Redundancy and Transfers of Undertakings


Redundancy and Transfers of Undertakings

Employer has the right to retrench the “surplus labour” temporarily or by way of a layoff, or permanently, by way of retrenchment (downsizing) or closure of an undertaking.

Industrial Disputes Act, 1947 is the major law dealing with the effect of redundancy in India and provides safeguards to prevent hardship to employees and has put some restrictions on the employer’s right to retrench and lay off workers. Here we are discussing restrictions and regulations concerning the industrial redundancy of excess employees, provisions regarding retrenchments, layoffs, and related payment of compensation to workers under certain contingencies.

Further, we have discussed the rights of employees and the obligation of the employers in case of transfer of the business entity where there is a change of ownership and control of a business.

Redundancy and Transfers of Undertakings FAQ's

Under the Industrial Disputes Act, 1947, the appropriate government may at any time, by order in writing, refer an “industrial dispute” to one of three types of entities: a board of conciliation; a labour court; or an industrial tribunal (for any industry operating under the authority of the central government, the central government is the appropriate government; for any other industrial dispute, the state government is the appropriate government). Disputes also may be referred to private arbitrators, provided that the parties agree to do so, and the dispute has not yet been referred to a government entity.

Industrial disputes generally involve groups of employees and/or employers rather than single individuals. Disputes involving individuals tend to be resolved through the use of grievance cells, or for certain employees, through contract actions in civil courts. In B.S. Bharti v. IBP Co. Ltd., the Supreme Court held that an individual claim for wrongful termination constitutes an industrial dispute subject to the remedies provided by the Industrial Disputes Act. Therefore, a civil suit challenging the termination of service is not maintainable; the employee’s only remedy lies with the appropriate administrative body. An employee who disagrees with the administrative decision can appeal by means of a writ petition.

An individual dispute, i.e., a dispute between a single workman and his or her employer, also may be subject to the administrative remedies established under the Industrial Disputes Act where it is sponsored or supported by the worker’s union or by a number of workmen. The Supreme Court has held that, as far as support is concerned, there is no prescribed form. Normally, the union would express itself in the form of a resolution, which must be proved if it is challenged. However, proof of union support may be available in other forms, depending on the facts and circumstances of the particular case.

  1. Private Arbitration

The collective bargaining agreement defines and prescribes the procedure for settlement of grievances arising out of implementation of the agreement. Under the Industrial Disputes Act, a dispute may be referred to arbitration under the following conditions:

  • an industrial dispute exists or is apprehended in an establishment;
  • the employer and the workers agree, in writing, to refer the dispute to arbitration;
  • the arbitration agreement is in the prescribed form and signed by the parties in the prescribed manner;
  • the agreement is accompanied by the consent, in writing, of the arbitrator or arbitrators;
  • the dispute is referred to arbitration before it has been referred to a labour court or tribunal or a national tribunal;
  • referral of the dispute that the employer and workers have by written agreement agreed to refer to arbitration must be to the person or persons specified in the arbitration agreement to act as arbitrator/arbitrators; and
  • the arbitration agreement must set forth the issue/issues to be decided by the arbitration procedure, with a copy of the agreement forwarded to the appropriate government and to the government conciliation officer.
  1. Government Dispute Resolution Bodies

Under the Industrial Disputes Act, various authorities are empowered to settle and adjudicate industrial disputes. In cases where a dispute cannot be resolved by the parties or by private arbitration, the dispute is referred to industrial tribunals, labour courts, or labour arbitrators, as the case may be. These authorities are discussed below.

      a. Board of Conciliation

To encourage settlement of an industrial dispute, the appropriate government may refer the dispute to a board of conciliation.

      b. Labour Court

Labour courts are specialized subordinate courts under state governments that handle all labour issues at the first instance (i.e., not on appeal) whether they relate to subjects under state government jurisdiction or are referred by the central government and pertain to central government undertaking. Issues that labour courts consider include the following:

  • discharge or dismissal of workers, including reinstatement of, or grant of relief to, those wrongfully dismissed;
  • legality or illegality of a strike or lockout; and
  • all other matters, other than those specified for adjudication by the industrial tribunal.

      c. Industrial Tribunal

Cases decided by labour courts may be appealed to the industrial tribunals, which are appellate courts under the state governments. Industrial tribunals also have original jurisdiction over cases referred to them directly by state governments. Thus, industrial tribunals adjudicate industrial disputes relating to any matter, including those on appeal from the labour courts, and perform such other functions as may be assigned to them. Some matters on which the industrial tribunals adjudicate are the following:

  • wages, including the period and mode of payment;
  • bonuses, profit sharing, provident funds, and gratuities;
  • retrenchment of workers and closure of establishments;
  • any other matter that may be prescribed.

Appeals from the industrial tribunal go by means of a writ petition to the high court or the Supreme Court, depending on the subject and importance of the matter.

      d. National Tribunal

For adjudication of industrial disputes that, in the opinion of the central government, involve questions of national importance or are of such a nature that industrial establishments situated in more than one state are likely to be interested in, or affected by, the disputes, the central government may, by notification in the Official Gazette, constitute one or more national industrial tribunal.

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