'Retrenchment': Conditions Precedent and Procedure

In one line

Retrenchment is the ending of a worker's job for any reason at all except as punishment, and an employer may not do it to a worker of one year's standing without a month's notice giving reasons, fifteen days' pay for every year served, and notice to the Government.

In exam wording: section 2(zh) of the Industrial Relations Code 2020 defines retrenchment as the termination by the employer of the service of a worker for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but as not including voluntary retirement, retirement on reaching the age of superannuation, termination as a result of the non-renewal of the contract of employment on its expiry or of its being terminated under a stipulation contained in it, termination as a result of the completion of the tenure of fixed term employment, or termination on the ground of continued ill-health; and section 70 provides that no worker who has been in continuous service for not less than one year shall be retrenched until he has been given one month's notice in writing indicating the reasons and the period has expired or he has been paid wages in lieu, until he has been paid at the time of retrenchment compensation equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months, and until notice is served on the appropriate Government in the prescribed manner.

Why the law has this at all

An employer must be able to reduce his workforce. A business whose demand has halved cannot be compelled to go on paying people to do work that no longer exists, and forcing it to try would end in closure, which is worse for everybody.

But the worker whose job disappears has done nothing wrong, and that is the whole difficulty. He is not being punished. He has not been found guilty of anything. He simply is not needed, and he loses his livelihood for a reason entirely outside his control.

So section 70 does not forbid retrenchment. It prices it and it slows it down.

It prices it: fifteen days' pay for every year served, which makes the decision a costed one rather than a free one, and which gives the worker something to live on.

It slows it down: a month's notice in writing indicating the reasons, so that the worker knows why and has time to look for other work, and the union has time to argue that the reduction is unnecessary or that the wrong people have been chosen.

And it makes the State aware of it: notice to the appropriate Government, which turns a private decision into a recorded one and lets the labour administration see where jobs are going.