Lay-off in Labour Law & Compensation to Workmen

The Industrial Disputes Act came into force in 1947 to protect employees and settle industrial disputes. The Act aims to protect employees' interests, safeguard them from exploitation, and bring social justice to the employer and employee.

This Act specifies various rules regarding employee layoffs. As per Section 2 (kkk) of the Industrial Dispute Act 1947, a layoff is defined as the employer's inability or failure to employ the employees.

The main difference between layoff and retrenchment in Labour Law is that while layoff is temporary, retrenchment is permanent. Layoffs happen when the employer is not in a position to provide work to the employees and, hence, terminates them temporarily to save costs and keep the business running.

However, layoffs cannot be done abruptly, as certain conditions need to be met.

Conditions for Layoff

• Employers must follow the conditions before laying off the employees, which are mentioned below:

• The employer must be unable, incapable, or fail to employ the workers.

• The inability or unwillingness must result from a lack of coal, power, machinery, natural disaster, or other reasons.

• The laid-off employee’s name must be registered on the muster roll of his industrial establishment.

• Employees must not be retrenched.

All laid-off workers are entitled to receive layoff compensation packages from the employer in accordance with the Industrial Dispute Act.

Workmen's compensation or severance pay for laid-off employees is the benefit or compensation paid to employees when they are laid off by their employer.

The Industrial Dispute Act provides for layoff compensation for employees. As per Section 25 of the Act, any worker who is laid off must be paid 50% of his basic pay and dearness allowance during the period in which he is laid off.

However, layoff compensation must be paid only on the fulfilment of certain conditions laid down by the Act. It includes the following:

• The employee must be working for more than a year.

• The employee must not be a badli or casual worker.

• Employee’s name must be enrolled in the establishment’s muster roll.

• The compensation can be for up to 45 days in a year.

• The compensation excludes payment for any weekly holidays.

Conditions Where No Layoff Compensation Must be Paid

The idea behind worker’s compensation or layoff severance pay is to protect the employee from financial hardship during the layoff period. However, under Section 25 E of the Industrial Dispute Act, there are certain circumstances under which an employee is not entitled to compensation.

Here is the list of situations where an employee is barred from receiving any layoff compensation.

• If the employee is offered an alternative employment that meets the conditions of the Act.

• If the worker does not come to the workplace once a day during the regular working hours.

• If the layoff occurs due to a strike or slow production in other parts of the establishment.

Compensating the workers is the employer’s responsibility as it helps the laid-off employee to survive the layoff period without financial stress. The conditions and situations laid down in the Industrial Dispute Act enable the employer and employees to be aware of their rights and responsibilities and ensure fair treatment to both.

Every laid-off employee is entitled to compensation from the employer for the lay-off period so he can manage his day-to-day expenses smoothly. Similar to compensation for layoff, workers are also eligible to receive compensation when they suffer injury due to accidents at the workplace.

The provisions for workmen's compensation are laid down in the Workmen Compensation Act 1923. It protects workers employed in mines, factories, construction sites, plantations, etc.

Employees engaged in the above-mentioned industries must purchase workmen's compensation insurance, which assists them in fulfilling their legal obligations toward the employees.

Similar to compensating workers for being laid off, employers are also responsible for protecting them while at work. They must be adequately compensated in case of any injury or accident at the workplace.

The sudden death or accident of workers at the workplace can lead to an additional financial burden on the employer. Hence, it is wise to opt for SME insurance from a reliable provider. A worker's compensation policy is a type of SME insurance, which is crucial financial assistance that all employers must have.

An adequate workmen’s compensation insurance policy covers employee death, permanent total disablement, temporary disablement, partial disablement, and other essential aspects. While the employer's financial burden is reduced, an employee receives medical attention, monetary compensation, rehabilitation, and more.

One can rely on trusted providers in the country, such as Tata AIG, which undertakes to assist employers in protecting their employees' welfare.

The Industrial Dispute Act contains all the provisions related to employee layoffs. The wording of the Act makes it clear that when an employee is laid off, he must receive fair compensation for the period specified in the Act.

It also lays down the instances when the employee is not entitled to any compensation. Therefore, the sole purpose of the Act is to provide the legal framework to protect the interests of the employer and employee.

Another aspect of worker’s compensation is when an employee sustains an injury or dies due to an accident at the workplace. Employers are recommended to have a workmen’s insurance policy to fulfill their obligations towards their employees.

Which industries are permitted to lay off employees without giving compensation?

As per Section 25 A of the Industrial Dispute Act following industries are exempt from compensating the laid-off employees:

Industries that are engaged in seasonal or intermittent work.

Those industrial establishments, where on any day during the preceding calendar month, less than 50 employees are employed.

Industria establishments are covered under Chapter V-B of the Industrial Dispute Act, 1947.

What is the difference between lockout and layoff?

Lockout is a deliberate act by the employer to prevent workers from working or entering the workplace. On the other hand, layoff means temporary dismissal of employees due to reasons beyond the employer’s control.