Retrenchment, Layoff and Closure: Notice and Compensation

Retrenchment compensation by years of service

Section 79(9) fixes compensation at fifteen days of average pay for each completed year of continuous service, with a part of a year that runs beyond six months counted as well. The table below shows the statutory number of days at 5, 10 and 20 years, and an illustrative rupee value built on an assumed average pay so you can see the arithmetic.

The 15 days of average pay per completed year is the statutory multiplier under Section 79(9), unless the appropriate Government notifies a different number of days. The rupee column is illustrative only: it assumes an average pay of Rs. 1,000 per day and is not a statutory amount. A part of a year over six months counts as a full year; whole years are used here for clarity.

The rule in plain words

Retrenchment here means an employer ending a worker's employment in an industrial establishment that falls under Chapter X of the Industrial Relations Code, 2020. The protections in Section 79 reach a worker who has been in continuous service for not less than one year under that employer. Below that length of service, this section's notice and permission route does not apply.

For a covered worker, the employer cannot retrench until two things are done. First, the worker is given three months' notice in writing that states the reasons for retrenchment and that period has run out, or the worker is paid wages for the notice period in place of notice. Second, the appropriate Government has granted prior permission on an application made for this purpose.

Once permission is granted, or is treated as granted, the worker is entitled at the time of retrenchment to compensation worked out from years of service. That compensation sum is the core of this page.

• Condition one: three months' written notice with reasons, or wages in lieu of that notice period.
• Condition two: prior permission of the appropriate Government on a proper application.

A worked example at 5, 10 and 20 years

Section 79(9) sets the compensation at fifteen days of average pay for every completed year of continuous service, and a part of a year that runs beyond six months is counted as well. The appropriate Government may instead notify a different number of days, so treat fifteen days as the figure stated in the Code that a notification can change.

To show the arithmetic, assume an illustrative average pay of Rs. 1,000 per day. This is an assumed input chosen only to demonstrate the method, not a statutory rate. Fifteen days of average pay then equals Rs. 15,000 for each completed year.

Swap in the worker's real average pay to get the real figure. The number of days is the statutory part of the calculation; the rupee value moves with each worker's own average pay.

• 5 years: 15 days x 5 = 75 days of average pay, which at the assumed rate is Rs. 75,000.
• 10 years: 15 days x 10 = 150 days of average pay, which at the assumed rate is Rs. 150,000.
• 20 years: 15 days x 20 = 300 days of average pay, which at the assumed rate is Rs. 300,000.

How average pay is measured

The compensation rides on average pay, which the Code defines by how the worker is paid. For a monthly paid worker it is the average of wages over three complete calendar months; for a weekly paid worker, over four complete weeks; for a daily paid worker, over twelve full working days, each counted immediately before the date the average pay becomes payable. If the worker has not worked that full reference period, average pay is instead worked out over the period actually worked.

Exceptions and fine print

• Deemed permission: if the appropriate Government does not communicate its grant or refusal within sixty days of the application, permission is treated as granted once those sixty days end.
• Shelf life of the order: an order granting or refusing permission is final and binding on the parties and stays in force for one year from its date, subject to review.
• Review and Tribunal: the appropriate Government may review its order within the time the rules prescribe, or refer the matter to a Tribunal, which must then pass its award within thirty days of the reference.
• Exceptional circumstances: where something like an accident in the establishment or the death of the employer makes it necessary, the appropriate Government may direct that the permission requirement will not apply for a stated period.
• Illegal retrenchment: if no permission application is made, or permission is refused, the retrenchment is illegal from the date the notice was given, and the worker keeps every benefit under the law in force as if no notice had been given.
• Layoff and closure: the Code text used here defines closure as the permanent closing down of a place of employment or a part of it, but it does not set out layoff or closure notice or compensation, so this page does not state those figures.

What an employer must do

• Confirm the establishment is covered by Chapter X and that the worker has at least one year of continuous service.
• Serve three months' written notice stating the reasons for retrenchment, or pay wages for the notice period in lieu of notice.
• Apply to the appropriate Government for prior permission, electronically or otherwise in the manner the rules prescribe, clearly stating the reasons, and serve a copy of the application on the workers concerned at the same time.
• Take part in the enquiry and the hearing the appropriate Government holds before it decides.
• Track the sixty-day clock: permission is deemed granted if no order reaches you within that window.
• On retrenchment after permission, pay compensation of fifteen days of average pay for each completed year of continuous service, counting a part over six months as a full year.

What a worker can do

• Ask whether both steps were completed: three months' notice or wages in lieu, and prior government permission.
• If permission was neither sought nor granted, the retrenchment is illegal from the notice date and your benefits continue as if no notice had been given.
• Use the hearing: the appropriate Government must give the workers concerned a reasonable opportunity of being heard before it decides.
• Seek a review within the prescribed time, or ask that the matter be referred to a Tribunal for adjudication.
• Claim compensation at the time of retrenchment, calculated on your own average pay and your completed years of continuous service.

Who is the appropriate Government

Where the employer applies for permission depends on who the appropriate Government is. For establishments run by or under the authority of the Central Government, and for listed sectors such as railways including metro railways, mines, oil fields, major ports, air transport, telecommunication, banking and insurance, and central public sector undertakings, the Central Government is the appropriate Government. For other industrial establishments, including State public sector undertakings, it is the State Government.

For a dispute between a contractor and the contract labour engaged through that contractor, the appropriate Government is whichever Government controls the establishment where the dispute first arose. That routing point matters directly to staffing and manpower firms deciding where to file.

Frequently asked questions