How IT companies violate IDA while retrenching employees?

This entry is part 10 of 10 in the series I, IT employee named Shyam Sundar

Before answering various queries I posted in the last article, we will try to understand what termination means legally. As I mentioned earlier, layoff, furloughs, asking to go on leave are temporary measures and affected employees will be still part of the company.

Termination or discharge or retrenchment is a permanent measure that removes the employee permanently from the company. We need to find the answer to whether the company is allowed to do retrenchment? Is hire and fire legal in India. The answer to both the queries is yes, it is legal in India. As I mentioned earlier, the Indian legal system considered both the employee side and employer side and formulated the Industrial disputes act. If an employer faces a shortage of raw materials and wants to remove redundant workers so as to avoid closing down the company like in this pandemic condition, employer has every right to retrench employees.

We will try to find out the definition of retrenchment given in the Industrial Disputes Act. Industrial Disputes Act specifies which acts of the employers are called retrenchment in Section 2(oo) of the ID act. As per definition in Section 2(oo), retrenchment means termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include:

(a) voluntary retirement of the workman; or

(b) retirement of the workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf; or

(bb) termination of the service of the workman as a result of the 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; or

(c) termination of the service of a workman on the ground of continued ill-health’.

The industrial disputes act formulates various rules to be followed for retrenchment. The first and foremost important rule is if the company employs more than 100 employees, as we have seen in the case of layoffs or retrenchment, employers have to seek permission from the labour officer or in labour department. The labour officer will assess the situation of the company and either accept or reject layoff or retrenchment requests. If labour officer is satisfied with the company decision, they will try to find an amicable settlement between employer and employees and help in smooth conduct of retrenchment.

The main problem is none of the IT companies seek permission from the labour office or department. As we see in the case of recent layoffs or retrenchments, IT companies declare retrenchment plans only to the media. The problem is they are using the loopholes in the legal system. As long as affected employees do not come forward to complain against the illegal retrenchment, illegal retrenchment cannot be challenged.

We will see what rules employers should follow while doing retrenchment. They have to follow section 25F, 25G, 25H of the Industrial disputes act.

Section 25F: If an employer wants to retrench an employee, the employer has to pay 15 days of the average salary for every year of employee’s service. For example, if you take my case, I have worked with my company for 18 years. I worked for 18 years 2 months in the current organization. In this case, the company has to pay 9 months of my average salary drawn for the last 6 months. If I worked for more than 18 years and 6 months, the company has to consider my service as 19 years and need to pay 9.5-month average salary as compensation. This is in addition to the notice period of money the company has to pay to the employee.

If retrenchment is carried out in violation of section 25F, retrenchment becomes invalid and the company has to reinstate the employee. I have attached Madhya Pradesh High court judgement copy of Shri Mangilal Jatav vs Chief General Manager on 2018 where the honorable court ordered the reinstatement of the employee on violation of Section 25F

Section 25G: If an employer wants to retrench employees, the employer has to retrench only the newly recruited employees first. Employers have to maintain the seniority list of the employees. They can retrench the most junior employees first before retrenching senior employees. For example, in my case, my company has recruited 5000+ employees in the last quarter. But they have retrenched me who has 18 years of service with the organization. This is the violation of Section 25G of IDA.

I want to refer to a very interesting case of Oriental Bank of Commerce V presiding officer. In this case, Peon is recruited for a fixed-term period. He worked in the bank for 79 days and he was terminated after completion of 79 days. The judgment came in favor of the affected employee which accepts section 25F violation and this shows very clearly the company cannot terminate even junior most employees any way they want.

Section 25H: Retrenchment is done due to the reason of non-availability of raw materials, lockout, etc.  Employee misconduct is not the reason for the retrenchment of employees and it is done only based on the employer’s need. If the business of employer picked up, employer should give preference to affected employees and they have to reinstate. If the employer recruits new employees, without recruiting employees who are retrenched earlier, it is a violation of Section 25H. The above case of Oriental Bank of Commerce vs presiding officer is also a violation of Section 25H. It is pointed out that Oriental Bank has recruited new people for the same position of the affected employee. The honorable court considered that and penalized the company as part of both Section 25H and 25G

Readers can ask can company terminate an employee on the ground of compliance issues. Industrial dispute act allows employers to terminate employees on the ground of compliance issues. These rules where employers can take disciplinary action is clearly defined in the Standing orders Act of 1946. The company has the right to terminate employees based on rules given in standing orders. In case of compliance issues also, the company has to perform sufficient inquiry before termination. The main reason is the employee is going to lose the livelihood as his/her job is at stake. The company should hear the employee side before any disciplinary action. They have to conduct an enquiry. The employer has to issue sufficient warnings and memos. If an employee’s answer is non-satisfactory or the employee is not changing his behavior, the company has the right to terminate the employee based on the findings of enquiry process.

We will see the various reasons IT companies quote as a compliance issue for employees:

  • The performance of the employee is not satisfactory
  • The employee is in bench for more than 2 months. As per company policy, the bench period above 2 months is considered as a compliance issue and we terminate the employee on that ground
  • The employee submitted a false claim of medical bill for Rs 2000. We terminated the employee based on disciplinary ground
  • The employee did not swipe in the attendance system properly. We terminated the employee based on disciplinary ground

We will see whether the above are accepted by the Standing order 1946 Act. The first 2 reasons are definitely not accepted in the Standing order Act 1946. If the company wants to change the standing order, they need to seek permission and obtain a certified standing order. As we have already seen, IT companies have not provided certified standing order anywhere in India (Except Bangalore in Karnataka). Hence, it is very clear that it is impossible for the employer to terminate an employee quoting the first 2 reasons. But in the case of Bangalore alone, IT companies seek waiver for standing order act from Karnataka Government, and permission is obtained. This permission does not mean that the company can terminate anyone in Bangalore,  what I want to record here is that the legal system in Bangalore is slightly different than the rest of India.

We will have a closer look at the last 2 reasons. This gives a perception that there is a violation on the employee side. The employer has to conduct and prove the violation from the employee side. In the legal system, not all punishment leads to hanging, and in employment, termination is like hanging punishment. If the employee posted a false medical bill, a warning letter to be issued to the employee. If the employee repeatedly breaches the compliance terms, then the company can terminate. In this case of termination, the employee can challenge the employer in court.

I hope people understand various rules formulated by legal system. To avoid all these complications companies are employing HR officers to make employees commit suicide on their own. Before Independence, British factory owners appointed Indian people in the role of Kangani. Their duty is to enforce the factory owner’s decision, extract maximum work from workers. In the modern era IT industry, unfortunately, HR officers are playing the Kangani role.

Now we will see the most important shield employers use against employees saying they are senior employees who are getting a salary above 15 lakhs per annum. They are not termed as workman under Section 2S of the Industrial act.  They are not entitled to seek justice under IDA.

We will try to find the answer to this case with help of Chandran VS HCL case happened in Chennai.

Yes. This is one of the legal disputes recorded in IT industry and we will try to find the answer with the help of this case.

  • Shyam Sundar
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