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  • Writer's pictureLAWGIC STRATUM


Author - Sangeethaa N S

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“The way your employees feel is the way your customer will feel. And if your employees don’t feel valued, neither will your customers.” -Sybil F. Stershic.


In industrial jurisprudence often we get confused with few terms because of similar meaning, but if we look deeper into such terms froma legal perspective, then we may get to know that both terms are different in their meaning. The same color applies to the term’s ‘retrenchment’ and ‘lay off’. If we see these terms, in general, we may not able to learn the difference in detail. But the Industrial Disputes Act, 1947 will help us to understand these terms clearly.

Lay off – legal view

According to The Industrial Disputes Act,1947,lay off means the failure,refusal, or inability of an employer on account of the 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-roll of his industrial establishment and who has not been retrenched[1].

From the definition provided by the Act,it is very clear that an employee will be laid off for any of the reasons listed out in the definition. If he is removed or suspended from the service other than for the reasons specified in the section, then it will not be considered as ‘lay off’ at all.

Emphasis must be given to the phrase ‘any other connected reason’ because the readers might have chances to interpret it in one more than one way. With the light of ejusdem generis the Supreme Court has interpreted this in a correct way that the phrase stands for the reasons which are connected with the employment of employees which means that which such reasons, the employment cannot be continued further. For example, ifa particular company is facing some economic crisis, and then it may not able to buy the necessary machinery required for the production of materials needed. In such cases, the employer cannot keep the employees for long so that he will be probably pushed down to take up the ‘lay off’.

Apart from the definition, the Act also deals with certain other provisions of layoff such as the right of workmen laid-off for compensation[2],cases in which workmen laid off not entitled to compensation[3], and prohibition of lay off[4].

Retrenchment – legal view

The literal meaning of the word ‘retrenchment’ stands for the reduction in the quantity of something. If we apply this meaning in interpreting the word used in the Act,then it would end up with the meaning of termination of surplus laborers who are excess in quantity which means they are not needed by the employers anymore.

Let us see what The Industrial Disputes Act,1947 says about retrenchment.As given under section 2(oo) of The Industrial Disputes Act,1947[5],retrenchment means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include –

a) Voluntary retirement of the workman; or

b) Retirement of the workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation on that behalf; or

c) Termination of the service of the workman as a result of the non-renewal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation in that behalf contained therein; or

d) Termination of the service of a workman on the ground of continued ill-health.

Therefore, we can see that the section itself expressly notifies what are the actions/grounds excluded from the pit of retrenchment. Four grounds are expressly excluded from the scope of retrenchment but if we scrutinize the section, we can able to decode the fifth ground of exceptions of retrenchment. The fifth ground is included in the first part of the definition itself through the phrase ‘otherwise than as a punishment inflicted by way of disciplinary action’. Hence the grounds for exceptions of retrenchment are – termination by way of disciplinary action, voluntary retirement, and retirement by way of superannuation, termination by way of expiry of the contract period, and termination due to prolonged ill-health.

A different interpretation of section 2(oo) of the Act

The words used in the definition of retrenchment ‘for any reason whatsoever’ attracted the attention of readers because it paves way for a different set of interpretations. To understand this complicated concept, we have to rely upon various Judgments which will help us to conclude. The Supreme Court held that the reasons which don’t fall under the five exceptions will be covered by the phrase ‘for any reason whatsoever’ hence the termination of an employee for not passing the examination is an act of retrenchment[6].

Even the discharge of probationer on the exception grounds of retrenchment will also fall under section 2(oo) of the Act[7].In both Punjab Land Development and Reclamation Corporation Ltd v. Presiding Officer, Labour Court[8] and S.M.Nilajkar v. Telecom District Manager, Karnataka[9]the Supreme Court held that the Parliament used this phrase to have wider interpretation concerning the retrenchment and if the Parliament wanted to confine to the literal meaning of retrenchment i.e. termination of a surplus of labor then it would have mentioned it specifically. In the absence of such express notification, we have to give a wider interpretation of the phrase which means it includes all the reasons except those which are excluded in section 2(oo) of the Act.

The contrary view had been taken by the Constitutional Benchin Barsi Light Railway Co. Ltd v. K.N.Joglekar[10]case because they held that the Parliament provided no clear or specific meaning for that phrase and in that time the Court has to take the ordinary meaning to interpret the definition. If so, then the phrase would mean only one ground for retrenchment i.e.termination/discharge of surplus labor from the industrial establishment. The decision of the Constitutional Bench had been again reiterated by the High Court of Bombay in 1979[11].

Though different interpretations have been given by different Courts, a wider interpretation of the phrase is correct because this legislation is purely a beneficial one, and keeping that in mind wider interpretation should be encouraged so that the employees who are retrenched on various reasons other than those listed in the Act will be able to claim compensation under the Act.


From the above words we got a clear vision about the two different concepts ‘lay off’ and ‘retrenchment’ and now we have no more confusion between these two terms. The Industrial Disputes Act, 1947 provides compensation to the employees who are laid off or retrenched by the employers under respective sections and this is also embodied with the exceptions. In short, both lay off and retrenchment is the method of termination of employment but the grounds of termination differ from each other. Besides, this termination methodology is perfectly regulated by the Act through the concerned authorities so that it can’t be harmful to the employees anymore.


[1]The Industrial Disputes Act, 1947, S 2(kkk). [2]The Industrial Disputes Act, 1947, S 25C. [3]The Industrial Disputes Act, 1947, S 25E. [4]The Industrial Disputes Act, 1947, S 25M. [5]The Industrial Disputes Act, 1947, S 2(oo). [6]Santosh Gupta v. State Bank of Patiala, AIR 1980 SC 1219. [7]Management of Karnataka State Road Transport Corporation, Bangalore v. M.Boraiah, AIR 1983 SC 1320. [8]Punjab Development and Reclamation Corporation Ltd v. Presiding Officer, Labour Court, (1990) II LLJ 70 (SC). [9]S.M.Nilajkar v. Telecom District Manager, Karnataka, AIR 2003 SC 3553. [10]Barsi Light Railway Co. Ltd v. K.N.Joglekar, AIR 1957 SC 121. [11]KamaleshkumarRajanikant Mehta v. Presiding Officer, Central Govt. Industrial Tribunal No.1, (1979) 39 FILR 329 (337,341) (Bom).

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