Lay-Off Legality? An Analysis Of The Dominant Acts


Akansha Mittal, Amity University Kolkata

Mahip Mayank, Faculty of Law, DU

Rahul Sodhi, NorthCap University

EDITOR: Dyuthi, SLS Pune

Introduction and Background

Enacted on 11th March 1947, The Industrial Dispute Act (IDA) regulates the Indian Labour Law relating to the trade unions as well as individuals employed in any industry – business, trade, manufacturing, or distribution of goods and services.

The genus of the Industrial Disputes Act was the Trade Disputes Act, 1929[1] and is currently termed as the latest milestone in the industrial development of India. There are continuous revisions and enhancements being made frequently as and when required. With a main objective to ensure fair terms and a balanced power position between the employers and employees, it aims to secure industrial peace and harmony by providing the machinery and procedure for the settlement of industrial disputes by negotiations. It further aims to encourage a healthy relationship between labor and industry to maximize work output without exploiting the common worker or harassing the industrialists.

However, in the current pandemic, this balance that was in the process of being painstakingly established was brought down to its knees unexpectedly. As predicted and as a symptom of the economic impact of the same, the global economy slipped into recession with a 30 percent crash[2] in the NIFTY[3] happening in the span of a few days in April 2020.

During the first two months of lockdown, millions lost their jobs across various sectors. With many in precarious positions and dependent entirely on loans or insecure income, the only thing every person can be certain of – those with or without jobs – is the uncertainty. This was exemplified for those in the service sector or informal economies, as the pandemic brought all activities to a grinding halt.

With social distancing being the central focus and people looking at each other with distrust, no workplace is safe. In these situations, only a bare minimum number of institutions have been permitted to operate, and that too with a modest number of employees. In such a case, the employers are left with no other option but to cut their losses short and continue working with a reduced workforce. [4]The unemployment rate reached an all-time high of 27.1% in June. Suffice to say, the hardest blow was on the people engaged for work in the informal industries – who more often than not – have nothing to fall back on.

Legality of Lay off Under IDA during Pandemic

Section 2(kkk) of Industrial Disputes Act 1947, defines “Lay off” as the inability of an employer to provide work to an employee in such a situation of a natural calamity. But in the present situation the employer will be responsible for the safety of the workers if they call them on the work.

Additionally, the government has also issued further notice that no industry will deduct the wages till 31st March 2020 and not terminate the employees from any employment. The entitlement of the layoff compensation has been provided by section 25C of IDA[5] which states that the employer has to provide compensation which shall be equal to fifty per cent of the total of the basic wages and a dearness allowance that would have been payable to him had he not been laid off. The government had additionally declared that payment of full wages have to be done till 31st march, therefore the laid off compensation period June 2020. But there are some conditions under the sections in which workers will receive the laid off compensation those conditions are as follows:

  • His name must be borne on the muster rolls of an industrial establishment.

  • He must have completed one year continuous service.

  • The workman must not be a badly or casual workman.

During pandemic the Disaster Management Act, 2005 (DMA) has also been initiated and under which there are some provisions which have to be read with Industrial Dispute Act, 1947. Under section 39 of DMA, 2005[6] it has been stated that the resources and funds during the emergency have to be provided by the state government. As on the advice of not deducting the wages or not to terminate the employees is on the humanitarian grounds which should be in the interest of people at large. It has been clarified by the government that there is not a permanent liability or property right when the payment of full wages is to be made on the humanitarian grounds as it will be contrary to the duties and there will be the contradictory right to the employer under the constitution of India.

However, the government has not stepped up its fiscal stimulus to a level wherein it can shoulder the burden of all the monetary income which is required to be provided by the state. Section 10(2) of DMA, 2005[7], which applies in the instance of a national pandemic, the decisions of the central government will be binding on states. However, the same does not extend with respect to the status of employment and the legality of industrial disputes in the country. Hence w, while the central government may mandate certain policies[8], states are free to pass their own.

Every management have to access the damage for next six months and availability of funds to sustain business in dormant mode. If the lockdown will be continued after the wages period will be over then section 25F[9] can be initiated in which the retrenchment of the workers will take place because the business cannot be sustained and the workers cannot be retained, then the full and final dues of the workers must be paid before at the time of retrenchment for which, sufficient finances to pay off the workers as per law should be made ready for the purpose. It is necessary to understand that section 25C of IDA, 1947 of chapter VA is not applicable therefore, the industry is obligated to take the permission from the appropriate government for the retrenchment of the employees post the retrenchment period declared by the government. In each case the proper notice have to be given to the workers to inform them of the status and the decisions that have been taken by the management.


While many states have brought changes to the Industrial Disputes Act which favours the companies and leaving the employees with fewer rights, advocates anticipate the increase in the number of cases in labour courts.

In the matter of Nagreeka Exports Ltd. v. Union of India and Ors.[10], payment of full salaries were mandated. In a similar other proceeding Ficus Pax Pvt. Ltd. v. Union of India and Ors[11], the petitioner challenged Clause (iii) of the MHA Order on Migrant Workers, which mandated that employers make full payment of wages to their workers, for the period of lockdown.

In the case of Align Components Pvt. Ltd. and Anr. v. Union of India and Ors[12], the Court, vide order dated 30.04.202015, observed that since the Supreme Court was dealing with a very similar proceeding it would not interfere with the impugned order and would expect the petitioners that they pay the gross monthly wages to the employees, save and except conveyance allowance and food allowance.


The legality of the retrenchment of employees has come into question multiple times. It cannot be denied that there exists a moral obligation to ensure that companies continue to support their employees to a reasonable extent and not leave them stranded. However, when grappling with welfare jurisprudence it is important to understand that the obligations between an employer and an employee change when neither has the resources to adequately support themselves. Hence, in this instance the Industrial Disputes Act and the Disaster Management Act intersect and each provision needs to be read with a provision in the other law.

On the basis of the above, we can conclude that as per the orders released by the Central Government and subsequent state action on the same, the lay-offs of employees between the period of March 31st and June 1st is contentious, but on a prima facie observation, seems to be in contravention of the law. However, post June 1st, it becomes an illegitimate burden on the private sector to shoulder, and then lay-offs are permitted. Additionally, it is important to note that a large swathe of India’s employees form part of the informal sector where none of these guidelines are applicable, and hence reliance on the stimulus and welfare systems seems to be the only way out.

Needless to say, the same is still left to be decided by the courts, and a period of intense litigation over the same can be expected once courts start operating at full capacity.

[1] Enacted to battle the numerous strikes taking place in India during the years 1928-1929. [2] Report from the Economic Times: [3] A market index introduced by the National Stock Exchange [4] Excerpt of the article: [5] Section 25C, Industrial Disputes Act [6] Section 39, Disaster Management Act, 2005 [7] Section 10(2), Disaster Management Act, 2005 [8] Supra 5 [9] Section 25F, Industrial Disputes Act [10] Writ Petition (C) No. 471/2020 [11] Writ Petition No. 10983/2020 [12] Bombay High Court (Aurangabad Bench) – Writ Petition (Stamp) No. 10569 of 2020

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