Strategic Downsizing Can be Key to Layoff Process

In India, divorcing your partner is easier than separating your employee in the workman category. It’s time the Industrial Disputes Act and other provisions are reviewed.

Published: 04th May 2014 06:00 AM  |   Last Updated: 03rd May 2014 08:48 AM   |  A+A-

Once again mass downsizing has begun. After enough experiences with the tough labour authorities, corporates are coming out with alternate strategies for downsizing. Rather than openly declaring closure, the procedure is being divided into transfer, shifting, Voluntary Retirement Scheme (VRS), golden handshakes, etc.

There are certain basic concepts and strategies that need to be understood to ease the process, to be fair and to avoid the authorities as far as possible.

According to the Industrial Disputes Act, 1947, when there are more than 100 workers, permission/intimation to the government for closing down the unit is required. The said provision is applicable to factories, plantation, mines etc. For establishments which do not fall under these categories, only intimation to the government, not permission, is required. Further, retrenchment compensation to the tune of 15 days’ wages for every completed year is to be given, alongwith notice/notice pay of three months or a month.

To simplify the process, the strategy which should be adopted by companies is to segregate the employees into various categories. First, the employees should be divided into workman and non-workman categories depending upon their nature of duties. The non-workman category can be terminated as per contract of appointment without much hassle. The workman category employees shall be governed by the provisions of the Industrial Disputes Act and need to be further segregated into categories such as fixed term, contract labourers, regular employees, probationers, apprentices, temporary etc. Probationers and fixed-term employees can be terminated as per their contract of appointment. For contract labourers, the contractor should be asked to rotate them to other organisations or they be given some compensation through the vendor/ contractor after negotiations. If possible, a tripartite settlement agreement be signed between principal employer, contractor and the workers. Regular employees can be offered VRS/golden handshake packages.

After taking out VRS/golden handshake schemes, employees who do not opt for the same, companies, rather than openly declaring closure, choose to shift their operations or do mass transfers on occasions. For this, it is necessary that the transfer clause exists in the appointment letter of the employees or the rules of the company. If the employee is being transferred to another company, his consent shall be mandatory. Further, it will have to be ensured that there is continuity in service for the employee and that his current benefits are not reduced in any manner.

After reducing the number of workers, further steps for ultimate closure are taken. In India, divorcing your partner is easier than separating your employee in the workman category. It’s high time certain provisions are reviewed. Closure, termination, retrenchment, etc. are governed by the Industrial Disputes Act. With the changed economy, laws too need to be amended. At present, in case some industrial dispute is pending, then permission/approval of the labour court is required for terminating worker/s in certain cases. This provision leads to filing of many bogus disputes by the union/workers which are dragged for years together. Further, there is a provision of protected workman which at times gives shield to notorious workers. The most difficult provision, that is seeking permission from the labour authorities for retrenchment or closure which is given in rarest of rare cases, discourages many foreign investors from setting up shop in India.

To achieve better economy for the country, employers and employees as well as to curb the inspector raj, a thorough review of the systems is needed.

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