Lay-off, Retrenchment and Closure under the IR Code

Lay-off, retrenchment and closure are the three ways in which an employer may reduce or end employment for reasons other than misconduct. The Industrial Relations Code carries forward Chapters V-A and V-B of the Industrial Disputes Act as Chapters IX and X, with one major change: prior Government permission is now needed only in establishments of 300 or more workers, instead of 100. This note explains the definitions, the general conditions, the special permission regime and the leading cases.

1. The Three Concepts

• Lay-off, s.2(t). Failure, refusal or inability of the employer to give employment to a worker on the muster roll, due to shortage of coal, power or raw materials, accumulation of stock, breakdown of machinery, natural calamity or similar reasons. The relationship continues.
• Retrenchment, s.2(zh). Termination for any reason whatsoever other than as disciplinary punishment. Excluded: voluntary retirement, superannuation, non-renewal or expiry of a contract or fixed term, and termination for continued ill-health.
• Closure, s.2(h). Permanent closing down of a place of employment or part of it.

Figure 1: The two regimes compared

2. General Provisions, Chapter IX

• Lay-off compensation, s.67. A worker with one year's continuous service gets 50% of basic wages and dearness allowance for days laid off. If lay-off exceeds 45 days in twelve months, the employer may retrench instead, setting off lay-off compensation paid. Badli and casual workers are excluded.
• No compensation, s.69. If the worker refuses suitable alternative employment within five miles, or does not present himself for work, or the lay-off results from a strike or go-slow in another part of the establishment.
• Application, s.65. Lay-off provisions do not apply to establishments with fewer than 50 workers on average, or to seasonal or intermittent work.

Figure 2: Retrenchment under sections 66 and 70 to 72

• Transfer, s.73. On transfer of ownership or management, workers get notice and compensation as if retrenched, unless their service is uninterrupted, the terms are no less favourable, and the new employer takes over liability for retrenchment compensation.
• Closure notice, s.74. 60 days' notice to the Government, except for establishments with fewer than 50 workers and construction projects.
• Closure compensation, s.75. As for retrenchment. If closure is due to circumstances beyond the employer's control, compensation is capped at three months' average pay; financial loss, unsold stock and expiry of a lease or licence are not such circumstances.

3. Special Provisions, Chapter X

• Application, s.77. Industrial establishments with 300 or more workers on average in the preceding twelve months, or any higher number the Government notifies.
• Prior permission, ss.78 to 80. Lay-off, retrenchment and closure all need prior permission of the appropriate Government, applied for electronically with reasons, with copies to the workers. Closure applications are made 90 days in advance.
• Deemed permission. If the Government does not communicate its decision within 60 days, permission is deemed granted.
• Without permission. Action taken without permission, or after refusal, is illegal, and workers are entitled to all benefits as if it had not occurred.
• Review. The order may be reviewed by the Government or referred to the Tribunal, and remains in force for one year.

4. Leading Cases

Figure 3: Retrenchment and closure in the Supreme Court

5. Frequently Asked Questions

What are the conditions precedent to retrenchment under the IR Code?

Under section 70, a worker with at least one year of continuous service cannot be retrenched unless given one month's written notice with reasons or wages in lieu, paid compensation of fifteen days' average pay for every completed year of service or part above six months, and notice has been served on the appropriate Government. In establishments with 300 or more workers, section 79 also requires three months' notice and prior permission.

Is non-renewal of a fixed term contract retrenchment?

No. Section 2(zh) excludes termination on non-renewal or expiry of a contract and the completion of fixed term employment, so no retrenchment compensation is payable on that ground.

When is prior Government permission needed for retrenchment or closure?

Only in industrial establishments to which Chapter X applies, that is, those with 300 or more workers on average per working day in the preceding twelve months, or a higher number notified by the appropriate Government. If the Government does not decide within sixty days, permission is deemed granted. Below that threshold, the employer must comply with sections 70 and 74 but needs no permission.

How is continuous service calculated?

Under section 66, a worker is in continuous service for one year if he has actually worked for 240 days, or 190 days in work below ground in a mine, in the preceding twelve months. In Workmen of American Express v Management (1985), the Supreme Court held that Sundays and paid holidays count as days actually worked.

6. Related Topics

• Topic 17: Fixed Term Employment and the Reskilling Fund. The fund paid on retrenchment.