Emergence of the Doctrine of Hire and Fire in Lay-off through Changes Introduced in the Industrial Relations Code, 2020
Lay-off is a concept that has been developing with time. Earlier the disputes arising within the industry relating to lay-off were decided in accordance with the judicial precedents as this concept of lay-off was not incorporated in a formal manner in any of the acts. But with time there was a need felt as a conundrum surrounding lay-off resulted in the loss of jobs to the employees of the industry. Lay-off is a tool to balance the temporary inability on the part of an employer to offer employment to a workman. It results in immediate unemployment, though temporary. It does not put an end to the relationship between an employee and the employer. Lay off was previously defined under the Industrial disputes Act but due to the largest reforms on the part of the central government, this act including the other two was subsumed under the Industrial Relations Code which still has to be notified in the official gazette. Certain changes have been brought from the older act to the new code in view to promote ease of doing business and thereby modernizing the present legal framework by making it less burdensome to comply with. Similarly, some changes have been brought in the concept of lay-off in the new code as well. The present paper throws light upon the concept of lay-off in detail. It initially discusses the essential and rights of workmen in terms of compensation followed by the difference between various terms such as retrenchment and lockout in which there is often confusion. Following the paper throws light upon lay-off in the times of COVID-19, changes brought by the new enactment of this code and then finally followed by a brief conclusion and the researchers’ observation.
I. Introduction
The freedom of contract theory emerged out of the laissez-faire principle which authorized the employer to discharge his workmen on the occasion whenever there was any wear and tear of machinery or whenever there arises any situation which cannot be controlled by the employer or his management. These absolute powers within the employer exposed the workmen to the risk of unbalanced management. This unrealistic power with the employer started to diminish with the advent of state intervention in the industrial relations between the employee and the employer. The intervention by the state resulted in losing this privilege to sever the contract of employment which was not justifiable by looking at the point of view of the employees.
II. The old concept of lay-off
After independence due to modernization in textile mills, often there was lay-off and retrenchment of workmen without any compensation payment, although few of the establishments paid compensation, thus there was no uniformity norm for compensation in such circumstances which resulted in the deteriorating economic conditions of the labour class2.
The concept of lay-off was given legislative recognition and the definition was inserted in the Industrial Disputes Act, 1947 under Section 2(kkk) of the Act through an amendment done in1953 by the Industrial Disputes (Amendment) Act, 1993. It described lay off as a failure, inability, or refusal to provide for employment to the workers by the employer which can be due to shortage of any raw material say for example coal or wear and tear of machinery, or maybe due to any natural calamity or accumulation of stock or any related reasons3. This failure is due to unavoidable circumstances which are not in control of the employer. The amended act aimed to provide workers with a mechanism to get relief against the reduction of workmen by the employer. It sought to foster healthy industrial relations by providing a mechanism of settling down the dispute and preventing unfair trade practices through the letter of law.
III. Concept of Lay-off and new definition under IR Code
The industrial Relations code, 2020 has subsumed the three major central laws that were related to industrial dispute settlement. It forms part of the central government's largest reform scheme in the decades. The three laws that are subsumed are namely, the Industrial Disputes Act, 1947, the trade unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946. The present action undertaken by the government does not negate the objectives of the earlier act but it caters for the need of the growing society by consolidating them into one code. The aim is to ease the compliance into a single document. The changes which have been brought are only to reduce the compliance burden and bring ease in the way of doing business by simply modernizing the framework.
In the present new code of Industrial Relations, lay off has been defined under Section 2(t)4 as the failure, refusal, or inability of an employer due to the shortage of power, coal, or raw materials or the accumulation of stocks or the break-down of machinery or natural calamity or for any other connected reason, to give employment to a worker whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched. Lay-off is thus can be explained as the temporary stoppage of work and for a valid period of time and the business has not been shut or closed but will continue wherein the employees have been laid off. The contract of service between the employer and the employee is not over but is suspended for this temporary period. In the case of M.A Veirya v C.P. Fernandez5, it was observed by the court that it is not upon the free-will of the employer under the cloak of lay-off to keep the employees in the suspended state and not to make up his mind whether the industry would continue or will there be a permanent stoppage meaning thereby depriving his employees of full wages. In another sense, this concept of applying lay-off should not be mala-fide. The tribunal can adjudicate upon the situation whether it is malicious or was it a necessary situation.6 Lay-off is not a right but an obligation. 7
In the case of Workmen of Dimkuchi Tea Estate v. Management of Dimakuchi Tea Estate8, the Hon’ble Supreme Court of India analyzed the following objectives of the industrial law in various aspect from which the concept of lay-off holds a place as follows:
1. For the purpose of maintaining good relations between the employee and employer.
2. for investigation and settlement of industrial disputes between the employers and employers,
3. for prevention of illegal strikes and lockouts.
4. To provide relief to the workmen in the cases of lay-off, retrenchment, and closure of an undertaking.
5. For the purpose of Collective bargaining.
IV. Essentials conditions
The phenomenon of Layoffs cannot be said as a fault on the party of an employer or employee, it is merely a situation wherein the employment cannot be provided to the workman.
There are various essential conditions of a layoff9-
1. In the layoff there must be a refusal or inability or failure on the side of the employer due to this employer is not able to give the employment to the worker.
2. The name of the workmen must be mentioned on the muster rolls.
3. There must be unemployment of the worker due to failure or refusal or inability of the employer. This Failure can be due to a shortage of raw material or its accumulation of the final product or wear and tear of machinery, or any other connected reason.
4. There must be a reason which is beyond from employer’s control.
5. There should be bona fide intention on the part of the employer.
6. The workmen should go to the establishment and presented themselves for work at the time appointed for normal working hours during their employment.
7. The workman should not have been retrenched by the employer.
V. Rights of workmen laid-off for Compensation
Laying off workmen has severe outcomes wherein they are deprived from the opportunity to work and earn wages.10 This is the reason, which it becomes essential for the employer to provide compensation to the workmen if their case falls. However, no compensation can be awarded in advance of actual layoff on the grounds of social justice.11 As per Section 67 of Industrial Relations Code the worker whose name is borne in the muster rolls of an industrial establishment and who has been in his service for one year in continuation is laid-off by the employer then he shall be paid by the employer which is equal to 50% of his prescribed wages and other allowances.
The provision of this section further states that if there is a pre-existing agreement between the employees and the employer relating to lay-off and its compensation then the worker will not get compensation for more than a period of the first forty-five days. The only condition is that there should be an existence of a prior agreement otherwise the worker will be paid for the rest of the period as well.
VI. Difference between lay-off and Retrenchment
1. Retrenchment means involuntary separation of an employee due to the replacement of labour by machines or the close of the department whereas, Lay-off refers to the temporary suspension of the employee from working in the industrial establishment. The separation between the worker and employer is not permanent.
2. The nature of retrenchment is permanent whereas the nature of lay-off is temporary.
3. Retrenchment continues even after the declaration whereas, stops after the declaration
4. In Retrenchment, employee's connections with the organization are severed immediately, whereas, in lay off the re-appointment is done as soon as the lay-off period ends.
VII. Difference between Lay-off and Lockout
Lockout
1. The lockout has been defined under Section 2(u) of industrial relation code 2020. Lay off has been defined under Section 2(t) of industrial relation code 2020.
2. Lock-out means the refusal of the employer to continue to employ the workers, despite any intention to close the unit. Lay-off indicates the involuntary separation of the employees of a department, by the employer due to his failure to provide employment.
3. It is a process in which the employer voluntarily closes the business, not because of any specified reasons. Lay-off is a process in which the employer refuses to give employment to the employees for certain specified reasons.
4. The employer declares lock-out, as a result of an industrial dispute. The employer declares lay-off under specific circumstances.
5. Lockout applies to the entire establishment and sometimes industry. Lay-off applies only to a group of workers that may be workers of a shift, department, or unit, depending on the circumstances.
Now, we can also see the difference12 between lay off and lockout with the help of this case law of Management of Kairbetta Estate, Kotagiri Po V. Rajamanickam13, It was held by the honourable Supreme Court that employer can only resort to lay-off only in circumstances which are mentioned in Section 2 (kkk) of Industrial Disputes Act. The requirement to comply with section 2(kkk) is not necessary for lock-out. The other major difference when it comes to lay-off and lock-out is that in lay-off the employer is required to pay compensation to the workmen whereas there is no such liability upon him in the case of a lockout.
VIII. Lay-off in the times of Covid-19
There is no doubt that this epidemic of covid-19 has taken the entire world by storm that has to lead to serious economic crises leading to an unprecedented economic crisis and humanitarian. This lockdown was shown devastating effects throughout the world and in particular, the economy of our nation India has resulted in huge losses. This calamity leads to catastrophic effects in various businesses, start-ups, and industrial establishments. These organisations have sustained themselves in these tough time by adopting several by reducing their input costs in their industries by these means such as retrenchment, lay-off, termination of employees and other.
Earlier, The Labour Ministry issued an advisory statement in which they urged the companies to pay wages to their employees in these tough times and to be specific in the lockdown period. The advisory statement made no impact as stayed in an advisory capacity. Further, on March 29, another step was taken by the Ministry of Home Affairs in which they issued an order under the Disaster Management Act, 2005 in the favour of workmen wherein employers were directed to pay their employees in full connotation without any deductions.
The above measures taken by the legal backup or by the government can be taken into consideration from two angles. Firstly, forcing employers to retain and pay their employees may be a burden as there are businesses that are already strapped and placed on default. Another aspect is that it implies that some organizations are even encouraging employees to use their earned leave.
Viewed from any angle, these are sweeping directions covering in its fold all types of establishments, employers, and employees.14 The changes in the post-COVID-19 world may see a gradual shift in terms of employment arrangements. In some of the sectors working from home may become a norm instead of a measure. Another thing that can be encountered is that employers adopting fixed-term contracts with employees.15
IX. Changes introduced in new code, 2020
The industrial Relations Code, 2020 is one of the newest legislation in the country. It forms part of one of the largest reform schemes in the decades. There was three-act that have been subsumed, namely the Industrial Disputes Act, 1947, the trade unions act, 1926, and the Industrial Employment (Standing Orders) Act, 1946. The code has consolidated three laws intending to promote ease within the industry. There are various changes brought with the new enactment in the code and some of the most important changes have been brought in the concept of lay-off. The key changes are summarised below.
Under the industrial dispute Act, Industrial establishments with more than a hundred workmen employer were required to obtain prior permission from the appropriate Government, but now, The Industrial relation Code has changed this requirement for industrial establishments such as mines, factories, and plantations in any establishment if there is 300 workmen or more than 300 workmen or such number as may be prescribed by the government. This change has been specifically dealt with under section 77.16
The present change still seems historic and is criticized called as an ‘anti-worker scheme since it contains the provision which against the worker’s interest. The doctrine of hire and fire has been again brought as now the industry employing less than 300 workers can lay off its employees without obtaining any prior permission. Another contrasting view brought up is that it is hampering the interest by denying its freedom to adjust the size of the workforce where more than 300 workers are working. Still, the higher interest and the result would be in favour of the industry with less than 300 workers as they have got the freedom to hire and fire the employees that exist in the business.
X. Conclusion
The sense of being labour satisfied is directly proportional to the industry being developed. In order to gather this, the nation’s aim should be to create a welfare state which is embodied in the constitution. Our country India is known for its population as well as being a labour intensive nation which brings in the dire need for independent legislation to protect the labour from being exploited in any manner. With this view, various legislations have been enacted with time like the Payment of Wages Act, and Trade Disputes Act, Industrial Disputes Act with day-to-day amendments and then finally a consolidated code came into existence named Industrial Relations Code, 2020 which has to be notified. In this modernized code, the actual sense of protecting the labour has not been taken care of in full capacity. The alterations in the number of Section 77 has given a significant verge to the employer.
The concept of lay-off is of utmost importance and drafting relating to this concept should be done with a keen eye. The power of lay-off should be exercised capriciously by the employer by keeping his employee’s welfare in mind. These workmen in its very essence are dependent upon the wages for their daily bread. The insertion of chapter IX in the code relating to these provisions has been incorporated to determine the procedure of lay-off, retrenchment and the procedure to be followed in giving compensation to the workmen.
Industrial Relations Code, 2020 is a piece of social beneficial legislation in which the concept of lay off and related provisions to the same are enshrined. Usually, the workmen are laid off and are provided with minimal compensation which is not justified so to curb this lacuna the code in itself provides a provision related to it. In most cases, retrenchment and lay-off are usually due to illiteracy, ignorance, and victimization which leads to illegal termination. The employer must follow the labour legislation in order to ensure the smooth running of his industry and harmony between the management and the workmen. The Industrial Relations Code, 2020 has introduced several significant changes in the concept of lay-off when compared to the earlier legislation of the Industrial Disputes Act. The employer is only required to take permission from the government in a case where there are 300 or more workers to lay off. Earlier the same provision was for 100 or more workers. This analysis shows that the doctrine of hire and fire has been brought up again. The present provision of this legislation seems nowhere in the interest of labour and the employer is now free to do what he wants. This provision is nowhere in support of their rights and no light of justice is seen.
There seems a need to bring more awareness amongst the workers as to the rights of claiming compensation or other benefits to which they are entitled to. The legislative body of our nation must consider the changes introduced and should alter them by balancing the interest of both the employer and its workmen. The workers are hesitant to raise their problems in front of the management within the industrial establishment due to fear-mongering. This shows us that the workers need to be encouraged to reach the appropriate authority in case of a grievance in order to obtain a solution for the same.
Footnotes
1. Author is a student at University of Petroleum and Energy Studies, Dehradun.
2. Sarita Sucorina, Lay-off, Gr karela Law Library, http://www.grkarelawlibrary.yolasite.com/resources/LLMSY -Lab-1-Sarita.pdf. ↩
3. Industrial Disputes Act, 1947, s. 2(kkk). ↩
4. Industrial Relations Code, 2020, s. 2(t). ↩
5. M.A. Veirya v. C.P. Fernandez, 1956-I, L.L.J. 547 Bomb.. ↩
6. Hope Textiles Ltd. v. State of MP, (1993) I LLJ 603. ↩
7. Workmen v. Firestone Tyre and Rubber Co., (1976) 3 SCC 819. ↩
8. Workmen of Dimkuchi Tea Estate v. Management of Dimakuchi Tea Estate, (1958) AIR 353. ↩
9. Industrial Relations Code, 2020, s. 2(t). ↩
10. Zandu Pharmaceuticals ltd. v. RN Kulkarni and Co , (1996) 1 LLJ 560. ↩
11. KT Rolling mills v. MR Mehr, 1962 2 LLJ 667 (Bom). ↩
12. Strikes and lockout: A contemporary analysis through a real case, law teacher https://www.lawteacher.net/free-law-essays/employment-law/strikes-and-lockout-contemporary-analysis-through-a-real-life-case-law-essay.php. ↩
13. Management of Kairbetta Estate, Kotagiri Po V. Rajamanickam ,AIR 1960 SC 893. ↩
14. Rohan Batra, Are lay offs and Salary Cuts The only way Forward, INC24, available at https://inc42.com/resources/is-lay-offs-and-salary-cuts-the-only-way-forward/. ↩
15. Bhavya Sirman, Arvind R, Covid raises legal issues on workers, VB Legal, Advocates, THE HINDU Business line, available at https://www.thehindubusinessline.com/opinion/the-legality-of-lay-offs-and-salary-cuts-during-the-lockdown/article31479722.ece. ↩
- Sarita Sucorina, Lay-off, Gr karela Law Library, http://www.grkarelawlibrary.yolasite.com/resources/LLMSY -Lab-1-Sarita.pdf.
- Industrial Disputes Act, 1947, s. 2(kkk).
- Industrial Relations Code, 2020, s. 2(t).
- M.A. Veirya v. C.P. Fernandez , 1956-I, L.L.J. 547 Bomb..
- Hope Textiles Ltd. v. State of MP , (1993) I LLJ 603.
- Workmen v. Firestone Tyre and Rubber Co. , (1976) 3 SCC 819.
- Workmen of Dimkuchi Tea Estate v. Management of Dimakuchi Tea Estate , (1958) AIR 353.
- Industrial Relations Code, 2020, s. 2(t).
- Zandu Pharmaceuticals ltd. v. RN Kulkarni and Co , (1996) 1 LLJ 560.
- KT Rolling mills v. MR Mehr , 1962 2 LLJ 667 (Bom).
- Strikes and lockout: A contemporary analysis through a real case, law teacher https://www.lawteacher.net/free-law-essays/employment-law/strikes-and-lockout-contemporary-analysis-through-a-real-life-case-law-essay.php.
- Management of Kairbetta Estate, Kotagiri Po V. Rajamanickam ,AIR 1960 SC 893.
- Rohan Batra, Are lay offs and Salary Cuts The only way Forward , INC24, available at https://inc42.com/resources/is-lay-offs-and-salary-cuts-the-only-way-forward/.
- Bhavya Sirman, Arvind R, Covid raises legal issues on workers , VB Legal, Advocates, THE HINDU Business line, available at https://www.thehindubusinessline.com/opinion/the-legality-of-lay-offs-and-salary-cuts-during-the-lockdown/article31479722.ece.
- Industrial Relations Code, 2020, s. 2(t).