ISSUE III : Lay-off under the industrial dispute act, 1947


The Industrial Disputes Act, 1947 (the “Act”) governs the various provisions pertaining to lay-off of workmen. The scope of this Act is to achieve harmony between employers and workmen and promote economic and social justice, thereby, classifying the Act as a welfare legislation. The preamble of the Act clearly states that the objective of the Act is “to make provision for the investigation and settlement of industrial dispute.” This shows that the intention of the legislature is to safeguard the right of workmen and the industrial establishment1.

“Industrial Dispute” is defined under Section 2(k) of the Act. It lays dow n certain pre-requisites that must exist to constitute an industrial dispute. There can be no lay-off if the dispute does not fall within the ambit of Section 2(k).

Further, the application of the Act is limited to “industries” as defined under Section 2(j). However, in cases where it is difficult to distinguish between an industrial and a non-industrial activity, the “dominant nature” of the activity helps in determining the true scope of industry2.

The present bulletin touches upon the meaning of lay-off as per the Act and deals w ith the issue of compensation resulting from such lay-off. Since most establishments are interested in knowing the monetary impact of laying-off workmen while reducing headcount, this bulletin provides an insight on that process.

1. Meaning of lay-off and continuous service

Previously, lay-off was a practice that had no provision for compensation. However, in 1953, the President promulgated the Industrial Disputes (Amendment) Ordinance which made a provision for payment of compensation for lay-off. This ordinance was repealed and replaced by Indu strial Disputes (Amendment) Act, 1953.

Lay-off is a practice whereby the employer cannot give employment to workmen for various reasons including shortage of raw materials, coal or power, accumulation of stocks, break-down of machinery etc, or for any other connected reason. It has been defined under Section 2(k k) of the Act. If a workman, whose name is on the muster rolls of the industrial establishment presents himself for work and is not given

employment within two (2) hours of presenting himself, he shall be deemed to have been laid-off for that day.

All industrial establishments in India have to ensure compliance with the various labour legislations, including the Act. The application of the provisions pertaining to lay-off is restricted by virtue of Section 25A. It states that industrial establishments with below fifty (50) workmen on an average per working day in the preceding calendar month, or industrial establishments which are of a seasonal character, or industrial establishments to which Chapter 5B3 of the Act applies, will not be bound by Section 25C to 25E (both inclusive). This implies that suchworkmen:

  • will not be entitled to any compensation for being laid off.
  • will not be entered into the muster rolls of the employer.
  • will not fall under any of the exceptions to avail compensation.

It is important to note that workmen are entitled for compensation only if they have been in continuous service. Defined under section 25B of the Act, a workman is said to be in continuous service if he provides uninterrupted service, which includes interrupted service due to sickness, accident, strikes which are not illegal, lock out or cessation of work not due tothe fault of the workman. In other words, the durationwhen the workman is out of the office on account of illness is not excluded while computing continuous service.

The service is construed as continuous for a period of 1 year if the workman works in the previous year for:

  • 190 days- below the ground in a mine.
    • 240 days- in any other job.

The service is construed as continuous for a period of 6 months if the workman works in the preceding 6 months for:

  • 95 days- below the ground in a mine.
    • 120 days- in any other job.

In Sur Enamel & Stamping Works Ltd v. Their Workmen4, the Supreme Court held that before a workman can be considered to have completed “one year of continuous service” in an industry, it must be shown that he was employed for a period of at least twelve (12) calendar months and during those twelve

(12) calendar months he had worked at least two hundred and forty (240) days.

2. Compensation for Lay-Off

Laying-off workmen results in depriving them of the opportunity to work and earn wages5. Therefore, it becomes the duty of the employer to provide compensation to the workmen if their case falls within the scope of the Section 25C6 of the Act. However, no compensation can be aw arded in advance of

actual lay-off on grounds of social justice7. This particular section states that any workman:

  • whose name is borne on the muster-rolls of an industrial establishment and,
  • who has completed atleast one (1) year of continuous service under the employer,

shall be paid compensation for the period during which he was laid-off, which shall be equal to fifty

(50) percent of the total of the basic wages and dearness allowance that should be payable to him had such workman not been so laid-off.

Maintaining muster-rolls is a universal practice by industrial establishments. Its purpose is to record the attendance of workmen employed. However, the purpose is not limited to the same. It also acquires importance with respect to lay-off of workmen. If the name of the workman is not mentioned on the

muster-rolls of an establishment, he cannot get laid-off under the Act. According to Section 25D, it is the duty of the employer to maintain muster-rolls of workmen and failure to comply with this provision can attract penalty under Section 31(2)8 of the Act.

If during the one (1) year period of continuous service, the workman is laid-off for more than forty- five (45) days, no further compensation will be paid if there is an agreement in that respect between the workman and the employer. Upon the expiry of this period, the employer can retrench the workman and the compensation then paid would exclude the amount already paid during the forty-five (45) day period of lay- off.

Further, if the workman is a “badli” workman or a casual workman, he would fall outside the ambit of Section 25C. However, if a “badli” workman has completed one (1) year of continuous service in the industrial establishment, he will be treated as a permanent workman for all purposes9.

3.  Workman not entitled to Compensation

Section 25E of the Act highlights situations when a workman is not entitled to compensation even after being laid-off. This section 25E works like an exception to Section 25C. A workman is not entitled to compensation if:

  • he refuses to accept any alternate employment offered by the employer in the same establishment, or in any other establishment of the same employer, provided such establishment is within a five (5) miles radius from the previous establishment. Further, such alternate employment should not call for any special skill or experience and the employer must pay at least the same wages as were previously paid to the workman.
  • he does not present himself for work at the establishment at the appointed time during normal working hours at least once a day;
  • such lay-off is due to a strike or slowing-dow n of production by workmen in another part of the establishment.

The burden of proof is on the employer to show that the workman is disentitled to claim compensation because his case falls under the purview of Section 25E10.

4. Special Provisions relating to Lay-Off

Section 25M in Chapter 5B11 of the Act further points out that prior approval from the “appropriate government” is required to lay-off a workman when the industrial establishment (not being of a seasonal character or in which work is performed only intermittently), has more than hundred (100) workmen employed on an average per working day for the preceding twelve (12) months. The appropriate government has the final authority to decide whether the establishment is in fact seasonal or not and such decision shall be final12. It also provides stringent penalties for contravention of the provisions13 of Chapter 5B along with providing compensation to the workman for any “illegal” lay-off14.


While setting up any industrial establishment in India, lay-off provisions acquire importance especially since most labour law legislations are very pro-workmen. Laying-off is a power in the hands of the employer but it has to be exercised judiciously in accordance with the applicable legal regulations. The monetary penalty for contravention of these provisions is not a lot but it can impact the establishment’s goodwill and reputation. Further, improper laying-off of workmen can lead to strikes and lock-outs, which can result in significant busines loss for the establishment. Therefore, there is reason enough for every.

1 It is defined under Section 2(ka) of the Act. It states that any establishment or undertaking in w hich any busines , trade, or manufacturing (collectively know n as “industry”) is carried on is an industrial establishment. How ever, if any unit of an establishm ent
can be severed as an industry, then it will be deemed to be a separate industrial establishm ent. Also, the dominant nature of the activities will have to be considered if the establishm ent carries on more than one activity.
2 In Bangalore Water Supply v. A. Raja ppa, AIR 1978 SC 548, the Supreme Court held that where complex activities, some of which
qualify for exemption, others not, involve employees of the total undertaking, some of whom are not workmen, even then the predom inant nature of the services w i l be the true test to determine an industry. The w hole undertaking w ill be an “industry” although those w ho are not workmen by definition may not benefit by status.
3 This chapter deals w ith special provisions relating to lay-of f, retrenc hment, and closure in certain establishments. It applies to industrial establishments in which have atleast 100 w orkmen employed on an average per w orking day for the preceding 12 months. 4 (1963) 2 LLJ 367, 379 (SC), per Das Gupta J.
5 Zandu Pharmaceutical Ltd. v. RN Kulkarni & Co (1966) 1 LLJ 560, 562 (Bom), per Mody J.
6 This section deals w ith the right of compensation for workmen who are laid-off.
7 KT Rolling Mills v. MR Meher (1962) 2 LLJ 667 (Bom) (FB), per Shah J; Central India Spg, Wvg & Mfg. Co. Ltd v. Industrial Court
(1959) 1 LLJ 468 (Bom) (DB), per Mudholkar J.
8 Section 31(2) provides for a penalty of Rs. 100 to cover those offences for w hich no specific penalty is provided.
9 English Electric Co. of India Ltd v. Industrial Tribunal Madras (1987) 1 LLJ 141, 153 (Mad) (DB), per Chandurkar CJ.
10 In RS Rekchand Mohota Spg and Wvg Mills Pvt Ltd v. Labour Court 1968 Lab IC 480, 484 (DB), per Paranjpe J and Zandu Pharmaceutical Works Ltd v. RN Kulkarni & Co (1966) 1 LLJ 560, 562 (Bom), per Mody J, it was held that it is open to the employer to repudiate the claim (of the w orkman for compensation) by showing that the w orkman w as disentitled to claim compensation because his case falls w ithin any of the three clauses of Section 25E of the Act.
11 ibid., at 3
12 Section 25K(2) in Chapter 5B of the Act.
13 Section 25Q in Chapter 5B states that w here an employer lays-off a w orkman under Section 25M w ithout prior permission of the
“approp riate government ,” he shall be punishable w ith imprisonment for a term w hich may extend to 1 month, or w ith fine w hich may extend to Rs. 1000, or w ith both.
Clearly, the mere fact that lay-off takes place w ithout the required permission is reason enough to attract the penalty under Section
25Q. There is no need to establish any intention.
14 Section 25M(8) of the Act states that the employer w ill be liable to the w orkmen for “all the benefits under any law for the time being in force as if they had not been laid-off” for the period of such illegal lay -off i.e. cont rary to provisions of Chapter 5B.

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