[Mustafa is a student at Rajiv Gandhi National University of Law.]
Due to a plethora of factors such as technological-improvement, surplus labor and increased expenditure, retrenchment of workers by employers has always been a major issue (this is comparatively different from a lay-off, which is temporary in its nature). According to the Industrial Disputes Act 1947 (Act), retrenchment of employees can be for any reason whatsoever. Most importantly, the employer has to carry out the retrenchment while adhering to the requirements stipulated under Section 25F of the Act. This provision imposes an obligation upon the employer to fulfill certain conditions before retrenchment, such as providing one month’s notice in writing indicating the specific reasons for retrenchment, as well as compensation to the employee linked to their years of service.
Section 9A of the Act provides for a mandatory notice of change to all workmen, when the employer proposes to implement any change in the conditions of service as specified in the Fourth Schedule of the Act. However, Item 11 of the Fourth Schedule provides for an exception to this rule. It states that when there is an increase or reduction in the number of persons employed or to be employed, then a notice of change is required, provided that the change in number of persons is “not occasioned by circumstances over which the employer has no control”. This phrase was added through Act 36 of 1964, which substituted the words “not due to forced matters”.
There is an enormous scarcity of cases wherein this exception has been invoked. Thus, understanding the implications of the same is important - as it gives employers a getaway from failing to produce a notice prior to change in service conditions - but is difficult. To interpret this subtle provision in Item 11, the author strives to adopt a methodological approach.
The Tango between Sections 25F and 9A
Generally, if a proposed scheme is likely to effect such a change in the employment that could potentially lead to retrenchment of workmen, the employer is mandated under Sections 9A and 25F to provide a notice indicating the reasons for retrenchment. The Supreme Court, in Lokmat Newspapers Private Limited v. Shankarprasad, held that when a rationalization or standardization scheme introduced has a likelihood of rendering existing workmen as surplus and thus liable to retrenchment, a notice prior to the introduction of the said scheme is mandatory, in lieu of the fact that Item 10 of the Fourth Schedule gets attracted.
Although there can entail several possibilities wherein the scenario of reducing the number of workmen appears without a rationalization or standardization scheme, and subsequently does not lead to invocation of Item 10. Interestingly, Section 25FFF of the Act discusses the situation where the workman is to be provided with a notice of retrenchment, as mandated by Section 25F of the Act, when an undertaking is closed down on account of unavoidable circumstances beyond the “control of the employer”. This is important, as the legislature imposes restricted liability on the employer in such instances. In the case of Iron Works v. Union of India and Others, the Delhi High Court relied upon the General Clauses Act 1897, to define the term “state government” as used in the Act. However, the term “control” is not defined in the General Clauses Act 1897.
The Bombay High Court, while deliberating upon Section 25FFF, has held that whether the circumstances were unavoidable and beyond the control of the employer have to be determined on the basis of specific facts and circumstances of that case. Several judgements of the Supreme Court rely upon the same reasoning, where factuality determined the liability of the employer. However, Section 25FFF predominantly deals with compensation for workmen who are retrenched due to closure of an undertaking. The Supreme Court, through its judgement in L Robert D’Souza v. Executive Engineer, Southern Railway and Another¸ clearly demarcated that a notice not being produced for change in condition of service contemplated under proviso (b) of Section 9A does not constitute a justified reason for not furnishing a notice prior to retrenchment under Section 25F.
Thus, the primary question is whether the interpretation of the Bombay High Court can be extended to situations wherein an undertaking is not closed, and the employer is forced to change the number of workers.
Breaking Down the Exception
Assume a scenario where an undertaking is compelled to shut down due to financial difficulties, causing retrenchment of workers. According to clause (i) of the proviso enshrined within Section 25FFF, the closure of an undertaking merely due to financial difficulties (including losses) will not be accounted as an unavoidable circumstance beyond the control of the employer. If the same situation were to be reproduced, where the undertaking is not closed, then can the reduction of workers due to financial difficulties be invoked as a valid exception to not provide a notice prior to change in condition of service? In tandem to this, while Section 25FFF explicitly provides for unavoidable circumstances beyond the control of the employer, Item 11 does not lay similar emphasis. Therefore, based on literal interpretation, change in conditions of service as envisaged within Section 9A could have been avoidable prior to the stage possibly leading to retrenchment of workers. According to the Explanation within Section 25FFF, mere reasons such as financial difficulties, accumulation of undisposed stocks, expiry of lease or license, etc. are not considered unavoidable. The author argues that the same causes can be interpreted to be avoidable within the ambit of Item 11, and yet sustain as completely valid defenses against a 9A notice. This is because Section 25FFF presumes that workmen will invariably be retrenched. In contra, Section 9A deals with conditions of change that may or may not cause retrenchment.
Till date, there has been no case where a party has utilized this exception as a defense. One of the fundamental requirements to attract Item 11 is that the workmen need to be adversely affected by the change in conditions of service, as held in Hindustan Lever Limited. v. Ram Mohan Ray. The author submits that in a scenario where the number of workmen are to be reduced, thus being adversely affected by the same, not providing a notice prior to such change can be justified if it is proved that the reduction in the number of workers was occasioned by circumstances over which the employer had no control. Therefore, if an employer is facing financial difficulties due to inflation, or a new legislation introduced by the government, and he is forced to reduce departments in his industry, the failure to not furnish a notice of such work-structure change will be exempted if the relevant court determines that the inflation-induced financial difficulty was beyond his control (even if avoidable).
The Supreme Court, in SM Nilajkar v. Telecom District Manager Karnataka, held that the closure of an undertaking was beyond the control of the employer, as it took place by “its own force… designed and destined to have a limited life only”. In a similar vein, if an employer had designed a rationalization scheme, to be implemented upon the occurrence of certain circumstances which might be beyond his control, then the implementation of the pre-emptively designed rationalization scheme would be justified, provided that it does not lead to the undertaking’s closure. This would fall within the purview of Item 11, as a reduction in workers is being occasioned by circumstances beyond the employer’s control. It has also been accepted by the Supreme Court that if work is stopped “in the event of a fire, catastrophe, break-down of machinery, epidemic, civil commotion or other causes…beyond the control of the employer”, it is unreasonable to expect the employer to provide a notice two days before such closure. Similarly, the fate of an application under Section 33(1) of the Act has been held to be beyond the employer’s control. All of these are illustrative of the fact that multiple interpretations exist of what can surpass an employer’s control.
Conclusion
Akin to the Bombay High Court’s ratio, the circumstances which are beyond the employer’s control should be determined individually, i.e., on a case-to-case basis. However, the exception-phrase within Item 11 should be interpreted based on always-speaking principle, rather than stringently subjecting it to the conditions present in the proviso to Section 25FFF, while the invocation of the exception should be conditioned to strict judicial scrutiny. This ensures the protection of interests of both employers as well as employees. It is not advocated that Item 11 be invoked by the employer as a means of justifying their lack of not furnishing a notice prior to change in condition of service. Rather, the exception should be an aid in pointing towards the fact that the circumstances were unwarranted as such and the potential retrenchment of workers was inevitable.
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