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By Saummya Malhotra
Through this blog, the author highlights the current gap in the industrial and labour laws to deal with the grant of back wages upon reinstatement of wrongfully retrenched workers. The blog focuses on the need for implementing various reforms and recommendations by providing analyses of the current legal framework, various judicial pronouncements and international perspectives that would work towards bridging this gap and ensuring appropriate justice for the victims of unfair retrenchment.
Introduction
The famous legal maxim, “Ubi Jus Ibi Remedium”, meaning “where there is a wrong, there is a remedy,” has always been a guiding light for the Courts of Law in India. Similarly, this principle holds good while granting back wages to reinstated employees who are retrenched wrongfully under unjustifiable circumstances.[1] However, in present times the back wages’ entitlement upon reinstatement is not automatic and the question regarding its grant is subject to the situations of the respective cases.[2] No straight-jacket formula exists for the grant of back wages upon reinstatement. There is a discretionary element involved and entitlement of back wages does not flow as an accepted consequence when the retrenchment of a workman is set aside.[3]
Smt. Laxmi Bharat Bavise was the widow of the employee who was illegally dismissed from his employment by oral termination at the age of 40 years on charges of misconduct which later proved to be false and unjustified, resulting in great misery for the family. Did her husband get any other gainful employment at such an age? No, and Laxmi’s income which she earned from going from house to house as a cook was hardly enough to save the family from starvation. In the present case, in the absence of any specific framework, it took around 11 years for the petitioners to fight for justice and entitlement to the deserved full-back wages and all other consequential benefits.[4]
Speaking realistically, workers who are illegally retrenched have to go through the gamut of litigation, their capacity to sustain themselves throughout the protracted litigation is itself very difficult for them to survive till the day the relief is granted. After such time and energy-consuming litigation, their right to back wages upon reinstatement is not assured. If in such circumstances back wages are denied, the workman would be subjected to a sort of penalty for no fault of their own and it would be wholly undeserved.
“If a sacrifice is essential for an industry’s overall interest unfair that it is a unilateral action making the workman suffer. Those who can afford and have the cushion and the capacity must bear the greater brunt making the shock of sacrifice as less poignant as possible for those who keep body and soil together with the utmost difficulty.” [5]
Thus, this blog firstly deals with the current scope of entitlement to back wages upon reinstatement by analysing the present legal framework and various judicial pronouncements dealing with industrial disputes involving back wages and reinstatement. Further, it also presents an international perspective regarding these concepts and in conclusion, it provides a way forward that bridges the current gap and ensures social justice for every worker of the society through various reforms and recommendations.
Current Legal Framework
Section 2(oo) of the Industrial Disputes Act (IDA), 1947 explains the term “retrenchment” as “the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action.”[6] Earlier, the employer had an unconstrained right to retrench any workman and terminate his services. However, with the rise of the concept of social justice, limitations have been levied on the misuse of this right. There was no specific statutory law dealing with retrenchment compensation, before 1953. Later, lay-off and retrenchment compensation provisions were incorporated under the legal regime of the IDA, 1947 to safeguard the employees from undesirable adversity and financial insecurity as a result of illegal retrenchment, without the workers’ fault.
The IDA, 1947 also deals with the re-employment of workers who were retrenched by the employer and provides them preference over new candidates. It also mentions several requirements for re-employment of the retrenched worker, i.e. the employee should be ‘retrenched’ as per the definition under Section 2(oo) of the IDA, 1947 before re-employment and he has to be an Indian citizen who in reply to the management’s notice advances himself for employment.[7] Labour Courts and Tribunals have the authority to annul any order of dismissal of an employee and order his reinstatement on reasonable terms if they are satisfied that the said order was unjustified.[8]
Certain conditions and precedents are to be followed while retrenching an employee like notice of one month has to be given to the workman who has to be retrenched and compensation should be paid to them for the period of the notice as per Section 25F of the IDA, 1947.[9] The conditions under Section 25F of the IDA, 1947 are deemed to be fulfilled even if a workman has completed 240 days of employment in 12 months irrespective of whether the worker has been in the service of the employer for an entire one-year duration. The Industrial Disputes (Amendment) Act, 1984 prescribes the conditions precedent that an employer with 100 or more workmen in an industrial establishment must fulfil before exercising the power to retrench his workmen.[10]
The non-compliance of these conditions is required to be proven to bring a particular case under the illegal and unjustified retrenchment and make a workman entitled to back wages as per the facts and circumstances. Additionally, when the employer does not obligate to the statutory provisions of the above-mentioned sections of the IDA, 1947, then the acceptance of the retrenchment amount would not act as an estoppel for the worker to contest the retrenchment order.[11] While granting back wages, the gainful employment of the workman while out of service although would be a relevant factor, but it is not the only question to be considered. Other relevant factors, such as “the nature of the charge, the extent of his employment, whether his conduct has caused loss to the employer, etc.”, must also be considered.[12]
Back Wages upon Reinstatement, not an Automatic Right
The Hon’ble SC in Jagbir Singh v. Haryana State Agriculture Marketing Board[13] held that many prior Court’s decisions reflect that if the retrenchment of the worker is proved to be unjustified, reinstatement and full back wages follow generally as a relief. However, there has been a recent shift in the legal stance and this relief of back wages is not automatic. Although, the worker might be retrenched illegally and in contravention of the prescribed procedures of the IDA, 1947, it is not compulsory that the order of reinstatement along with the entitlement of back wages would be the only appropriate remedy. Granting monetary compensation instead of reinstatement and back wages may also be deemed an appropriate remedy to serve the ends of justice.[14]
Similarly, when the adjudicating authorities interfere with the punishment imposed on the employee on the grounds of it being excessive and the lesser punishment is awarded in the form of a consequential direction of reinstatement or compensation, it cannot be concluded that the dismissal was invalid. Therefore, where only the punishment is interfered with and reinstatement is ordered as an outcome of the order of lesser punishment, then neither the back wages nor the consequential benefits follow as a natural consequence.[15]
Furthermore, there is a difference between the nature of engagement of a workman employed permanently and a daily wager, the employer retains the right to terminate the latter by granting him retrenchment compensation even after reinstatement. Since a daily wager does not have a permanent post, compensation on monetary basis could be deemed more appropriate and practical than reinstatement by the Court.[16] In Ranbir Singh v. Executive Engineer P.W.D.[17], the appellant was a daily wage worker who had allegedly been retrenched by the management without ensuring the compliance of requirements under Section 25F of the IDA, 1947, the Hon’ble SC held that though the appellant has completed work for 240 days and his services were terminated against the conditions of Section 25F of IDA, 1947, the reinstatement cannot be automatic and suitable compensation would be an appropriate remedy.
Thus, back wages upon reinstatement need not be an automatic entitlement in every situation in which it is established that the termination did not follow the procedure established by law. In a recent case, a clerk-cum cashier was granted payment of lump sum compensation of Rs 15 Lakhs although there was no justified evidence for the retrenchment. However, considering the work tenure of the workman and that he had already attained the age of superannuation, the Hon’ble SC held that entitlement to back wages as a result of reinstatement was automatic not an entitlement and compensation was justified in the light of facts and circumstances of the case.[18] In M.P. State Electricity Board v. Jerina Bee[19], the Court considered the situation of the case and found that the order of dismissal was against the natural justice principles and sanctity of law and granted a payment of Rs 85,000/- towards back wages to do justice since the employee had expired by that time. [20]
An International Perspective
A retrenchment wrongfully executed can result in loss of productivity, decreasing work morale and economic performance. ILO Termination of Employment Convention No. 158 regulates the termination of employment at the initiative of the employer and provides that the worker cannot be terminated from employment unless there is a valid reason related to the conduct and capacity of the worker or operational requirements of the establishment. It also provides for the worker’s entitlement upon termination which includes severance allowance, unemployment insurance or assistance or other forms of social security etc.[21]
According to ILO, enabling workers to exercise their right to back wages due to unemployment is part and parcel of minimum wage employment. In many countries, workers can exercise this right in the courts or with administrative authorities. However, several countries provide for simpler administrative proceedings considering the lengthy and costly processes in court cases. Some countries such as Canada, South Africa, Turkey, and the U.S. have empowered labour inspectors to directly order the payment of back wages. The ILO Committee of Experts in the General Survey 2015 noted that it was important to ensure effective legal remedies for employees so that they can recover unpaid amounts owed to them and to protect them against the risk of victimisation.[22]
Different countries have different statutes dealing with back wages claims, depending on the country’s specific regulations. In the United States of America, back wages in cases of wrongful termination may be ordered under the Fair Labour Standards Act of 1938. Under the FLSA, the general statute of limitations for back-pay claims in the U.S. is two years.[23] This period in the U.K. is even shorter, and the back wages claim must be brought within three months.[24]
Conclusion- Way Forward for Restoring Justice
To uphold constitutional ideals, social justice must be ensured for every workman. Workers have to suffer adversely in cases of wrongful and unjustified retrenchment by the employer. The analysis of the current legal provisions under the IDA, 1947 and several judicial pronouncements exposes that in cases of illegal dismissal, the Courts exercise the discretionary power and award compensation or back wages upon reinstatement based on particular facts and circumstances of the case. However, considering the importance and complex nature of an employee’s termination in modern times, a specific law on the right to entitlement of back wages upon reinstatement is needed for speedy and effective justice, along with its scope in particular circumstances and other relevant factors including his gainful employment while out of service whose onus of proof should always be made to lie with the employer who alleges the same rather than the retrenched worker to prove its non-existence.
Additionally, there should be provisions for interim relief for workers during the long-drawn litigation process. To ensure appropriate justice for victims of wrongful dismissal, the Government should provide a framework for calculating the back wages and there should be a limitation period for back wages claims as in other countries. In conclusion, making back wages upon reinstatement an automatic right in illegal termination would be an appropriate step forward under industrial and labour jurisprudence to uphold the principles of natural justice and equity and recover the loss and suffering caused to an employee by the unfair retrenchment.
The author, Saummya Malhotra, is an undergraduate law student at Dr. B.R. Ambedkar National Law University, Sonepat. Debating is something which excites her truly and she enjoys every aspect of exchanging ideas and broadening her knowledge. Apart from immensely enjoying herself in studying, researching and writing, her single day can’t go without singing- it’s her favourite hobby!
[1] Raj Paul Singh Teji, The Recent Labour Jurisprudential Trends, Delhi District Courts (Oct. 2, 2024, 4:00 PM), https://delhicourts.nic.in/viewdocuments/QTdPc0VsdjNtNDhWaUV3Z0x3VGVwYTU4NXVNL0hGUUVDYkVydEJFcEZJTllhZjJ6WkpKeFg5cW0zZS8rZFVDV0svTytpd0FhWi9IelRXeUFwRHE2SEZ6cVNqeHMrZzlZc1YxT09EeTBlLzg9.
[2] Ram Ashrey Singh v. Ram Bux Singh, (2003) LLR 415 SC.
[3] M.P. State Electricity Board v. Jerina Bee, (2003) LLR 848 SC.
[4] Smt. Laxmi Bharat Bavise (Widow) & Anr. v. M/s Permanent Magnets Ltd. & Ors., 2012 (3) ALL MR 267.
[5] Hindustan Tin Works Pvt. Ltd v. Employees of Hindustan Works Tin Works Pvt. Ltd., AIR 1979 SC 75.
[6] The Industrial Disputes Act, 1947, §2(oo).
[7] The Industrial Disputes Act, 1947, §25H.
[9] Laxmi Devi Mills Ltd. v. Ram Sagar Pandey, AIR 1957 SC 82.
[10] The Industrial Disputes Act, 1947, §25N.
[11] Indian Tourism Development Corporation v. Fayaz Ahmed Sheikh, 2023 SCC OnLine J&K 171.
[12] Hissar Central Cooperative Bank Ltd v. Kali Ram, (2003) 9 SCC 221.
[13] (2009) 15 SCC 327.
[14] Senior Superintendent of Telegraphs, (Traffic) Bhopal v. Santosh Kumar Seal, AIR 2010 SC 2140.
[15] J.K. Synthetic Ltd. v. K.P. Agrawal, (2007) 2 SCC 433.
[16] BSNL v. Bhurumal, (2013) 5 SCC 136.
[17] Ranbir Singh v. Executive Engineer P.W.D., (2021) SCC OnLine 670.
[18] Allahabad Bank v. Krishan Pal Singh, AIR 2021 SC 4397.
[19] (2003) LLR 848 SC.
[20] Raj Narian v. Union of India, (2019) 5 SCC 809.
[21] ILO Convention 158 Termination of Employment Convention, 1982 (No. 158).
[22] International Labour Organisation, 6.7 Recovery of wages due and protection against victimization, December 3, 2015, available at https://www.ilo.org/resource/67-recovery-wages-due-and-protection-against-victimization (Last Visited on January 4, 2025).
[23] The Fair Standards Act, 1938.
[24] Labour Research Department, How far can holiday pay claims be backdated?, October 26, 2023, available at https://www.lrd.org.uk/free-read/how-far-can-holiday-pay-claims-be-backdated (Last Visited on January 4, 2025).
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