Tech Layoffs Are Not Lay-Offs: Why the Word Changes the Money

What Indian technology companies announce as a layoff is almost never a lay-off in law. A lay-off under Section 2(t) of the Industrial Relations Code, 2020 is a temporary failure to give work to someone whose job continues and whose name stays on the muster roll. If your role was closed and your employment ended, that is retrenchment under Section 2(zh), and it carries a completely different set of rights. Using the wrong word is not a pedantic complaint. It changes which section you claim under, how much you are owed, and in a Bengaluru office it can be the difference between a real claim and none at all.

Part of the employment and labour law practice at S Jain & Attorneys, Bangalore.

This guide separates the three things that get called the same thing, and explains a limitation in the lay-off provisions that surprises almost everyone who reads them for the first time.

What lay-off means in the Code

Section 2(t) defines lay-off as the failure, refusal or inability of an employer, on account of shortage of coal, power or raw materials, or the accumulation of stocks, or the break-down of machinery, or natural calamity, or for any other connected reason, to give employment to a worker whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched.

Read the last clause again. A laid-off worker is one who has not been retrenched. Lay-off assumes the employment relationship survives. The work stops, the wages mostly stop, the job does not end. The definition even contains a rule for a single day: a worker who presents himself at the appointed time and is not given work within two hours is deemed laid off for that day, and if he is called for the second half of the shift and given work, he is deemed laid off for only half the day.

Key takeaway. Lay-off is a factory concept about muster rolls and shifts. It describes a temporary stoppage of work, not the end of a job. Nothing about a permanent role closure fits it.

Retrenchment is the other thing entirely

Retrenchment is defined in Section 2(zh) as the termination by the employer of the service of a worker for any reason whatsoever, other than as a punishment inflicted by way of disciplinary action. It carves out only voluntary retirement, superannuation, non-renewal or expiry of a contract, completion of a fixed term, and termination on continued ill-health.

A role eliminated in a restructuring, a team closed because a client left, a cost reduction, a global headcount decision: all of it is termination for a reason, and all of it is retrenchment. There is no separate legal category called a layoff sitting between the two.

Three points decide most of these disputes before anyone argues about fairness.

The trap: lay-off compensation does not reach an office

This is the part that catches people out, and it is worth being precise about. Section 65 says that Sections 67 to 69, which are the lay-off compensation provisions, do not apply to industrial establishments to which Chapter X applies, nor to establishments employing fewer than fifty workers on average per working day in the preceding calendar month, nor to establishments of a seasonal character.

Then comes the Explanation, which does the real damage. For Sections 65, 67, 68 and 69, industrial establishment means a factory under the Factories Act, 1948, a mine under the Mines Act, 1952, or a plantation under the Plantations Labour Act, 1951. Nothing else.

Common mistake. Reading Section 67 and expecting fifty per cent of your salary because a Bengaluru software or sales employer called something a layoff. Section 67 does not reach an office at all. It reaches factories, mines and plantations with fifty or more workers.

So for the great majority of white collar employees, the lay-off provisions are simply not available, whatever the company memo called it. That is not a loss, because the correct claim is usually the better one. If the employment ended, it was a retrenchment, and Section 70 applies to industrial establishments generally without the factory, mine or plantation limitation that Section 65 imposes.

What Section 67 gives, where it does apply

Where the establishment is a factory, mine or plantation with fifty or more workers, Section 67 is a real entitlement. A worker other than a badli or casual worker, whose name is on the muster rolls and who has completed not less than one year of continuous service, must be paid for all days of lay-off, excluding intervening weekly holidays, compensation equal to fifty per cent of the total of basic wages and dearness allowance that would have been payable had he not been laid off.

Two provisos matter. If a worker is laid off for more than forty-five days in any twelve months, no compensation is payable after the first forty-five days where there is an agreement to that effect between worker and employer. And after those forty-five days the employer may retrench under Section 70, in which case lay-off compensation already paid in the preceding twelve months may be set off against the retrenchment compensation.

When no compensation is payable at all

Section 69 removes the entitlement in three situations, and they are worth knowing before you refuse anything.

1. The worker refuses suitable alternative employment in the same establishment, or in another establishment of the same employer in the same town or village or within eight kilometres, provided the alternative needs no special skill or previous experience and the same wages are offered.
2. The worker does not present himself for work at the establishment at the appointed time during normal working hours at least once a day.
3. The laying-off is due to a strike or a slowing-down of production by workers in another part of the establishment.

The second one is the quiet trap. A laid-off worker who stops turning up loses the claim. Presenting yourself daily and keeping a record of having done so is what preserves it.

The muster roll is the employer's duty, not yours

Section 69 removes compensation from a worker who fails to present himself, which sounds like it puts the whole burden on the employee. Section 68 balances it. It places a duty on the employer of an establishment to which these provisions apply to maintain muster rolls of workers, and to provide for the making of entries by workers who present themselves for work at the establishment at the appointed time during normal working hours.

Read together, the scheme is that the worker must turn up and the employer must give him a way to record that he did. Where an employer has kept no muster roll, or has refused entries, an argument that the worker did not present himself becomes considerably harder to run. Anyone in a genuine lay-off should be recording attendance in whatever way the establishment provides, and keeping their own dated note of it where the employer provides nothing.

Continuous service and the two hundred and forty day rule

Section 66 defines continuous service as uninterrupted service, including service interrupted by sickness, authorised leave, an accident, a legal strike, a lock-out, or a stoppage not caused by the worker. Where service has been broken, a worker is deemed to have one year of continuous service if he actually worked at least two hundred and forty days in the preceding twelve months, or one hundred and ninety days below ground in a mine. For six months the figures are one hundred and twenty days, and ninety-five days below ground.

Days already spent on a lawful lay-off, and days of earned leave on full wages, count towards those totals. This matters for anyone whose employment was patchy in the final year.

Prior permission, and where it applies

Section 78 prohibits lay-off without the prior permission of the appropriate Government in establishments to which Chapter X applies, unless the lay-off is due to shortage of power or natural calamity, or in a mine, fire, flood, excess of inflammable gas or explosion. Chapter X is the three hundred worker regime, and Section 77(3) confines it to a factory, mine or plantation. An office is outside it however large.

What to do when the letter says layoff

Read the document for what it does, not for what it is called. The questions that settle it are simple. Does the letter end your employment or suspend it? Does it ask you to return company property and settle dues? Does it speak of a last working day? Does it offer to take you back when conditions improve? A document that ends the relationship is a retrenchment letter with the wrong heading, and it should be answered as one.

In practice the most useful thing an employee does at this stage is to stop arguing about the label in email and instead ask one written question: whether the company treats the separation as a retrenchment under Section 70 and, if not, under what provision it is being effected. The answer, or the absence of one, is the document that matters later.

Karnataka: Section 39 runs alongside all of this

Section 39 of the Karnataka Shops and Commercial Establishments Act, 1961 is State legislation and survives the four labour codes. It bars removal or dismissal of an employee with six months of continuous service except for a reasonable cause and without one month's notice or pay in lieu, gives an appeal to the prescribed authority, allows compensation not exceeding one month's pay for every year of service, and preserves more favourable terms found elsewhere. For an office employee who falls outside the definition of worker, this is usually the operative protection, and it does not care what the company called the exercise.

Frequently Asked Questions

This article is for general informational purposes only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.

Related Guides

If you are holding a letter and need it read rather than researched, our employment and labour law practice and our corporate and commercial practice act for both employees and employers in Bengaluru. These guides go further on the points above.

• Are You a Worker Under the Industrial Relations Code?
• Wrongful Termination in India: Employee Rights and Remedies
• Asked to Resign? When a Resignation Is Really a Termination
• The Four Labour Codes: What Actually Changed for Employees
• Gratuity Under the Code on Social Security
• Employment Agreements in India