S N MURTHY SENIOR ADVOCATE The Indian laws with regard to flexibility of employment is very harsh on the employers. In its anxiety to protect the security of employment in private sector, the Industrial Disputes Act, 1947 was amended during the year 1976 with introduction of Chapter V-B. We may not find a provision similar to the one in Chapter V-B anywhere in the world. This provision, in short requires every employer employing one hundred or more workmen to obtain prior permission of the Government to lay-off, retrench or close down the establishment. This made it very difficult for employers to employ workmen for short duration, say a year or two or three. To add to the woes of employers, Justice Krishna Iyer in Sundarmoney Vs. State Bank of India laid down a stringent law through interpretation of the word `retrenchment’ by stating that an employee who works for 240 days cannot be retrenched without complying with the provisions of Section 25-F of the Industrial Disputes Act. The Supreme Court has, time and again reiterated that termination of services of a workman for any reason whatsoever constitutes retrenchment. Under the definition of retrenchment prior to insertion of clause (bb) in Section 2(oo), all termination except termination for misconduct, retirement on reaching the age of superannuation and continued ill-health constituted `retrenchment' and consequently, termination from service. Sections 25 F and 25 N of the Industrial Disputes Act, 1947 deals with retrenchment. Section 25-F deals with retrenchment in establishments employing less than 100 workmen on an average during the period 12 months preceding the date of reckoning and Section 25-N deals with establishments employing 100 or more workmen in the preceding 12 months. Where a workman works for a continuous period of one year in an establishment employing less than 100 workmen, it is mandatory for you to give him one month prior notice of retrenchment or one month notice pay in lieu thereof, and 15 days wages for every completed year of service for retrenching him. In the case of establishments employing 100 or more workmen, there can be no retrenchment without government permission. It is relevant to state that `industrial establishment', in the latter case means, a `factory'. These restrictions caused a lot of hardship and difficulties in certain cases where the nature of work for which a workman is employed is itself temporary but which may take more than 240 days working. To overcome this difficulty, the Parliament introduced clause (bb) and inserted it in Section 2(oo) of the I.D. Act, 1947 which defines `retrenchment'. Through this provision, termination of the services of a workman consequent upon 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 was brought out of the purview of the definition of retrenchment. This provision was introduced mainly to ensure that workman employed on a work of a limited nature or for a work of a limited period do not claim the benefit of retrenchment compensation on the expiry of the period for which they are employed. Not only this, through introduction of clause (bb), the parliament wanted to give the industry a little more freedom in the employment of personnel on work of temporary nature or on work of specialized nature of temporary duration. Basically, this provision is an exception to the definition of retrenchment and needs to be construed very narrowly and in favour of the workmen. There are a large number of cases wherein the courts have consistently held that this provision should not be allowed to be used as a tool for exploitation by the employer. A Division Bench of the Punjab and Haryana High Court, in a judgement reported in 1996 (3) LLJ (Supplementary) page 1126 has elaborately dealt with the scope of clause (bb) under section 2(oo) of the I.D. Act, 1947. In this judgement, the learned judges have referred to large number of cases on the very point and extracted relevant passages from various judgments. Referring to a judgement of the Kerala High Court, the following passage from the said judgement is reproduced: "if contractual employment is resorted to as a mechanism to frustrate the claim of the workman to become regular or permanent against a job which continues or nature of the duties is such that the colour of the contractual employment is given to take it out from section 2(oo), then such agreement cannot be regarded as fair or bonafide and section 2(oo) (bb) cannot be extended to such cases where the job continues and the workman's work is also satisfactory but periodical renewals are made to avoid regular status to the workman. Section 2(oo) (bb) has to be strictly interpreted and it is necessary to find out whether the letter of appointment is camouflage to circumvent the provisions of the I.D. Act, which confer permanency to a workman who has continuously worked for 240 days. The Court extracted the following passage from the judgement of the Punjab and Haryana High Court in an earlier matter. "The contractual clause enshrined in clause (bb) cannot be resorted to frustrate the claim of the workman against uncalled for retrenchment, or for denying the other benefits. It cannot be so interpreted as to enable an employer to resort to the policy of `hire and fire' and give unguided power to the employer to renew or not to renew the contract irrespective of the circumstances in which it was entered into or the nature and extent of work for which he was employed." Proceeding further, the court observed that clause (bb) has to be so interpreted as to limit it to cases where the work itself has been accomplished and the agreement of hiring for a specific period was genuine. If the work continues, the non-renewal of the contract has to be dubbed as malafide. The sum and substance of the judgements is, that clause (bb) can be resorted to only where the work itself is of temporary period. However, if the work is of permanent nature, and workmen are appointed for a stipulated period, the benefit of clause (bb) cannot be claimed by the employer. As such, merely entering into contract for a period of six months, nine months or even one year will not help you to get rid of the workman on expiry of contract period, unless you do not need workmen to carry out the work which was being carried out by the workman whose period of contract got terminated by efflux of time. Any other interpretation of clause (bb) would render the entire industrial law of the land insofar as the security of employment redundant. The period for which you enter into contract of service with a workman is not relevant for the purposes of clause (bb). What is important is, whether the work which is given under the said contract comes to a close and need not be carried out by you any longer. If the work is of temporary nature, even a contract of two years can be brought under clause (bb). On the other hand, even a contract for three months will not give you the benefit of clause (bb), if after expiry of three months, and after termination of the services of the workman employed for three months, you still need to carry out the said work, but with some other workmen. Such contract will be prima-facie illegal and not acceptable in law. The period of 240 days working is not relevant when looked at from the point of re-employment of retrenched workman. The Supreme Court has clearly laid down, that even where a workman works for less than 240 days and is terminated, it would be `retrenchment'. When you need to employ workmen again to carry out the job which the workman who was retrenched even before expiry of 240 days was carrying out, you are required to give first preference to the very said workman who was retrenched. In other words, a workman who works for even fifteen days, when retrenched on the ground that work is not available, should be placed in a seniority list of the retrenched workmen, and when you need workmen again in that category, you will have to give first right of employment to the said workman. This is the law laid down by the Hon'ble Supreme Court of India, in Central Bank of India vs. S. Sathyam. Incase you appoint workmen for a fixed period of one year, and extend the same year after year, the workmen would get permanency in employment. Thereafter, in case you decide to terminate the contract, you will have to retrench the workmen by complying with provisions of Section 25-F or Section 25-N as the case may be. If you are required to retrench under any of these provisions, you are bound to pay retrenchment compensation in accordance with law, in addition to issuing notice of termination stipulated therein. If you are employing one hundred or more workmen, you are required to take prior permission of the government to retrench workmen. (This applies to factories only.) [S.N.MURTHY], Sr. Advocate. Email: [email protected], [email protected]. Mobile: 9342823628 Landline: 080-41312130 ABOUT THE AUTHOR Mr. S.N.Murthy, designated Senior Advocate, is a post graduate in Industrial law and Administrative laws with over 50 years of practice at the bar. Mr.Murthy has been advising on corporate labour-management policies and is also engaged in drafting service contracts, confidentiality agreements, compensation packages to various cadres of employees. In addition Mr.Murthy represents corporates before the Supreme Court, High Court, tribunals, labour courts, etc. Bengaluru Date: 14.10.2024
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