1) Meaning of Retrenchment

        Retrenchment means termination of service of a workman by the employer by any reason but other than punishment or disciplinary action. In simple words, if an employer discharges or removes any workman or staff member on the ground of surplus labor or staff, but not as a disciplinary action it is called retrenchment.

2) Definition of Retrenchment : 

               The Definition of the term Retrenchment as given in Section 2(oo) of the Industrial Dispute Act 1947 is exhaustive and comprehensive. According to the definition 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 in that behalf; or 
             (bb) 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

               (c) Termination of the service of a workman on the ground of continued ill-health;

3) Requirements of valid retrenchment

              A retrenchment to be valid the following, the following conditions are to be satisfied under Section 25(F) and (N) of the Industrial Dispute Act, 1947.

No workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until-

    (a) The workman has been given one month’s notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice;

     (b) The workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days’ average pay for every completed year of continuous service or any part thereof in excess of six months; and

     (c) Notice in the prescribed manner is served on the appropriate Government for such authority as may be specified by the appropriate Government by notification in the Official Gazette.

    (d) If there exists an agreement specifying a date of termination of service, no notice is necessary in such cases 

    (e) Compensation is equivalent to 15 days average pay for every completed year  of service or any service or any part thereof in excess of six months; and

    (f) Notice in the manner prescribed in Rule 76 of the Industrial Dispute Rules 1957 should be served by the appropriate government. 

4) Difference between Lay-off and Retrenchment

5) See also 

Methods of settlement of Industrial Disputes

Distinction between Awards and Settlement


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