- Shouraseni Chakraborty & Tushar Ranjan

“What is a danger is that we stay stuck in a new normal where unemployment rates stay high.”.


India’s labor laws have been under constant scrutiny. The World Bank by virtue of its Report on Equity and Development[i] criticized the attempt of The Industrial Disputes Act, 1947[ii] (“IDA 1947”)[1] (and subsequently the Rules[iii], thereof) in providing a protective measure for the workers without taking into account the condition of the majority of the labor population involved in the unorganized sector. Even though there have been a few labor reforms in the past, the legislature has been silent about the severance compensation for the terminated employees. Furthermore, with the classification of COVID-19 as a global pandemic, the International Labor Organization has predicted an additional loss of 25 million jobs, affecting a workforce of almost 2.7 billion workers all across the world.[iv] The present lockdown and containment measures taken up by the Indian government have had a perilous effect on the employment sector and especially the unorganized sector, as indicated by the University of Oxford’s COVID-19 Government Response Stringency Index.[v] Hence, it is the need of the hour to formulate the legal scenario in consonance with the present situation. Amidst the debate over the economic slowdown causing stagnancy in job prospects, the present government has proposed The Terminated Employees (Welfare) Bill, 2020[vi] (“the Bill”) in the Rajya Sabha which, with a perspective to alleviate the plight of the workers in the private sector, attempts to rescue them from employment-related issues.[vii] So it is important to take a glance at this bill from the COVID-19 perspective and suggest changes in it so as to make it legally conversant with the present scenario.


Even though the Bill instructs to lessen any burden levied on the employee because of the termination of employment, certain benefits and issues remain unanswered. The definition of ‘Terminated Employee’ in the Bill is contrived in such a way so as to protect “any employee” from “any employer” regardless of their capacity as a regular, temporary or a casual worker.[2] [3] [4] [viii] Hence, it aims to cover employees from all sectors regardless of the nature of their employment.


Under this bill, an employee is entitled to unemployment compensation, benefits reserved under health insurance or other benefits after the termination of the employment prescribed by the Government (provided such benefits are not part of the employer-employee agreement) for a period of nine months or till the time he gets employed elsewhere, whichever is earlier. To claim the benefits enshrined under the Bill, the employees need to prove that the employment is terminated for any of the reasons pertaining to:

(a) the winding up of the establishment due to economic slowdown,

(b) change in technology in the respective field,

(c) the owner or the director managing the affairs of the establishment becoming insolvent,

(d) The orders of any court;

(e) or Incurring losses and unable to carry on business,

(f) The change in Government policy.[ix]

Hence, the Bill shall not be applicable to any employee who has been terminated for any misconduct, cheating, fraudulent action, appropriation of money or criminal conduct.[x]


Under the Bill, the unemployment compensation is only applicable if the employer does not provide any severance package or the severance package is less than the compensation provided under this Bill.

● The unemployment compensation shall be solely borne by the employer and shall not be less than 60% of the gross salary of the terminated employee or as per the terms of the employer-employee agreement, whichever is higher.

● In addition to the unemployment compensation, the terminated employee is also entitled to health insurance benefits and other benefits like provident fund, gratuity, leave encashment, etc.

● Furthermore, on account of failure to pay the benefits to the terminated employee, the employer is liable to pay interest at the rate of 12% per month for the period of such delay.

Corpus Fund[xi]- It is mandatory for the employer to form a corpus fund for the welfare of the terminated employees. Contribution of at least 5% of the net profits of the organization shall be made by the employer to this fund. According to the Bill, for the payment of expenditure in connection with the education of the children, medical facilities of the terminated employees[5] , the fund shall be utilized. Although the Bill appears[6] as a relief for the workers in the private sector. It is non-inclusive of the entire workforce in the spectrum as it only applies to establishments having a workforce of more than 10 workers.


First[7] , the Bill doesn’t acknowledge a situation where the profit-generating power of the organization is compromised. Therefore, the bill would be ineffective in resolving any issue when a pandemic like COVID-19 comes into account[8] . It ensures protection from circumstances like change in technology or government policy, economic slowdown but at the same time[9] being blatantly silent on the assessment of circumstances beyond the control of the employers.

Secondly, by virtue of this Bill, there is a paradox shift from the retrenchment procedures as established under the IDA 1947. Currently, under the IDA 1947, a workman would be entitled to 9 months of salary as retrenchment compensation, if he has worked for approximately 18 years of continuous service, while the Bill provides for unemployment compensation to any employee, for 9 months (at the rate of 60 percent of gross salary) or till the employee finds another employment, whichever is earlier, irrespective of the employees’ tenure in the organization.[xii] This is reflective of the short-sighted nature of the Bill which only takes the employees’ plight into consideration, with less regard to the position of the employers and their ability/inability to provide for all the employees unconditionally irrespective of any threshold.

The Bill was introduced in the Parliament taking into account the economic slowdown that had occurred in India. The COVID-19 scenario acts as a catalyst to the need for revolutionary labor reforms to address the unfair termination of employees. The exceptions to the applicability of the Bill should be carved out to address these issues. It is also important to note that the term ‘winding up’ is not defined under the Bill and unless the rules framed under the Bill provide greater transparency on this subject, the Bill will only be triggered upon the permanent closure of the place and not as a consequence of redundancies, in terms of winding up under the Companies Act, 2013.[xiii]

Even though there were provisions in the IDA 1947 and the Workmen's Compensation Act[xiv] for the same, there was a lack of legal sanctions relating to the remedies for terminated employees. Although, the current Bill is silent on this matter. For any non-compliance with the provisions of the Bill, there is no specification of penalties for the employers thus making this Bill a toothless remedy for the benefit of the retrenched employees.


Due to the COVID-19 pandemic, the government is encountering a twofold obstacle today; firstly, to provide jobs to the people who have lost them during this period; and secondly to provide jobs to the people who are already unemployed and are now, not able to find employment due to the pandemic.

The Bill, even though raw and premature at this stage, is momentous since it underlines the various gaps in the private sector, whereby severance pay is minimal, or non-existent, and thus creates an unfathomable burden on the livelihood of the dismissed employee and his family. This Bill can be perceived as the curtain-raiser towards resolute and well-founded legislation protecting the interests of the dismissed employees.

As Mr. Rakesh Sinha rightly said in the statement of objects and reasons of the Bill, “Moreover, laying off due to change in management policies or the government policies or due to the losses incurred due to inefficient management are all the events where the employee doesn’t have much control but is the one who suffers the most.” The goal is to maximize egalitarianism and to minimize inequality. In this context, the protection of economic interests and dignity of employees of the private sector is both a moral and constitutional duty of the Indian welfare state.

Considering the timing of the Bill and the low employability due to the COVID-19 pandemic, it would be important to consider several aspects of the Bill in view of situations such as this pandemic, wherein not only are the reasons for termination of employment beyond the control of the employee but also the employer may not be in a profit-making position.

Even though there is a minimal chance for the passage of the bill, there are certain additions that need to be made so as to benefit both the employers and the employees. Owing to the mass retrenchment of employees amid the pandemic, some steps should be taken at the foundational level for ensuring the protection of employees. Mandatory inclusion of severance packages in employment contracts will restrict the employers from invoking force majeure in any situation they deem fit.

[i] World Development report, 2006, Equity and Development, (Oct.29, 2020, 13:09 PM), http://documents1.worldbank.org/curated/en/435331468127174418/pdf/322040World0Development0Report02006.pdf. [ii] The Industrial Disputes Act, 1947, (Oct. 29, 2020, 13:19 PM), https://labour.gov.in/sites/default/files/THEINDUSTRIALDISPUTES_ACT1947_0.pdf. [iii] The Industrial Disputes (Central) Rules, 1957, (Oct.29, 2020, 13:19 PM), https://labour.gov.in/sites/default/files/The_Industrial_Disputes_(Central)_Rules,1957.pdf. [iv] ILO Monitor: COVID-19 and the world of work, 2020 (Oct. 29, 2020, 13:22 PM), https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/briefingnote/wcms_740877.pdf [v] Oxford Covid-10 Government response tracker, 2020 (Oct. 29, 2020, 13:27 PM), https://covidtracker.bsg.ox.ac.uk/ [vi] Terminated Employees (Welfare) Bill 2020, (Oct. 29, 2020, 13:06 PM), [vii] Payaswini Upadhyay, Covid-19: Can Government Force Private Sector to Foot The Wage Bill? (Oct. 29, 2020, 13:38 PM), https://www.bloombergquint.com/law-and-policy/covid-19-can-the-government-force-private-sector-to-foot-the-wage-bill. [viii] Terminated Employees (Welfare) Bill § 2(c) (2020). [ix] Id, § 3(1). [x] Id, § 1(2). [xi] Terminated Employees (Welfare) Bill, 2020: Practically Unworkable and Ill-timed, (Oct. 29, 2020, 14:14 PM), http://www.legalserviceindia.com/legal/article-1927-terminated-employees-welfare-bill-2020-practically-unworkable-and-ill-timed. [xii] Analysis of the Terminated Employees (Welfare) Bill, 2020- Good intentions but is it feasible? (Oct. 29, 2020, 14:25 PM), https://corporate.cyrilamarchandblogs.com/2020/03/analysis-of-the-terminated-employees-welfare-bill-2020-good-intentions-but-is-it-feasible/. [xiii] Id. [xiv] Workmen's Compensation Act, 1923.

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