There is a balance between the rights of employees and those of employers. It is important to acknowledge that labour law usually gives employers an upper hand in terms of bargaining power.

One such influential piece of legislation is the 1947 Industrial Disputes Act, also known as ID Act. Before the enactment of the ID Act, the employment contract was always one-sided, which led to scenarios wherein employees could be terminated without adequate justification or compensation.

ID Act created a loophole under which differences are made between various types of terminations and resignations and depending upon the classifications, an employee may be entitled to compensation. Note that ID Act applies to employees working in an industrial establishment categorized as ‘workmen’.

What Does Industrial Dispute Act Have To Say About Retrenchment?

The ID Act defines retrenchment as the termination of an employee’s service by an employer for any reason whatsoever, except in the cases of firing due to disciplinary action. Keep in mind, retrenchment does not include retirement (voluntary or reach of age), expiry of the contract, or termination due to ill health.

If an employer seeks to retrench workmen, they must provide the concerned workman with a one-month notice in writing indicating the reasons for retrenchment, or the workman must be paid wages instead of notice. A notification is also required to be provided to the appropriate government. Also, at the time of retrenchment, the worker must be paid compensation equal to the average of 15 days’ paid for every completed year of continuous service.

In addition to the compensation, if the organisation is covered under the Payment of Gratuity Act,1972, and if the employee has worked for a minimum of 5 years, then he/she is eligible for receiving gratitude.

Gain and Lose of Voluntarily Resigning

In many cases, employers offer the employee the opportunity to resign instead of following the retrenchment process. It is commonplace in many organisations however, it is rarely an option in case of misconduct.

The benefit of voluntary resignation is simple, during the background checks with future employers it shows resignation from employment, instead of employer-effected termination. However, in such cases, the employee would be deprived of the retrenchment compensation that they would have received. In addition, it also precludes an employee from subsequently challenging the validity of the termination.

The practice of forced resignation is becoming commonplace. However, this process does contradict the law mandates and therefore carries risks and penalties.

In case an employee is not considered a workman under the ID Act, the term of diminishing an employee will be applicable as per the employment contract signed at the time of joining the company. And if the employee feels that the employer has not provided the compensation as per the contract, he/she can sue the employer for breach of contract.