exit go with it, even though the wage heads survive by force of statute. Our answer on signing a release before your dues are paid deals with what survives and what does not, and it is worth reading before the deadline the HR email gives you.