'Lay-off' and the Right to Compensation

Some words this chapter uses

Muster roll is the employer's register of the workers employed. Section 68 makes keeping it a duty even during a lay-off.

Badli worker is a substitute, employed in the place of another worker whose name is on the muster rolls. The Explanation to section 67 defines him and provides that he ceases to be a badli once he has completed one year of continuous service.

Casual worker is one engaged occasionally rather than regularly. The Code does not define him for this purpose.

Basic wages and dearness allowance are the two components on which the compensation is calculated. Note that the calculation is not on total wages: allowances other than dearness allowance are excluded.

Continuous service is defined for this Chapter by section 66, and it includes interruptions for the reasons that section lists.

Intermittently, in section 67, means in separate spells rather than in one unbroken period.

Section 2(t): what a lay-off is

A lay-off is the failure, refusal or inability of an employer to give employment to a worker:

• on account of: a shortage of coal, power or raw materials; or the accumulation of stocks; or the break-down of machinery; or a natural calamity; or for any other connected reason;
• to a worker whose name is borne on the muster rolls of his industrial establishment;
• and who has not been retrenched.

Three elements and each does work.

"Failure, refusal or inability" is wide, but the causes are not. The listed causes are all things that prevent production, and the closing words are "any other connected reason", not "any other reason". The word connected ties the general words to the specific ones: a cause of the same kind as a shortage, an accumulation, a breakdown or a calamity. An employer who stops work to pressure the union is not within it, and that is what makes his stoppage a lock-out rather than a lay-off.

The name must be on the muster rolls. A person not on the rolls is not laid off; he is simply not employed.

He must not have been retrenched. A retrenched worker's employment has ended, so there is nothing to lay off.

The Explanation: the two-hour rule

This is the practically important part of section 2(t) and it is easy to miss because it sits below the definition.

Every worker whose name is borne on the muster rolls, and who presents himself for work at the establishment at the appointed time during normal working hours on any day, and is not given employment by the employer within two hours of so presenting himself, shall be deemed to have been laid off for that day.

First proviso: if, instead of being given employment at the commencement of a shift, he is asked to present himself during the second half of the shift and is then given employment, he shall be deemed to have been laid off only for one-half of that day.

Second proviso: if he is not given employment even after so presenting himself in the second half, he shall not be deemed to have been laid off for the second half, and shall be entitled to full basic wages and dearness allowance for that part of the day.

Work the three outcomes, because an examiner will.

The second proviso is the one that surprises people and its logic is sound. A worker who is sent away in the morning has lost the day and gets half pay. A worker who is told to come back at two o'clock has given up the chance of doing anything else with his afternoon; if the employer then still has no work, the employer has wasted the man's time deliberately, and the Code makes him pay in full for it.

Section 65: the gateway

Check this before anything else, because sections 67 to 69, which contain the entire compensation scheme, do not apply everywhere.

Sections 67 to 69 shall not apply:

• to industrial establishments to which Chapter X applies; or
• (a) to industrial establishments in which less than fifty workers on an average per working day have been employed in the preceding calendar month; or
• (b) to industrial establishments which are of a seasonal character or in which work is performed intermittently.

65(2): if a question arises whether an establishment is of a seasonal character or whether work is performed only intermittently, the decision of the appropriate Government thereon shall be final.

Explanation: for section 65 and sections 67, 68 and 69, "industrial establishment" means a factory as defined in the Factories Act 1948, or a mine as defined in the Mines Act 1952, or a plantation.

Three points to carry.

The fifty-worker floor is an average, not a headcount on a given day. It is fewer than fifty workers on an average per working day in the preceding calendar month.

Chapter X establishments are excluded because Chapter X has its own, stricter regime. Those are the larger establishments, and there lay-off requires prior permission rather than compensation alone. That is the subject of [The Larger Establishments: Chapter X and the Three Hundred Threshold].

The seasonal question is decided finally by the appropriate Government, not by the Tribunal, which is an unusual allocation and worth noting.

Section 66: continuous service

Section 67 requires one year of continuous service, so section 66 has to be read with it.

Continuous service means the uninterrupted service of a worker, including service interrupted on account of:

• sickness;
• authorised leave;
• an accident;
• a strike which is not illegal;
• a lock-out; or
• a cessation of work which is not due to any fault on the part of the worker.

Note that a lawful strike does not break continuity, and an illegal one does. That is a direct consequence in Chapter IX of the legality question decided in ['Strike': Concept, Legality and Justification], and it is a good cross-link to make in an answer.

Explanation 1: the deeming provision

Where a worker is not in continuous service for one year or six months, he is deemed to be in continuous service:

for one year, if during the twelve months preceding the date of calculation he has actually worked for not less than:

• one hundred and ninety days in the case of a worker employed below ground in a mine; and
• two hundred and forty days in any other case;

for six months, if during the six months preceding he has actually worked for not less than:

• ninety-five days below ground in a mine; and
• one hundred and twenty days in any other case.

The two-hundred-and-forty-day figure is the one every student must know, because it is how most workers qualify. A worker who has not been employed for a full calendar year, but who actually worked 240 days in the preceding twelve months, is treated as having a year's continuous service.

Explanation 2: days that count as worked

For Explanation 1, the days a worker has actually worked include days on which:

• (i) he has been laid off under an agreement or as permitted by the Code or any other applicable law;
• (ii) he has been on leave on full wages earned in previous years;
• (iii) he has been absent due to temporary disablement caused by an accident arising out of and in the course of his employment; and
• (iv) in the case of a female, she has been on maternity leave, so long as the total does not exceed the period specified in the Maternity Benefit Act 1961.

Explanation 2 is what makes the arithmetic fair. Without it an employer could defeat the 240-day test by laying a worker off, and a woman on maternity leave would lose her qualifying service for taking it.

Section 67: the compensation

Who qualifies. A worker:

• other than a badli worker or a casual worker;
• whose name is borne on the muster rolls of an industrial establishment; and
• who has completed not less than one year of continuous service under an employer.

When. Whenever he is laid off, whether continuously or intermittently.

How much. He shall be paid by the employer, for all days during which he is so laid off, except for such weekly holidays as may intervene, compensation equal to fifty per cent. of the total of the basic wages and dearness allowance that would have been payable to him had he not been so laid off.

Four points of detail that decide problems.

The base is basic wages plus dearness allowance, not gross wages. Other allowances, overtime and bonus are outside it.

Weekly holidays are excepted. He is not paid lay-off compensation for a day he would not have worked anyway.

"Continuously or intermittently" means broken spells are added together, which matters for the forty-five-day proviso below.

Badli and casual workers are excluded, but the Explanation limits that exclusion: a badli worker ceases to be regarded as such once he has completed one year of continuous service in the establishment. So a long-serving substitute qualifies.

The forty-five-day proviso, and the sting in the second one

First proviso: if during any period of twelve months a worker is laid off for more than forty-five days, no compensation shall be payable in respect of any period of the lay-off after the expiry of the first forty-five days, if there is an agreement to that effect between the worker and the employer.

Read the condition, because most students drop it. The cut-off after forty-five days operates only if there is an agreement. Without an agreement, compensation continues beyond forty-five days.

Second proviso: it shall be lawful for the employer, in any case falling within the first proviso, to retrench the worker in accordance with section 70 at any time after the expiry of the first forty-five days of the lay-off; and when he does so, any compensation paid for having been laid off during the preceding twelve months may be set off against the compensation payable for retrenchment.

That is the provision to explain carefully, because it is where the employer's incentive lies. Once forty-five days of lay-off have passed under an agreement, the employer may convert the lay-off into a retrenchment, and he may set off what he has already paid as lay-off compensation against what he now owes as retrenchment compensation. The lay-off money is not lost to him; it is credited.

So a long lay-off tends to end in retrenchment, and a student should see that the two Chapters are connected by this proviso rather than sitting side by side.

Section 68: the muster roll must be kept

Notwithstanding that workers have been laid off, it is the duty of every employer to maintain, for the purposes of this Chapter, a muster roll, and to provide for the making of entries in it by workers who present themselves for work at the establishment at the appointed time during normal working hours.

This short section is the machinery that makes everything else work. The two-hour rule in section 2(t) depends on the worker being able to show that he presented himself; section 69(ii) disentitles a worker who does not present himself at least once a day. Both are unprovable without a register, and section 68 makes the employer keep one and let the workers sign it.

Section 69: when no compensation is payable

No compensation shall be paid to a worker who has been laid off:

• (i) if he refuses to accept any alternative employment in the same establishment, or in any other establishment belonging to the same employer situated in the same town or village or within a radius of eight kilometres, if in the opinion of the employer that alternative employment does not call for any special skill or previous experience and can be done by the worker, provided that the wages which would normally have been paid to the worker are offered for the alternative employment also;
• (ii) if he does not present himself for work at the establishment at the appointed time during normal working hours at least once a day; or
• (iii) if the laying-off is due to a strike or slowing-down of production on the part of workers in another part of the establishment.

Clause (i) has four conditions and the last is the protection. The alternative work must be in the same establishment or within eight kilometres; it must, in the employer's opinion, need no special skill or previous experience; the worker must be able to do it; and the same wages must be offered. An employer cannot force a skilled worker onto unskilled work at a lower rate and call his refusal a disentitlement.

Clause (ii) is the daily attendance rule, and it is why section 68's muster roll matters. At least once a day.

Clause (iii) is the anti-contagion rule and it is the one with a policy behind it. If workers in one part of the establishment strike or go slow, and that stops work in another part, the workers in that other part get no lay-off compensation. The employer did not cause the stoppage; the workforce did. It is a hard rule for the innocent department, and it is deliberate: it makes the whole workforce feel the cost of one section's action.

Section 76: this Chapter overrides, but the better benefit survives

76(1): the provisions of Chapter IX have effect notwithstanding anything inconsistent contained in any other law, including standing orders made under Chapter IV.

Proviso: where under any other Act, rules, orders, notifications, standing orders, award, contract of service or otherwise, a worker is entitled to benefits in respect of any matter which are more favourable to him than those under the Code, he shall continue to be entitled to the more favourable benefits in respect of that matter, notwithstanding that he receives benefits in respect of other matters under this Chapter.

That proviso is the important half. The Chapter is a floor, not a ceiling. A settlement or standing order giving seventy-five per cent. lay-off compensation prevails over section 67's fifty. And the comparison is made matter by matter: a worker may take the Code's benefit on one matter and a more favourable benefit on another.

A worked example

The facts. A packaging plant in Wada, a factory, employing 260 workers on average per working day last month, not seasonal, not covered by Chapter X. On 3 June the raw material consignment fails to arrive and the employer tells the workers there is no work.

Step one: is Chapter IX available at all? Yes. Section 65 excludes Chapter X establishments, establishments with fewer than fifty workers on average per working day in the preceding calendar month, and seasonal or intermittent establishments. None applies.

Step two: is this a lay-off? Yes. It is an inability to give employment on account of a shortage of raw materials, one of the listed causes in section 2(t), to workers whose names are on the muster rolls and who have not been retrenched. It is not a lock-out, because there is no element of coercion.

Step three: does Meera qualify? She is not a badli or casual worker, her name is on the muster rolls, and she has worked at the plant for fourteen months. She qualifies under section 67.

Step four: what about Rakesh, who joined nine months ago? He has not completed a year. But Explanation 1 to section 66 deems him in continuous service for a year if he actually worked 240 days in the preceding twelve months, and by Explanation 2 the count includes days he was on leave on full wages earned in previous years or absent through an employment accident. If he reaches 240, he qualifies.

Step five: how much? Fifty per cent. of the total of basic wages and dearness allowance that would have been payable, for all days laid off except intervening weekly holidays. Not fifty per cent. of gross pay.

Step six: the two-hour rule. On 5 June Meera presents herself at the gate at the appointed time. No work is given within two hours. She is deemed laid off for that day. On 6 June she is told to come back for the second half of the shift and is then given work: she is deemed laid off for half the day. On 7 June she is told to come back for the second half, presents herself, and is still given nothing: she is not deemed laid off for the second half and is entitled to full basic wages and dearness allowance for that part of the day, by the second proviso to section 2(t).

Step seven: the disentitlements. On 9 June the employer offers Meera unskilled packing work at the same wages at a unit six kilometres away, and she refuses. Section 69(i) applies: the work is within eight kilometres, needs no special skill in the employer's opinion, and the same wages are offered, so no compensation is payable for that day. On 10 June she does not come to the gate at all: section 69(ii), no compensation. On 11 June the fitters in another part of the plant go slow and the packing line stops for that reason: section 69(iii), no compensation for the packing workers.

Step eight: the long lay-off. By 25 July Meera has been laid off for forty-six days in the twelve-month period. Does compensation stop? Only if there is an agreement to that effect between her and the employer, by the first proviso to section 67. If there is one, the employer may also, under the second proviso, retrench her under section 70 at any time after the first forty-five days, setting off the lay-off compensation already paid in the preceding twelve months against the retrenchment compensation.

Step nine: a better benefit. The plant's certified standing orders provide seventy-five per cent. lay-off compensation. Under the proviso to section 76(1) Meera is entitled to the more favourable benefit on that matter, notwithstanding that she takes the Code's benefits on others.

What this does NOT mean

It does not mean every stoppage is a lay-off. The causes in section 2(t) are specific, and the general words are "any other connected reason". A stoppage to coerce the workers is a lock-out under section 2(u).

It does not mean the employment ends. The worker stays on the muster rolls, section 68 keeps the register running, and section 66 keeps his continuous service running.

It does not mean every laid-off worker is paid. Section 65 excludes whole classes of establishment, and section 69 disentitles a worker on three grounds.

It does not mean compensation stops automatically at forty-five days. It stops only if there is an agreement to that effect.

It does not mean fifty per cent. of everything. It is fifty per cent. of basic wages and dearness allowance, excluding weekly holidays that intervene.

It does not mean a badli worker never qualifies. He ceases to be a badli once he has completed one year of continuous service in the establishment.

It does not mean the Code's figure is the maximum. Section 76's proviso preserves any more favourable benefit under a standing order, award, settlement or contract.

Limits, criticism and amendments

The fifty-worker floor in section 65(a) leaves a great many workers outside the scheme entirely, and the exclusion of seasonal and intermittent establishments removes precisely the workforces whose work is least secure. That the seasonal question is decided finally by the appropriate Government, with no appeal, is a further criticism.

Fifty per cent. of basic wages and dearness allowance is a thin floor for a worker with no savings, and the exclusion of other allowances from the base makes the real figure lower than the percentage suggests.

The forty-five-day proviso is criticised in both directions. Workers say the set-off in the second proviso means a long lay-off costs the employer almost nothing extra when it turns into a retrenchment. Employers say a lay-off that must be paid indefinitely, absent an agreement, forces closure rather than a temporary stoppage.

Section 69(iii) punishes the innocent. A worker in a department that did not strike loses his compensation because another department did.

Against that, the two-hour rule and its second proviso are unusually well drafted, and section 76's proviso, which preserves any more favourable benefit matter by matter, is a model of how a statutory floor should be written.

Quick revision

• Section 2(t): failure, refusal or inability to give employment on account of shortage of coal, power or raw materials, accumulation of stocks, break-down of machinery, natural calamity or any other connected reason, to a worker on the muster rolls who has not been retrenched.
• Explanation: presents himself and no work within two hours, deemed laid off for the day. Asked back for the second half and given work, half a day. Asked back, presents himself, still no work: not laid off for that half, and full basic wages and dearness allowance for it.
• Section 65: sections 67 to 69 do not apply to Chapter X establishments; to establishments with fewer than fifty workers on average per working day in the preceding calendar month; or to seasonal or intermittent establishments. The seasonal question is decided finally by the appropriate Government.
• Section 66: continuous service includes interruption by sickness, authorised leave, accident, a strike which is NOT illegal, a lock-out, or a cessation not due to the worker's fault. Deemed one year on 240 days actually worked (190 below ground in a mine) in the preceding twelve months; six months on 120 (95 in a mine). Days worked include lay-off under agreement or law, leave on full wages earned in previous years, absence from an employment accident, and maternity leave.
• Section 67: worker other than badli or casual, on the muster rolls, one year of continuous service, laid off continuously or intermittently, paid for all days except intervening weekly holidays, fifty per cent. of basic wages and dearness allowance. Badli ceases to be badli after one year. First proviso: no compensation after the first forty-five days in twelve months if there is an agreement. Second proviso: the employer may then retrench under section 70 and set off lay-off compensation paid in the preceding twelve months.
• Section 68: keep a muster roll notwithstanding the lay-off and let workers make entries.
• Section 69: no compensation if he refuses suitable alternative employment within eight kilometres at the same wages needing no special skill; if he does not present himself at least once a day; or if the lay-off is due to a strike or go-slow in another part of the establishment.
• Section 76: the Chapter overrides inconsistent law including standing orders, but a more favourable benefit under any other source survives, matter by matter.

Test yourself

1. Define lay-off and state the two-hour rule. Section 2(t) defines lay-off as the failure, refusal or inability of an employer, on account of a shortage of coal, power or raw materials, the accumulation of stocks, the break-down of machinery, a natural calamity or any other connected reason, to give employment to a worker whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched. By the Explanation, every such worker who presents himself for work at the appointed time during normal working hours and is not given employment within two hours of so presenting himself is deemed to have been laid off for that day; if instead he is asked to present himself in the second half of the shift and is then given employment he is deemed laid off for only half the day; and if he is not given employment even after so presenting himself he is not deemed laid off for that second half and is entitled to full basic wages and dearness allowance for that part of the day.

2. Who is entitled to lay-off compensation, and how much? Under section 67, a worker other than a badli or a casual worker, whose name is borne on the muster rolls of an industrial establishment and who has completed not less than one year of continuous service under the employer, when laid off whether continuously or intermittently, is entitled to be paid for all days during which he is so laid off, except intervening weekly holidays, compensation equal to fifty per cent. of the total of the basic wages and dearness allowance that would have been payable had he not been laid off. A badli worker ceases to be regarded as such once he has completed one year of continuous service in the establishment.

3. A worker has been employed for only ten months. Can he qualify? Possibly. Explanation 1 to section 66 deems a worker to be in continuous service for one year if, during the twelve months preceding the date of calculation, he actually worked for not less than 240 days, or 190 days if employed below ground in a mine. By Explanation 2 the days actually worked include days he was laid off under an agreement or as permitted by law, days on leave on full wages earned in previous years, days absent through temporary disablement caused by an accident arising out of and in the course of employment, and, for a woman, maternity leave up to the period specified in the Maternity Benefit Act 1961.

4. In what circumstances is no lay-off compensation payable? Under section 69, where the worker refuses to accept alternative employment in the same establishment, or in another belonging to the same employer in the same town or village or within eight kilometres, if in the employer's opinion it calls for no special skill or previous experience and can be done by him, provided the wages normally payable are offered for it; where he does not present himself for work at the appointed time during normal working hours at least once a day; and where the laying-off is due to a strike or slowing-down of production on the part of workers in another part of the establishment. Section 65 separately excludes Chapter X establishments, establishments employing fewer than fifty workers on average per working day in the preceding calendar month, and seasonal or intermittent establishments from sections 67 to 69 altogether.

5. Does compensation stop after forty-five days? Not automatically. The first proviso to section 67 provides that where a worker is laid off for more than forty-five days in any period of twelve months, no compensation is payable for the period after the first forty-five days if there is an agreement to that effect between the worker and the employer. Absent such an agreement, compensation continues. The second proviso adds that in a case falling within the first, the employer may lawfully retrench the worker under section 70 at any time after the first forty-five days, and may set off any lay-off compensation paid during the preceding twelve months against the retrenchment compensation.

6. The establishment's standing orders provide sixty per cent. lay-off compensation. Which figure applies? Sixty per cent. Section 76(1) gives Chapter IX effect notwithstanding anything inconsistent in any other law including standing orders, but its proviso preserves any benefit more favourable to the worker under any other Act, rules, orders, notifications, standing orders, award, contract of service or otherwise, and does so matter by matter, so that the worker may take the more favourable benefit on one matter while receiving the Code's benefits on others. The Chapter is a floor and not a ceiling.