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Legal Aspects of Lay Off

Many Companies announced lay off:

  • Facebook parent company Meta announced that it would cut 13% of its staff or 11,000 workers.
  • CEO Elon Musk announced the company would slash almost half its 7,500 employees.
  • Microsoft, had let go of less than 1% of employees, or fewer than 1,000 people.
  • Shopify, which announced that it laid off 1,000 workers, about 10% of its global workforce;
  • Coinbase cut 18% of its full-time jobs, a reduction of around 1,100 people
  • Tesla, another Musk-run company, also announced cuts of about 10% of salaried workers.

Through this article, the legal aspects of layoff with the relevant laws, Compliances and acts will be listed out to understand this process more clearly with clarity and legal knowledge.

What is Layoff?

A layoff is a period of time in which people do not work or take part in their normal activities of the Company. It is the temporary suspension or permanent termination of employment of an employee or, more commonly, a group of employees for business reasons, such as personnel management or downsizing an organization. Laid off workers are workers who have lost or left their jobs because their employer has closed or moved, there was insufficient work for them to do, or their position or shift was abolished

Which Law governs layoff?

Industrial Disputes Act, 1947
As per Section 25C, there is right of workmen laid-off for compensation i.e., Whenever a workman whose name is borne on the muster rolls of an industrial establishment and who has completed not less than one year of Continuous service under an employer is laid-off, whether continuously or intermittently, he shall be paid by the employer for all days during which he is so laid-off, except for such weekly holidays as may intervene, compensation which shall be equal to fifty per cent. of the total of the basic wages and dearness allowance that would have been payable to him had he not been so laid-off:

If during any period of twelve months, a workman is so laid-off for more than forty-five days, no such compensation shall be payable in respect of any period of the lay-off after the expiry of the first forty-five days, if there is an agreement to that effect between the workman and the employee

It shall be lawful for the employer in any case falling within the foregoing proviso to retrench the workman at any time after the expiry of the first forty-five days of the lay-off and when he does so, any compensation paid to the workman for having been laid-off during the preceding twelve months may be set off against the compensation payable for retrenchment.

Let us understand the definition of continuous service.
As per Section 25B
  1. A workman shall be said to be in continuous service for a period if he is, for that period, in uninterrupted service, including service which may be interrupted on account of sickness or authorised leave or an accident or a strike which is not illegal, or a lock-out or a cessation of work which is not due to any fault on the part of the workman;
     
  2. where a workman is not in continuous service within the meaning of clause (1) for a period of one year or six months, he shall be deemed to be in continuous service under an employer:
    1. for a period of one year, if the workman, during a period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than:
      1. one hundred and ninety days in the case of a workman employed below ground in a mine; and
      2. two hundred and forty days, in any other case;
         
    2. for a period of six months, if the workman, during a period of six calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than:
      1. ninety-five days, in the case of a workman employed below ground in a mine; and
      2. one hundred and twenty days, in any other case.

Explanation: For the purposes of clause (2), the number of days on which a workman has actually worked under an employer shall include the days on which:
  1. he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under this Act or under any other law applicable to the industrial establishment;
  2. he has been on leave with full wages, earned in the previous years;
  3. he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; and
  4. 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.

When Layoff can be prohibited?
As per Section 25M
Prohibition of lay-off
  1. No workman (other than a badli workman or a casual workman) whose name is borne on the muster rolls of an industrial establishment to which this Chapter applies 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 (hereafter in this section referred to as the specified authority), obtained on an application made in this behalf, unless such lay-off is due to shortage of power or 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.
     
  2. An application for permission under sub-section (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.
     
  3. Where the workman (other than badli workmen or casual workmen) of an industrial establishment, being a mine, have been laid-off under sub-section (1) for reasons of fire, flood or excess of inflammable gas or explosion, the employer, in relation to such establishment, shall, within a period of thirty days from the date of commencement of such lay-off, apply, in the prescribed manner, to the appropriate Government or the specified authority for permission to continue the lay-off.
     
  4. Where an application for permission under sub-section (1) or sub-section (3) has been made, the appropriate Government or the specified authority, after making such enquiry as it thinks fit and after giving a reasonable opportunity of being heard to the employer, the workmen concerned and the persons interested in such lay-off, may, having regard to the genuineness and adequacy of the reasons for such lay-off, the interests of the workmen and all other relevant factors, by order and for reasons to be recorded in writing, grant or refuse to grant such permission and a copy of such order shall be communicated to the employer and the workmen.
     
  5. Where an application for permission under sub-section (1) or sub-section (3) has been made and the appropriate Government or the specified authority does not communicate the order granting or refusing to grant permission to the employer within a period of sixty days from the date on which such application is made, the permission applied for shall be deemed to have been granted on the expiration of the said period of sixty days.
  6. An order of the appropriate Government or the specified authority granting or refusing to grant permission shall, subject to the provisions of sub-section (7), be final and binding on all the parties concerned and shall remain in force for one year from the date of such order.
  7. 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-section (4) or refer the matter or, as the case may be, cause it to be referred, to a Tribunal for adjudication:

    Provided that where a reference has been made to a Tribunal under this sub-section, it shall pass an award within a period of thirty days from the date of such reference.
  8. Where no application for permission under sub-section (1) is made, or where no application for permission under sub-section (3) is made within the period specified therein, or where the permission for any lay-off has been refused, such lay-off shall be deemed to be illegal from the date on which the workmen had been laid-off and the workmen shall be entitled to all the benefits under any law for the time being in force as if they had not been laid-off.
     
  9. Notwithstanding anything contained in the foregoing provisions of this section, the appropriate Government may, if it is satisfied that owing to such exceptional circumstances as accident in the establishment or death of the employer or the like, it is necessary so to do, by order, direct that the provisions of sub-section (1), or, as the case may be, sub-section (3) shall not apply in relation to such establishment for such period as may be specified in the order.]
     
  10. The provisions of section 25C (other than the second proviso thereto) shall apply to cases of lay-off referred to in this section.
Explanation: For the purposes of this section, a workman shall not be deemed to be laid-off by an employer if such employer offers any alternative employment (which in the opinion of the employer does not call for any special skill or previous experience and can be done by the workman) in the same establishment from which he has been laid-off or in any other establishment belonging to the same employer, situate in the same town or village, or situate within such distance from the establishment to which he belongs that the transfer will not involve undue hardship to the workman having regard to the facts and circumstances of his case, provided that the wages which would normally have been paid to the workman are offered for the alternative appointment also.

Consequences for Violation of law:
As per Section 25Q of Industrial disputes Act, 1947
Penalty for lay-off and retrenchment without previous permission - Any employer who contravenes the provisions of section 25M shall be punishable with imprisonment for a term which may extend to one month, or with fine which may extend to one thousand rupees, or with both.

Therefore, these are the procedures and legal aspects every Company should follow for layoff. These are the legal requirements under the law and Act. Written By: Jinal Jain

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