Law and You > Labour Laws > The Industrial Relations Code, 2020 > Lay-Off Under the Industrial Relations Code, 2020

The Conflict between the employees and employers is inherent in industrial society. The Industrial Relation Code, 20202 was enacted to provide machinery and forum for the settlement of such conflicting and seemingly irreconcilable interests without disturbing the peace and the harmony in industry. The Code provides social justice to both employees and employers. Lay-off is one of the important factors which may lead to an industrial dispute.

Lay-Off:

According to Section 2(t) of the Industrial Relations Code, 20220 “lay-off” (with its grammatical variations and cognate expressions) means the failure, refusal or inability of an employer on account of shortage of coal, power 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.

Explanation.—Every worker whose name is borne on the muster rolls of the industrial establishment and who presents himself for work at the establishment at the time appointed for the purpose during normal working hours on any day and is not given employment by the employer within two hours of his so presenting himself shall be deemed to have been laid-off for that day within the meaning of this clause:

Provided that if the worker, instead of being given employment at the commencement of any shift for any day is asked to present himself for the purpose during the second half of the shift for the day and is given employment then, he shall be deemed to have been laid-off only for one-half of that day:

Provided further that if he is not given any such employment even after so presenting himself, he shall not be deemed to have been laid-off for the second half of the shift for the day and shall be entitled to full basic wages and dearness allowance for that part of the day.

Muster Roll:

According to Section 68 of the Industrial Relations Code, 2020, it shall be the duty of every employer to maintain for the purposes of this Chapter a muster roll, and to provide for the making of entries therein by workers who may present themselves for work at the establishment at the appointed time during normal working hours.

Necessary Ingredients of Lay-Off:

• There must be failure, refusal or inability on the employer’s part to give employment to the workman concerned.
• Such failure or refusal should be on account of 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].
• The workman’s name should be on the muster rolls of the industrial establishment.
• The workman should not have been retrenched.

Illegal Lay-off:

If there is a failure, refusal or inability on the employer’s part to give the workman concerned due to any other reason than those specified in the definition of lay-off in section 2(t) of the Industrial Relations Code, 2020, then the lay-off is illegal and malafide one.

In Papnasam Labour Union V. Madhura Coats Ltd, AIR 1995 SC 2200 case, where the constitutionality of Section 25 M IDA, 1947 was challenged on the ground that the imposed unreasonable restriction as it mandated the employer to obtain the prior permission of the government or special authority before lying off the workmen, which was considered void and ultra vires. The Apex Court held that the main objective of the introduction of Section 25M is to prevent avoidable hardships to the employees as a result of lay –off and maintain higher productivity and production through preserving the peace and harmony of the industries; it was further mentioned that the legislature had taken care by exempting the need of prior permission for layoff in case the layoff is necessary due to natural calamities or power failure as these situations are explicit, grave and sudden. Therefore, there is no need for any further scrutiny in these situations. The employer must take the prior permission of the government rather than deciding as per his assessment. Hence, to maintain industrial peace and harmony and avoid unemployment due to unjust causes, Section 25M cannot be considered arbitrary or unreasonable, and the constitutional validity was upheld.

In Kairbetta Estate v. Raja Manickam, 1960 II LLJ 275 SC case, it is established that slowdown in one part (say A) of establishment can be a reason for layoff in next part (say B) of the establishment for which a raw material is supplied by the department A which is slowed down. Thus there is less work in department B. Hence workmen from department B can be laid-off. Court held that this condition is coming under the phrase “any other reason”.

In Workmen of Dewan Tea Estate v. Their Management, 1964 I LLJ 358 SC case, the Supreme Court held that the financial difficulties of the employer cannot become the basis of lay-off.

In Raj sahib Spg. & Wvg Mills v. Labour Commissioner, Maharashtra, AIR 1968 Bom. 161 case, the Court held that there can be a lay-off for even less than 2 hours.

In Central India Spinning, Weaving and Manufacturing Co. Ltd Nagpur v. State Industrial Court, AIR 1959 Bom 225 case, the Bombay high court held that the key to the definition is to be found in the world failure, refusal or inability of an employer these world make it clear that employment has to be on account of a cause which is independent of any action or inaction on the part of the workmen themselves.

Duties of the Employer in Connection with Lay-Off:

• The employer must maintain a muster roll of workmen and to provide for the making of entries therein by workmen who may present themselves for work at the establishment at the appointed time during normal working hours notwithstanding that workman in any industrial establishment have been laid off.
• The lay-off must be for the reasons specified in Section 2(t) of the Code.
• He can lay-off the workman only with the prior permission of the appropriate government or such authority as may be specified by that government on an application made in this behalf.
• The period of detention of workmen if a stoppage occurs during working hours should not exceed two hours after the commencement of the stoppage.
• The compensation for lay-off must be at the rate and for the period specified in Section 67 of the Code.

Duties of Appropriate Government:

• An employer can lay-off the workman only with the prior permission of the appropriate government or such authority as may be specified by that government on an application made in this behalf.
• An application for permission shall be made by the employer in the prescribed manner stating clearly the reasons for the intended lay-off. A copy of such application shall also be served simultaneously on the workmen concerned.
• Where an application for permission has been made, the appropriate government or the specified authority shall make necessary enquiry as it thinks fit. It shall give a reasonable opportunity of being heard to the employer, the workmen concerned, and the persons interested in such lay off.
• The appropriate government, having regard to the genuineness and adequacy of the reasons for such lay-off, to the interest of the workmen, and all other relevant factors by order and for reasons to be recorded in writing, grant or refuse to grant such permission. A copy of the order of the appropriate government or prescribed authority shall be communicated to the employer and the workmen.
• An order of the appropriate government or the specified authority granting or refusing to grant permission shall be final and binding on all the parties concerned and shall remain in force for one year from the date of such order.
• Where no application for permission has been made, or where the permission for any lay off has been refused, such lay-off shall be deemed to be illegal from the date on which the workmen had been laid off. The workmen shall be entitled to all the benefits under any law for the time being in force as if they had not been laid-off.
• The appropriate government or the specified authority may either on its own motion or on the application made by the employer or any workman, review its order granting or refusing to grant permission or refer the matter to a tribunal for adjudication. Where a reference has been made to a tribunal it shall pass an award within a period of thirty days from the date of such reference.
• Where an application for permission has been made, and the appropriate government or the specified authority does not communicate the order granting or refusing to grant permission to the employer, within a period of sixty days from the date on which such application is made, the permission applied for shall be deemed to have been granted on the expiration of the said period of sixty days.

Compensation:

According to Section 67 of the Code, whenever a worker (other than a badli worker or a casual worker) whose name is borne on the muster rolls of an industrial establishment and who has completed not less than one year of continuous service under an employer is laid-off, whether continuously or intermittently, he shall be paid by the employer for all days during which he is so laid-off, except for such weekly holidays as may intervene, compensation which shall be equal to fifty per cent. of the total of the basic wages and dearness allowance that would have been payable to him, had he not been so laid-off:

Provided that if during any period of twelve months, a worker is so laid-off for more than forty-five days, no such compensation shall be payable in respect of any period of the lay-off after the expiry of the first forty-five days, if there is an agreement to that effect between the worker and the employer:

Provided further that it shall be lawful for the employer in any case falling within the foregoing proviso to retrench the worker in accordance with the provisions contained in section 70 at any time after the expiry of the first forty-five days of the lay-off and when he does so, any compensation paid to the worker for having been laid-off during the preceding twelve months may be set off against the compensation payable for retrenchment.

Explanation: For the purposes of this section “badli worker” means a worker who is employed in an industrial establishment in the place of another worker whose name is borne on the muster rolls of the establishment, but shall cease to be regarded as such, if he has completed one year of continuous service in the establishment.

Workman has right to lay-off compensation subject to the following conditions, they are:

1. Workman name should be borne on muster rolls of the establishment and he/she is not a badli workman or a casual workman; and
2. The workman should have completed not less than one year continuous service as defined under Section 66 under the Code; and
3. The workman should have laid-off, continuously or intermittently;
4. Then the workman shall be entitled to lay-off compensation for all days during which he was so laid-off;
5. However, the workman shall not be paid lay-off compensation for such weekly holidays as may intervene the period of lay-off.

Rate of Compensation:

The compensation to be paid to laid-off worker shall be equal to fifty per cent of the total of the basic wages and dearness allowance that would have been payable to him, had he not been so laid-off. The workman shall not be paid lay-off compensation for such weekly holidays as may intervene the period of lay-off. Maximum days allowed to Layoff of employee by employer is 45 days.

In Tatanagar Foundry Co. v. Their workmen, 1962 I LLJ 382 SC case, the Supreme Court held that if the employer fails to pay adequate lay-off compensation to the laid-off workmen, then the lay-off is illegal.

Who is not Entitled for Lay-Off Compensation?

According to Section 69 of the Code, no compensation shall be paid to a worker who has been laid-off—

(i) if he refuses to accept any alternative employment in the same establishment from which he has been laid-off, or in any other establishment belonging to the same employer situate in the same town or village or situate within a radius of eight kilometres from the establishment to which he belongs, if, in the opinion of the employer, such alternative employment does not call for any special skill or previous experience and can be done by the worker, provided that the wages which would normally have been paid to the worker are offered for the alternative employment also;

(ii) if he does not present himself for work at the establishment at the appointed time during normal working hours at least once a day;

(iii) if such laying-off is due to a strike or slowing-down of production on the part of workers in another part of the establishment.

Distinguish Between Lay-Off and Retrenchment

Lay-Off	Retrenchment
Lay-off is defined in Section 2 (t) of the Industrial Relations Code, 2020	Retrenchment is defined in Section 2 (zh) of the Industrial Relations Code, 2020
It is temporary	Retrenchment is permanent. They may again be appointed in appropriate cases.
In lay-off, the employer is compelled to refuse employment under certain circumstances, viz. shortage of raw materials, power, finance, etc., which arise temporarily in the industry.	In retrenchment, the employer lessens over-burdened employees under circumstances, viz. Government policies, loss in some departments, etc.
When the employer declares lay-off, the industry stops its function.	While the process of retrenchment is going on, the industry does not stop its function. It continues to function.
In lay-off, all the employees or a group of employees are refused to employment.	In retrenchment, the last come first goes. i.e. last employed person is retrenched first.
The Conditions Precedent is not necessary in case of lay-off.	The Conditions Precedent are to be followed in case of retrenchment, viz. notice to the concerned employee, notice to Government in the prescribed manner, etc. (S. 70).
The laid-off employees are paid laid-off compensation. The payment of gratuity does not arise in a lay-off.	The retrenched employees are paid retrenchment compensation + payment of gratuity
All of the laid-off employees should be taken back in their usual posts, as soon as the lay-off lifted out.	Re-employment of retrenched workmen also takes place in certain circumstances. But it is, not mandatory that all the retrenched workers should be re-employed. (Sec. 71)

Difference between Lay-Off and Lockout

Lay-Off	Lockouts
Lay-off is defined in Section 2 (t) of the Industrial Relation Code, 2020	Section 2 (u) of the Industrial Relation Code, 2020 defines “Lock-out” of Industrial Disputes Act, 1947
Lay-off means the failure, refusal or inability of an employer on account of shortage of raw materials, shortage of power, no market demand for finished products etc.	Lock-out means the temporary closing of a place of employment.
Lay-off occurs while the establishment is continuing operation.	In Lock-out, the establishment is completely closed.
In lay-off, the employer is unable to provide employment to one or more workmen due to several reasons generally genuine and owe to economic factors.	Generally, the causes of lock-out lie political, disturbances with trade union leaders, rigid policies of management, etc., besides economic problems.
Compensation shall be paid to the workers laid-off.	Payment of compensation to workers depends upon various factors viz. legal or illegal lock-outs, justified or unjustified.
Generally, the employer declares lay-off under certain genuine circumstances.	Generally, the lock-out is declared by the employer in answer to strike.
Lay-off may be applicable to a group of workers or to entire workers.	Lock-out is applicable to the entire industry

Conclusion:

In lay-off, the employer is compelled to refuse employment under certain circumstances, viz. shortage of raw materials, power, finance, etc., which arise temporarily in the industry. In lay-off, all the employees or a group of employees are refused to employment. All of the laid-off employees should be taken back in their usual posts, as soon as the lay-off lifted out. The laid-off employees are paid laid-off compensation. The payment of gratuity does not arise in a lay-off.

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