As a part of business exercise, it is quite common that companies, firms and organisations often terminate the employment of their employees. Such termination may be permanent or temporary depending upon the circumstances. Layoffs and Retrenchment are two categories of involuntary terminations made by the companies, firms and organisations. Layoffs are the temporary terminations made by the organisations, whereas Retrenchment refers to permanent termination of employment.
Layoff, as defined in the Industrial Disputes Act, 1947, refers to 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 breakdown of machinery or natural calamity or for any other connected 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. It is basically a measure to cope with the temporary inability of the employer to offer employment to a workman on account of shortage of raw materials or other reasons affecting the working of the business establishment. It leads to an immediate unemployment to the workman although such unemployment is of temporary nature. Further, it doesn’t put an end to the employer-employee relationship and also doesn’t involve any change in the conditions of services.
Furthermore, there are certain conditions that need to be fulfilled prior to layoff being applied. They are as follows-
1. The number of workmen working in the industrial establishment should not be less than 50 on an average per working day in the preceding calendar month.
2. The industrial establishment should not be of seasonal character.
3. There shouldn’t be any mala fide intention of the employer behind such layoff. The termination of employment should be only on account of failure, refusal or inability of an employer as a result of reasons beyond his control.
4. The name of the workmen should be borne on the muster roll of the of the industrial establishment and he should have presented himself for the work on the establishment at the time appointed for the purpose during normal working hours.
5. The workmen should not have been given employment within two hours of his so presenting himself.
Retrenchment, as defined in the Industrial Disputes Act, 1947, refers to the termination of a workman for any reason whatsoever, otherwise than as a form of punishment, given as a means of disciplinary action. It does not include voluntary retirement of workman, or retirement of the workman upon reaching the age of superannuation as stipulated in the contract of employment, or termination of service due to non-renewal of contract of employment on the contract’s expiry, or contract being terminated, or termination of the service of a workman on the ground of continued ill-health.
There exist certain conditions mentioned in Section 25F of the aforementioned Act, which need to be fulfilled prior to retrenchment of an employee. They are as follows:
1. The workman should be given one month written notice, which includes the reasons for retrenchment, or the workman has been paid in lieu of such notice, wages for the period of the notice.
2. At the time of retrenchment, he has to be paid, compensation equal to the average pay of fifteen days for every completed year of continuous service.
3. The notice is also to be served on the appropriate Government.
DIFFERENCE BETWEEN LAYOFF AND RETRENCHMENT
Layoff and Retrenchment can be differentiated on several parameters of comparison. Some of which are as follows:
a. Definition: Layoff refers to involuntary termination of employment because of business and expenditure reasons. Whereas Retrenchment refers to permanent termination of employment as a result of closure of establishment or replacement of labour.
b. Nature: Layoff is a sort of Action Step, whereas Retrenchment is a Business Strategy by nature.
c. Time: Layoff in temporary in nature, whereas Retrenchment is permanent in nature.
d. Effect on operation: Layoff usually leads to standing of operation during its time period. On the other hand, the operation continues even if retrenchment is done.
e. Re-appointment: When layoff is done, reappointment might happen after the layoff period whereas there is no such provision in case of retrenchment.
There are several ways through which the employees working in an organisation may lose their jobs. Layoff and Retrenchment are two of such ways. Layoff is temporary and even some compensation is paid to the employees being laid-off. Retrenchment is permanent and usually happens as a result of closure of some department or establishment.