Centre drops proposal to relax retrenchment norms for industries

Representative Image
The government has dropped a contentious proposal to allow factories with a big workforce to retrench and layoff workers or shut shop without seeking its nod.

Earlier this week, the labour and employment ministry had circulated a Cabinet note for inter-ministerial consultations on the proposed Code on Industrial Relations Bill 2018, set to be introduced in the ongoing Budget session. The proposed Bill was to combine the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act, 1947, into a single code.

“We have decided not to tinker with the present provisions related to retrenchment and closure of factories. Even the compensation package will be untouched,” an official said. 

The decision to drop the proposal was taken last month during a meeting that Finance Minister Arun Jaitley held with labour ministry officials to discuss the provisions of the Bill, sources said. 

In the Bill, the Centre had proposed allowing factories with up to 300 workers to retrench and layoff employees or shut shop without seeking the government’s approval. At present, factories with up to 100 workers can do so. It had also proposed increasing the severance pay for retrenched workers by three times — from 15 days at present to 45 days’ salary for each completed year.

Central trade unions had strongly protested against any change in laws that allow factories to hire and fire workers without taking the government’s permission.

Labour and Employment Secretary M Sathiyavathy said on Friday that the Union government had not witnessed a prominent increase in investments in the nine states that had amended the Industrial Disputes Act to ease norms for factories with a large workforce to retrench workers and shut shop. 

“This (retrenchment norm) has been a contentious issue and people are saying it takes a lot of time (for retrenchment and closure) and, therefore, the limit was to be increased from 100 to 300 or 500. While the central government is yet to do it, nine states have already done it. My worry is whether industry has taken note of it and whether investments have increased in those states…That needs to be studied. Our feedback is that not much has happened there,” Sathiyavathy said during a conference on ‘jobs and livelihood creation organised by the Confederation of Indian Industry and NITI Aayog.

Gujarat, Jharkhand, Uttar Pradesh, Madhya Pradesh, Rajasthan, Haryana, Andhra Pradesh, Maharashtra, and Assam have allowed factories with 300 workers to retrench staff without official sanction. Labour is a concurrent subject and, at present, states can bring in their own amendments with a final nod from the Centre.

“Prospective investors saw the provisions in Industrial Disputes Act as a disincentive that deprived them of much-needed strategic and business flexibility. However, the government has provided relief to companies by announcing it will allow fixed-term employment in all businesses,” said Sonal Arora, vice-president, TeamLease Services. 

She said companies went for retrenchment only when business conditions did not support a large headcount. “But it can now be addressed by hiring workers on fixed-term contracts and renewing them,” Arora added.

Relief for unions


  • Labour ministry feels the investment scenario in nine states that brought own changes to ease retrenchment norms has not changed much
  • Proposal would have allowed industries with 300 workers to hire and fire, and shut without seeking govt permission. At present, factories with up to 100 workers can do so
  • Govt not to increase severance package for retrenched workers from 15 to 45 days’ salary for each completed year

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel