Updated: Jul 29, 2020

[Authored by Anubhav Seth, 3rd year B.B.A. LL.B. (Hons.) student at Vivekananda Institute of Professional Institute, Delhi.]


Continuing with the business along with sustaining and keeping safe the workforce from Covid-19 without disrupting business, is the challenge before Indian Businesses today. Cab aggregator Ola became the latest company to lay off employees, as the nationwide lockdown to curb the spread of coronavirus significantly reduced its revenues. A number of other companies, including Uber, Swiggy, Zomato, and many news organizations have dismissed staff in the past two months, despite a request from the government to not to do the same. Similar has been the case with companies like; Twitter backed Sharechat, We Work, Reliance Industries, Times Life, The Quint, News Nation Network and The Indian Express, that have laid off their employees or have enforced salary cuts to deal with the reduction in revenue due to the pandemic.

Coronavirus has spread exponentially across the world, causing a global health epidemic with substantial economic repercussions. More than 5.10 million people worldwide are infected with the corona virus and 333 thousand have died. In India, 118 thousand positive coronavirus cases are confirmed, with India ranking 17th among the countries affected. In addition to its disturbing impact on human life, the novel strain of coronavirus (COVID-19) has the ability to drastically slowdown, not only the Indian economy and its growth rate but the world economy as well.

The Universe of this study was the outbreak of business and workers, and layoff crisis in India and with special reference to Laying off procedure, and employment, workers & labour protection laws prevalent in India.


Sections 2(kkk) and 2(oo), of the Industrial Disputes Act, 1947 define 'lay-off' and 'retrenchment' respectively. The term "workman" is also broadly defined and includes “those performing any “manual, unskilled, skilled, technical, operational, clerical or supervisory work, for hire or reward, terms of employment be express or implied and includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of the dispute.[1]

Under Indian law, lay-off does not mean termination or cessation of employment. Layoff has been defined as “failure, refusal or inability of an employer on account of the shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery or natural calamity or for any other unconnected reason to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched.[2]

Lay-off is a method to deal with an employer's temporary inability to provide an employee, work to maintain the business going. While it is essentially of temporary character, it results in immediate unemployment. It doesn't result in cessation of the relationship between the employer and employee nor does it imply any modification of the terms of service. However, certain establishments do not have any provisions relating to layoff of the employees by the employer. In such circumstances, layoff would be considered ultra vires.[3] Employees working in these institutions have no right to laid-off compensation. Nevertheless, laid-off compensation can be paid if there would be any agreement between employer and employee to that effect or on the grounds of social justice. However, in South India Corporation Ltd. v. All Kerala Cashewnut Factory Workers' Federation[4] the Court ruled that, “if any establishment is not covered within the scope of this Chapter V-A, the Tribunal has no right to grant relief on the basis of any fanciful notions of social justice.”


A worker is entitled to lay-off compensation under the following conditions:[5]

  1. Worker's name should be borne on the establishment's muster rolls and he / she should not be a badli worker or a casual worker; and

  2. The worker should have completed not less than one year of continuous service as stated under section 25-B; and

  3. The workman should have been laid-off, continuously or intermittently;

  4. The worker shall then be entitled to compensation for all the days during which he was so laid-off;

  5. However, lay-off compensation shall not be paid to the worker for such weekly holidays as may intervene the period of lay-off.

  6. The lay-off compensation is equivalent to 50 % of the total basic wages and dearness allowance that would have been payable to him, had he not been so laid off.


A maximum of 45 days[6] is permitted for Layoff of an employee by employer. However, if this contingency period extends beyond a reasonable period of time, say 45 days, it would be of serious concern to both the employer and the worker, both of them lose 50 per cent of their income i.e. the employers are required to pay the compensation for the lay-off period without taking labor from the workers and workmen too would be losing 50% wages which he would have earned had he not been so laid-off.


For industrial establishments where not less than 100 employees are hired on an average every working day and are not of a seasonal nature and where work is carried out only intermittently, the employer must obtain prior approval from the competent authority to layoff its workers. If the employer does not apply for prior approval or the competent authority mentioned above or is declined any approval to effect lay-off, any lay-off in contravention of such order shall be considered illegal and the laid-off workers shall be entitled to all benefits as though they were not laid-off at all.

The court upheld the constitutionality of Section 25-M of the Industrial Disputes Act, 1947, in Papnasam Labor Union V. Madhura Coats Ltd. and anothers[8], where it observed that, the object of Section 25-M was to avoid hardship caused to the lay-off employees and to maintain higher production and productivity by preserving industrial peace and harmony. The legislature had taken care in exempting the need for prior permission to lay-off in Section 25-M if such lay-off is necessitated on account of power of failure or natural calamities because such reasons being grave, sudden and explicit, no further scrutiny is called for. Therefore, in the greater public interest for maintaining industrial peace and harmony and to prevent unemployment without just cause, the restriction imposed under sub-section (2) of Section 25-M cannot be held arbitrary, unreasonable or far in excess of the need for which such restriction has been sought to be imposed.”


In accordance with the terms of the 1947 Industrial Disputes Act, the employer would be lawfully allowed to terminate staff or employees at any point after the expiry of the first 45 days of the lay-off. After a perusal of the relevant aforementioned provisions, it may be therefore noted that, in the ongoing lock down and curfew, the workers are deemed to have been laid-off, with workers inability to report on their duties & their safety concerns on one hand and employer’s responsibility for health and safety of the workers and also the customers, one the other.

However, on humanitarian grounds and in the interest of relations with the workers and obviously to abide by the advisory of the government; to ensure that the workers do not lose wages, it would be appropriate to pay wages to the workers as far as practicable in the form of compensation and mitigation of forthcoming consequences. It must be noted that there is no “order” or “ordinance” “directing” the payment of wages for the period of lockdown but only an advicethat must be abided in social and national interest till the resources permit. The advisory does not create any permanent liability or property right when the payment of full wages is made to the worker on humanitarian grounds, as that would be contrary to the duties and obligations of the government under the 2005 Disaster Management Act and to the conflicting rights of the employer under the constitution.

In, Tatanagar Foundry Co v. Their Workman,[9] the court observed, “while it is the employer’s prerogative to lay-off its employees, the same cannot be done in a mala fide manner.”


Reduction in workforce this results in a discount in output capacity

Reduction in revenue resulting in less profit, resulting in less taxes being paid

Redistribution of family asset spending – necessities only : Food, Medical Necessities etc.

Business bankruptcies: medium and little businesses will feel the pain because they need limited cash reserves. Large enterprises will suffer due to loss of consumers and suppliers (how dependent is your business on the tiny to medium size supplier/vendor? Or, is your small/medium size business heavily dependent on a customer (large enterprise) who will experience a decline in demand putting your operations at risk?)


Once the Covid-19 crisis ends, we'll definitely see a drastic change in employment arrangements. First, we may find more employers adopting fixed-term contracts with the staff. Second, the economic situation in the common man’s home may lead to a rise in moonlighting. There is also a strong likelihood that work from home will become a practice in many industries.

[1] Section 2(s) of the Industrial Disputes Act, 1947 [2] Section 2(kkk), Industrial Disputes Act 1947, [3] Such establishments according to Section 25A of chapter VA of Industrial Dispute Act 1947 are: 1. Industrial establishments in which less than 50 workmen are employed, on an average per working day. 2. Industrial establishments which are of a seasonal character and in which work is performed only intermittently. [4] AIR 1960 Ker 208, (1960) IILLJ 103 Ker [5] Section 25-C, Industrial Disputes Act, 1947 [6] section 25C of the 1947 Industry and Dispute Act [7] Section 25M, of Industrial Dispute act 1947 [8] 1995 AIR 2200, 1995 SCC (1) 501 [9] 1962 I LLJ 382 (SC)

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