If an employee is terminated for business reasons, it’s known as retrenchment and under the New Labour Code and central government rules, companies are required to provide a specific retrenchment compensation to these employees.
In addition to the retrenchment compensation, employers must also contribute to a re-skilling fund. This means terminated employees can get two types of payments: retrenchment and re-skilling.
How will employees get this retrenchment compensation and re-skilling fund money?
Lokesh Gulati, Partner, PwC India, says that under Section 83, read with Chapter XI, the employer is required to contribute an amount equivalent to 15 days’ last drawn wages of the retrenched worker to the Worker Re-skilling Fund within the prescribed timeline, which is thereafter credited (through the authority) to the worker’s account within 45 days of retrenchment.
According to Gulati, the amount contributed under the Worker Re-skilling Fund is disbursed to the retrenched worker routed through a reskilling fund mechanism established under Section 83 of the Industrial Relations Code, 2020.
Gulati says: “This contribution operates independently of, and in addition to, the retrenchment compensation payable directly by the employer to the worker under Chapters IX and X of the Code.”
What are the conditions for payment of retrenchment compensation?
Gulati says that in cases of retrenchment under Chapters IX and X of the Industrial Relations Code, 2020, the employer must provide statutory compensation to the affected worker, subject to compliance with the applicable procedural requirements, including notice obligations and, where relevant, approval from the appropriate government authority.
Gulati points out that under Chapters IX and X of the Industrial Relations Code, 2020, retrenched workers are entitled to statutory compensation equivalent to 15 days’ average pay for every completed year of continuous service or part thereof exceeding six months, payable at the time of retrenchment.
Gulati says: “The employer is further required to submit prescribed particulars of the retrenched worker(s), including wage and bank account details, to the designated authority in accordance with the applicable Rules.”
Companies on whom retrenchment compensation rules are applicable?
According to Gulati, retrenchment is governed by Chapter IX (for “industrial establishments” employing more than 50 and less than 300 “workers”) and Chapter X (for “industrial establishments” employing more than 300 workers) of the Industrial Relations Code, 2020.
Gulati further says that Chapters IX and X do not apply to “industrial establishments” employing less than 50 “workers” or to “industrial establishments” that are of a seasonal character or in which work is performed intermittently.
However, according to Gulati, it is also relevant to note that the expression “industrial establishment” is construed differently across the chapters of the Code. For Chapters IX and X, its scope is restricted to factories, mines, and plantations.
Gulati says: “In contrast, for the purposes of Chapter XI relating to the Worker Re-skilling Fund, the wider meaning assigned to “industrial establishment” under Section 2(r) of the Industrial Relations Code, 2020 is applicable.”
Do companies need to pay this retrenchment compensation?
Usually an obligation to contribute to the Worker Re-skilling Fund is triggered only when worker(s) are retrenched by an industrial establishment.
Gulati says: “Upon such retrenchment, the employer is required to deposit the prescribed amount in accordance with the Industrial Relations Code, 2020.”
