Closure in Labour Law

The significance of closure in labour law, as delineated by the Industrial Disputes Act, 1947, lies in establishing a fair and regulated framework for both employers and workmen. These procedures, demanding prior permission for closure, ensure a thoughtful and consultative approach.

By balancing the interests of employers and workmen, these regulations on Closure in Labour Law foster a harmonious industrial environment, preventing arbitrary actions and promoting stability. Ultimately, the structured closure process serves as a cornerstone for maintaining equity, justice and order within the realm of labour law.

Definition of Closure in Labour Law (Section 2(cc))

“Closure” means permanently shutting down a workplace or a part of it.

According to Industrial Disputes Act, 1947, “Closure” is when a workplace or part of it is permanently shut down. The employer must follow a specific process outlined in the law when closing the establishment.

However, Closure in Labour Law procedures do not apply to projects for building construction, like buildings, bridges, roads, canals, dams or other construction work.

Application of Closure in Labour Law

If an employer plans to close their establishment, they must apply at least ninety days in advance to the appropriate government. They also need to give a copy of the application to the workers’ representatives.

The government will review the application, providing a fair chance for both the employer and workers to be heard. After the review, the government may approve or deny the closure. If there’s no response within sixty days, permission is considered granted and there’s a provision for a review of the decision.

Provisions of Closure in Labour Law

Section 25(O) of the Industrial Disputes Act, 1947 allows the closure of a business without prior permission if certain conditions are met. Here are the key points:

Conditions for Closure in Labour Law:

An employer can close a business without seeking prior permission if it has less than 50 workers and compensates the workers with 15 days’ average pay for each completed year of service.

Notice to Authorities and Workers:

The employer must notify the government authority and workers at least 60 days in advance or provide wages instead of notice.

Compensation Procedure:

Compensation must be paid at the time of closure or within 15 days from the notice, whichever comes first.

Penalty for Non-compliance:

Failure to comply with Section 25(O) can result in imprisonment for up to six months, a fine of up to Rs. 5,000 or both.

Note: Section 25(O) applies only to businesses with less than 50 workers. For those with 50 or more, prior government permission is needed under Section 25(N) of the Industrial Disputes Act.

Undertakings Covered under Section 25(O)

According to Section 25(O) of the Industrial Disputes Act, 1947, an employer can shut down a business without needing permission from the government if it meets these conditions:

• The business has fewer than 50 workers.
• The employer provides compensation to the workers equal to 15 days’ average pay for each completed year of continuous service.

This means that only businesses with less than 50 workers fall under the scope of Section 25(O). It’s crucial to understand that the term ‘workmen’ includes not only permanent employees but also contractual, casual and temporary workers who have worked for more than one year in the establishment.

Additionally, it’s worth noting that certain types of businesses are exempt from the Industrial Disputes Act and therefore, they are not covered by Section 25(O). For instance, establishments involved in agricultural or horticultural operations, fishing or animal husbandry are exempt. Similarly, government-owned or controlled establishments are exempt unless they are engaged in commercial activities.

Procedure for Closure of an Undertaking

The steps for closing an establishment under the Industrial Disputes Act, 1947, depend on the number of workers employed and the reason for closure. Here are the general procedures:

Closure with Less Than 50 Workers (Section 25(O))

• Less than 50 workers: If the establishment has fewer than 50 workers, the employer can close it without government permission. However, the employer must pay compensation equal to 15 days’ average pay for each completed year of service.
• Notice: The employer must inform the appropriate government authority and workers at least 60 days in advance.

Closure with 50 or More Workers (Section 25(N))

50 or more workers: If there are 50 or more workers, the employer needs prior permission from the government. Notice to the government and workers is required 60 days in advance. The government decides based on the employer’s reasons and worker interests.

Voluntary Retirement Scheme (VRS)

The employer may propose a VRS, offering a package with compensation, pension and benefits. Both parties must agree and terms are formalised in an agreement.

Conciliation Process

If disputes arise, the Industrial Disputes Act allows a conciliation process. A conciliation officer may be appointed to mediate and reach a settlement.

Undertakings Excluded from Prior Permission

Certain establishments are exempt from obtaining government permission before Closure in Labour Law. Here are the exclusions:

• Less than 100 workers (Section 25FFA): Establishments with fewer than 100 workers can close without prior government permission. A 60-day notice to the government and workers is required.
• Natural disasters: In Labour Law, Closure due to natural calamities, like floods or earthquakes, can occur without prior government permission. Prompt notice to the government and workers is essential.
• Financial challenges: Closure due to financial difficulties is allowed without prior government permission. Compensation must be paid and a 60-day notice to the government and workers is required.

Seasonal Work (Exempted from Industrial Disputes Act)

• Seasonal work: Establishments engaged in seasonal work, such as agriculture, are exempt from Industrial Disputes Act provisions. They don’t need prior permission but must comply with notice and compensation requirements.
• Important Note: Even if exempt, establishments must follow notice and compensation rules specified in the Industrial Disputes Act.

Grant and Refusal of Permission for Closure in Labour Law

According to the Industrial Disputes Act, 1947, if an employer intends to close down an establishment with 50 or more workers, prior permission from the government authority is required. Here’s the process for granting or refusing permission:

Grant of Permission of Closure in Labour Law

• Approval Criteria: The government authority reviews the reasons provided by the employer for Closure in Labour Law. If satisfied and if the employer complies with all Industrial Disputes Act requirements, permission may be granted.
• Notice Requirement: The employer must notify the government authority and workers at least 60 days in advance if permission is granted.

Refusal of Permission of Closure in Labour Law

• Denial Criteria: If the government authority is unsatisfied with the reasons or if the employer doesn’t comply with Act requirements, permission may be refused.
• Legal Recourse: In case of refusal, the employer can seek resolution through the Labour Court or Industrial Tribunal. These bodies may either support the government’s decision or order the employer to reinstate workers with back wages.

In summary, the grant or refusal of closure permission is at the discretion of the government authority. It depends on the employer’s reasons and consideration of workers’ interests. Employers must follow Industrial Disputes Act procedures to protect workers’ interests during Closure in Labour Law.

Deemed Grant of Permission of Closure in Labour Law

According to the Industrial Disputes Act, if an employer wants to close an establishment with 50 or more workers, they must seek prior permission from the government authority. If the government authority does not respond within specified time limits, the permission is deemed to be granted. Here are the time limits:

Establishments with Less Than 100 Workers

Decision within 60 days: For establishments with less than 100 workers, the government must communicate its decision within 60 days of receiving the application.

Establishments with 100 or More Workers

Decision within 90 days: For establishments with 100 or more workers, the government must communicate its decision within 90 days of receiving the application.

If the government authority fails to communicate its decision within these time limits, permission for Closure in Labour Law is deemed to have been granted. However, it’s crucial to note that even if permission is deemed, the employer must still adhere to notice and compensation requirements outlined in the Industrial Disputes Act.

Appeal Against Closure in Labour Law

Under the Industrial Disputes Act, 1947, if the government authority denies permission for closing an establishment, the employer can appeal to the Labour Court or Industrial Tribunal within 60 days of receiving the order. This appeal is also applicable if permission is granted but with unacceptable conditions. Here’s the appeal process:

Filing of Appeal

The employer must submit an appeal to the Labour Court or Industrial Tribunal within 60 days from receiving the government authority’s order. The appeal should follow the prescribed format and include necessary documents.

Notice to Other Party:

The employer needs to notify the other party (workmen or their representatives) within 7 days of filing the appeal.

Appeal Hearing on Closure in Labour Law

The Labour Court or Industrial Tribunal is required to conduct the appeal hearing within 45 days of filing. Both the employer and the workmen or their representatives have the chance to present their cases and provide evidence.

Decision:

The Labour Court or Industrial Tribunal can either uphold the government authority’s decision or order the employer to reinstate workmen with back wages. The decision is final and binding on both parties.

Illegal Closure:

An illegal closure occurs when an employer shuts down an establishment without following procedures outlined in the Industrial Disputes Act, 1947. This is a serious violation with legal consequences:

Reinstatement with Back Wages

Workmen affected by an illegal closure are entitled to reinstatement with full back wages. The Labour Court or Industrial Tribunal may order the employer to reinstate the workmen.

Penalties:

The employer may be liable to pay a penalty if found guilty of illegal closure. This penalty can be up to three months’ wages of the affected workmen.

Criminal Prosecution:

In severe cases, the employer may face criminal prosecution for an illegal closure. Penalties for such offences may include imprisonment and/or fines.

Illegal closures have serious consequences, emphasising the importance of complying with the Industrial Disputes Act’s procedures and requirements to ensure fair treatment of workmen.

Conclusion

Closure in labour law refers to the permanent shutdown of a workplace or part thereof. It is governed by the Industrial Disputes Act. The law establishes specific procedures for closure based on the number of workmen employed and the reasons behind the closure. If an establishment has 50 or more workmen, the employer must seek prior permission from the appropriate government authority.

The closure process includes provisions for grant and refusal of permission, with an avenue for appeal. Illegal closure, without adherence to mandated procedures, carries severe consequences. Closure in labour law is pivotal for maintaining a balance between employer interests and the rights of workmen, ensuring a fair and regulated approach to workforce management.