Lay-Offs: Temporary Suspension of Employment Under the Industrial Disputes Act, 1947

Introduction

Lay-off, in the context of industrial relations, typically signifies the temporary dismissal of a workman on account of temporary closure of business due to economic reasons or otherwise. The employer-employee relation does not come to an end but is merely suspended during such period. While common law historically granted employers, the right to terminate services in emergencies, the Industrial Disputes Act, 1947, has modified this, transforming it into a right of temporary suspension of the contract of employment. This article provides a comprehensive overview of lay-offs under the Act, detailing its definition, prerequisites, compensation provisions, and special regulations for certain establishments.

Definition of ‘Lay-Off’ (Section 2(kkk) of the Industrial Disputes Act, 1947)

Section 2(kkk) – Section 2(kkk) of the Industrial Disputes Act, 1947 provides for the definition of Lay-off as:
1. An employer, who is willing to employ, fails or refuses or is unable to provide employment for reasons beyond his control, such as.,

(a) Shortage of coal, power, or raw materials, or

(b) Accumulation of stock, or

(c) Breakdown of machinery, or

(d) Natural calamity, or

(e) Any other connected reason.

2. A workman who is so deprived of employment must be one whose name is borne on the muster rolls of the industrial establishment.

3. The workman must not have been retrenched (i.e. the contract of employment must continue to subsist).

Deemed Lay-Off

The Explanation attached to Section 2(kkk) clarifies scenarios of ‘deemed lay-off’:

Every workman whose name is borne on the muster rolls of an industrial establishment and who presents himself for work at the establishment at the time appointed for the purpose during normal working hours on any day and is not given employment within two hours of his so presenting himself shall be deemed to have been laid-off for that day within the meaning of the clause.

If the workman, instead of being given employment at the commencement of any shift for any day, is asked to present himself for the purpose during the second half of the shift for the day and is given employment then, he shall be deemed to have been laid-off only for one-half of that day. If he is not given any such employment even after so presenting himself, he shall be deemed to have been laid-off for the second half of the shift for the day and shall be entitled to full basic wages and dearness allowance for that part of the day.

Interpretation of ‘Reasons Beyond Control’

From the definition provided under the Act, it is clear that a ‘lay-off’ is occasioned by the employer’s failure or inability due to economic reasons to provide employment. This implies that if a lay-off results from a strike, ‘go-slow’, or absenteeism of workers in other sections of the establishment (upon which the laid-off section depends), it would not fall within this definition. The expression ‘for any other connected reason’ must be construed ejusdem generis with the preceding specific reasons, meaning the reason must be genuinely beyond the employer’s control (Management of Kairbetta Estate v Rajamanickam AIR 1960 SC 893). The wording “failure, refusal or inability of an employer” signifies that the unemployment must be due to a cause, independent of any action or inaction by the workmen themselves. The definition does not specify a minimum duration for a lay-off.

Financial stringency or the stoppage of financial assistance generally does not constitute a valid ground for lay-off as held in the case of Hope Textiles Ltd. v State of M.P. (1993)). However, a sudden and prolonged slump in market prices (e.g., tea prices for 18 months) has been held to be a reason beyond the management’s control in the case of Cachar Chah Shramik Union, Silchar, Assam v Management of Tea Estate of Cachar AIR 1966 SC 987).

Pre-requisites for Laying-off a Workman & Lay-off Compensation

The Industrial Disputes Act, 1947, provides detailed provisions regarding lay-off in Chapters VA (Sections 25A to 25E) and VB.

Essential Prerequisites for Laying-Off a Workman:

Reading Sec. 2(kkk) together with Sec. 25A, provides for the pre-requisites of laying-off a workman:–

• The number of workmen employed in an industrial establishment should not be less than 50 on an average per working day in the preceding calendar month;
• The industrial establishment should not be of seasonal character or should not be one in which work is performed only intermittently (Sec. 25A);
• The unemployment should be due to the failure, refusal or inability of an employer on account of reasons beyond his control (there should not be mala fide intention on the part of the employer);
• The name of the workmen should be borne on the muster roll of the industrial establishment;
• The workman should have presented himself for work on the establishment at the time appointed for the purpose during normal working hours;
• The workman should not have been given employment within two hours of his so presenting himself.

Right to Lay-Off Compensation:

Sec. 25C of the Act entitles a workman to get compensation from the employer for the period he is laid-off, as lay-off is an action of the employer and deprives the workers of the opportunity to work and earn wages. Lay-off is not a right conferred but an obligation imposed on the employer for the benefit of the workmen. The very essence of a lay-off is that it is a ‘temporary stoppage’ and that within a reasonable period of time the employer expects that, the business or industry would continue and his employees who have been laid-off be restored to their full rights as employees.

Before a workman may claim lay-off compensation he must fulfil the following conditions:–

• his name must be borne on the muster rolls and he must not have been retrenched;
• he must have completed not less than one year of continuous service (as defined in Sec. 25B);
• the workman must not be a badli or casual workman (i.e., one who is employed in place of another workman);

If the above requirements are fulfilled, a workman whether laid-off continuously or intermittently, shall be paid compensation for all days during which he is laid-off, except for the weekly holidays. The amount of compensation payable to such workman shall be half the total of basic wages and dearness allowance.

The above rule is subject to the following limitations:

• The maximum period for which lay-off compensation is payable is 45 days during any period of 12 months, if there is an agreement to that effect (first proviso to Sec. 25C).
• if the employer retrenches a workman after the expiry of 45 days of lay-off, his lay-off compensation paid to the workman for having laid-off may be set off against the compensation payable for retrenchment (second proviso to Sec. 25C).

A lay-off must be due to the genuine reasons. If the lay-off is for the mala fide intentions (e.g., deliberately and maliciously brought about by the employer) or declared to victimize workers or for ulterior purposes, it would not be justified under Section 2(kkk) and Section 25C and would not confine the workmen’s right to compensation only to the prescribed amount, as held in the case of Tatanagar Foundry Co. v Their Workmen (1962) I LLJ 382 (SC).

Therefore, to claim lay-off compensation under Sec. 25C, two conditions must be fulfilled:

• The workman must have been laid-off for reasons contemplated by Sec. 2(kkk), and
• Requirements as provided by Sec. 25C must be fulfilled.

It may be noted that provisions for payment of lay-off compensation does not mean that the employer can pay compensation and declare lay-off. Payment of compensation is not a condition precedent to lay-off. Further, compensation cannot be awarded in absence of actual lay-off and on grounds of special justice (K.T. Rolling Mills v M.R. Meher (1962) 2 LLJ 667 (Bom).

Badli Workman

“Badli workman” means a workman who is employed in an industrial establishment in the place of another workman whose name is borne on the muster rolls of the establishment, but shall cease to be regarded as such for the purposes of this section, if he has completed one year of continuous service in the establishment (Explanation to Sec. 25C).

Thus, a badli workman is one whose name is not borne on the muster rolls of the establishment. However, if his name is found on the muster rolls, he is entitled to lay-off compensation as held in the case of Vijay Kumar Mills v Labour Court (1960) 2 LLJ (Mad).

Definition of Continuous Service:

In order to claim lay-off compensation, a workman is required to have completed one year of continuous service. Sec. 25B defines ‘continuous service’.

Section 25B(1): According to Section 25B(1), a workman shall be said to be in continuous service for a period, if for that period his service is uninterrupted. The interruption on account of sickness, authorised leave, an accident, legal strike, lock-out, or cessation of work which is not due to any fault on the part of the workman, will not amount to interruption within the meaning of the section.

Taking part in an illegal strike amounts to misconduct on the part of the employee, for which he invites the order of dismissal. But unless he is actually dismissed, there would be continuity under the Sec. 25B(1) as held in the case of Jairam Sonu v New India Rayon Mills Co. (1958) I LLJ 28 (Bom).

Section 25B(2): Section 25B(2) defines continuous service for the period of one year wherein the  workman has:

• been in employment for 12 calendar months, and
• have actually worked for not less than 190 days (in case of employment in a mine), or 240 days in any other case.

A workman shall be deemed to be in continuous service for six months, if

• he has been in employment for a period of 6 calendar months and
• have actually worked for not less than 95 days (in case of a mine), or 120 days in any other case.

For the purposes of Section 25B(2), the number of days on which a workman has actually worked under an employer shall include the days on which –

• he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946, or under this Act or under any other law applicable to the industrial establishment;
• he has been on leave with full wages, earned in the previous year;
• he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment;
• in the case of a female, she has been on maternity leave; so, however, that the total period of such maternity leave does not exceed twelve weeks.

The two conditions viz. (a) and (b) must be simultaneously fulfilled. Non-fulfilment of even one of them will not entitle the workmen to be treated in continuous service. That means for a continuous service of one year a workman must have served for 12 calendar months and also have worked for 240 or 190 days. In the case of Choggan Lal v Panchayat Samiti (1990) Lab IC 1463 (Raj), it was held that Sundays and other paid holidays have to be taken into account for the purposes of reckoning the total number of days on which the workman can be said to have actually worked.

In Mohan Lal v Bharat Electronics Ltd. (AIR 1981 SC 1253), it was held that Sec. 25B(2) comprehends a situation where a workman is not in employment for a period of 12 calendar months, but has rendered service for a period of 240 days within the period of 12 calendar months commencing and counting backwards from the relevant date i.e. the date of retrenchment. He would be deemed to be in continuous service for a period of one year for the purpose of Sec. 25B and Chapter VA of the I.D. Act. As pre-condition for a valid retrenchment was not satisfied, his termination of service was void ab initio and inoperative.

The burden of proof that a workman worked for 240 days in a given year lies on the workman. In most cases, the claimant workman can call upon the employer to produce before the court the copy of muster roll for the given period, the letter of appointment, the wage register, the attendance register, etc. as held in the case of R.M. Yellatti v Asstt. Executive Engineer (2006) 1 SCC 106.

Employer’s Duty to Maintain Muster Rolls (Section 25D):

Section 25D mandates that every employer must maintain a muster roll for the purposes of Chapter VA and make entries therein for workmen who present themselves for work during normal working hours, even if laid-off.

This duty is mandatory and the non-compliance of it will debar the employer to take advantage of Sec. 25-E(ii) of the I.D. Act.

Workmen Not Entitled to Compensation in Certain Cases (Section 25E):

Though lay-off is the result of the action on the part of the employer, he is absolved from the obligation to pay compensation, should the provisions of Sec. 25E apply. Thus, Sec. 25E is an exception to the general rule. A laid-off workman shall not be entitled to compensation under the following circumstances:

1. If he refuses to accept alternative employment provided that such alternative employment is:
   • In the same establishment or in any other establishment belonging to the same employer situate in same town/ village or situate within a radius of 5 miles from the establishment in which he belongs; and
   • If in the opinion of the employer, the alternative employment does not call for any special skill or previous experience and can be done by the laid-off workman; and
   • It carries the same wages.
2. If he does not present himself for work at the establishment at the appointed time during normal working hours at least once a day.
3. If the lay-off is due to strike or slowing down of production on the part of workmen in another part of the same establishment.

‘Any alternative employment’ means similar or like or equivalent employment. The expression ‘can be done’ means the workman must not only be capable of doing it but it should also be acceptable to him. Where skilled workmen were offered jobs of coolies and mazdoors which they refused was held not to forfeit their claims to lay-off compensation, in the case of Industrial Employees’ Union, Kanpur v J.K. Spinning & Weaving Mills Co. (1956) 1 LLJ 325.

Clause (2) requires a workman to present himself for work at the establishment daily. The only effect of his not so presenting or serving another employer during the period of lay-off would be that he will not be entitled to lay-off compensation for that period, but he will still have a right to be reinstated after the lay-off is over.

Clause (3) treats all the workmen in one establishment as one class and a strike or slow down by some workmen resulting in the laying off of other workmen disqualifies the workmen laid-off from claiming lay-off compensation.

Effect of Inconsistent Laws (Section 25J)

Section 25J ensures that the provisions of Chapter VA prevail over inconsistent provisions in any other law, including standing orders. However, it explicitly provides that if any other law, rules, orders, notifications, standing orders, award, or contracts of service offer more favorable benefits to a workman regarding any matter, the workman shall continue to be entitled to those more favorable benefits. This provision clarifies that Chapter VA determines rights and liabilities related to lay-off and retrenchment, but without derogating from more beneficial existing provisions.

Special Provisions for Lay-off in Certain Establishments

The Industrial Disputes (Amendment) Act, 1976 inserted Chapter V-B dealing with “Special Provisions Relating to Lay-off, Retrenchment and Closure in Certain Establishments” [Sec. 25-K to Sec. 25-S].

The provisions of this Chapter shall apply to an industrial establishment (not being an establishment of a seasonal character or in which work is performed only intermittently) in which not less than one hundred workmen were employed on an average per working day for the preceding twelve months. If a question arises whether an industrial establishment is of a seasonal character or whether work is performed therein only intermittently, the decision of the appropriate Government thereon shall be final [Sec. 25-K].

Prohibition of Lay-off (Sec. 25-M): Section 25M of the Industrial Disputes Act, 1947, governs the prohibition of lay-off in certain industrial establishments.

• No workman (other than a badli workman or a casual workman) whose name is borne on the muster rolls of an industrial establishment shall be laid-off by his employer except with the prior permission of the appropriate government or such authority as may be specified by that government by notification in the Official Gazette, obtained on an application made in this behalf, unless such lay-off is due to shortage of power or due to natural calamity, and in the case of a mine, such lay-off is due also to fire, flood, excess of inflammable gas or explosion.
• An application for permission under sub-sec. (1) shall be made by the employer in the prescribed manner stating clearly the reasons for the intended lay-off and a copy of such application shall also be served simultaneously on the workmen concerned in the prescribed manner.
• An order of the appropriate government or the specified authority granting or refusing to grant permission shall, subject to the provisions of sub-sec. (7), be final and binding on all the parties concerned and shall remain in force for one year from the date of such order.
• The appropriate government or the specified authority may, either on its own motion or on the application made by the employer or any workman, review its order granting or refusing to grant permission under sub-sec. (4) or refer the matter, as the case may be, cause it to be referred, to a Tribunal for adjudication.

Conclusion

Lay-off, as a temporary suspension of employment, represents a critical aspect of industrial relations governed by the Industrial Disputes Act, 1947. Defined by specific circumstances beyond the employer’s control and the continuity of the employer-employee relationship, it triggers statutory obligations for compensation. The Act outlines the prerequisites for a valid lay-off and the conditions for workmen to claim compensation, emphasizing the requirement of continuous service and the exclusion of mala fide actions by the employer.

Furthermore, Chapter VB introduces stringent special provisions for larger establishments, mandating prior government permission for lay-offs, thereby adding an extra layer of regulatory oversight. While the Act provides a framework for managing temporary economic downturns or operational disruptions, it simultaneously safeguards the interests of workmen by ensuring compensation and maintaining the employment agreement. The detailed provisions provided in the Act and various judicial interpretations surrounding lay-offs highlights the legislative intent to balance the employer’s operational flexibility with the protection of workers’ livelihood, thereby contributing to industrial harmony and social justice.

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