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Introduction

Recently, news is being heard that retrenchment has started in some giant companies. The good or bad effects of retrenchment are not without effect on the owner and the employee. Sometimes employers are found using retrenchment as a weapon to downsize their company, to face competition, and for other reasons.

Sometimes retrenchment is beneficial for the employer and sometimes it is harmful. The practice of retrenchment is often detrimental to the employees. In America, workers' issues are resolved through the Worker Adjustment and Retraining Notification (WARN) Act. In India, workers' issues are resolved through the Industrial dispute Act.

Different types of retrenchment of workers are specified in the law such as layoff, termination, fired etc. It is also important to know what is considered important in law for retrenchment. I will share the study and discussion of all these with you here today.

What does Retrenchment mean?

Define the word of retrenchment the termination by the employer of the service of an employee for any reason whatsoever otherwise than as a punishment inflicted by way of disciplinary action but does not include

• voluntary retirement of the workman; or

• Any retirement of the workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf or

(bb). The termination of the service of the employee as a result of the non-renewal of the agreement of employment between the employer and the employee concerned on its expiry or of such agreement being terminated under a stipulation in that on behalf contained therein; or

(c) The termination of the service contract of a employee on the ground of continued ill-health

What is a retrenchment example?

A company named ABC is manufacturing raw materials. But now it decides to lay off employees to meet its financial obligations and targets. As well as. For which some implement layoffs and retrenchment i.e. stop their service (work) with the assurance that they will be rehired if the financial situation improves in the future.

What are the two types of retrenchment?

The weapon of retrenchment should be used when the employer is left with no option to cut costs. Retrenchment can be done mainly in two ways. (1) across the board and (2) targeted cuts

1. Across the Board- In this type the salary of the worker is deducted but the other benefits are deducted along with it.

2. Targeted retrenchment- In this type, a part of the company is shut down whose performance is causing loss to the company but the entire company is not shut down.

Reason for retrenchment

Companies are seen using a weapon called retrenchment for the reasons given below.

1. Financial difficulties, Change of market terms, reduce cost, and need for a retracement 
2. Company product was not demand in market place longer time. And fight the competitor in staying market.
3. Shortage of raw materials and incompetency of the employer
4. Company to change its business model
5. Merger and acquisition of the company
6. Change of legal or federal policy  for running the business
7. Natural enemy (e.g. Earthquake, Heavy flood, etc 😉 

All the reasons mentioned above are consequences giving rise to retrenchment.

What is the process of retrenchment?

Any company for retrenchment mostly follows the below-mentioned stages.

1. Identifying and accepting retrenchment needs
2. Consult an expert legal counsel for retrenchment needs and planning
3. Informing and communicating with workers about layoff requirements
4. To implement retrenchment as planned
5. To review the results of retrenchment and make changes as necessary with legal advice

What do you mean by retrenchment in Strategic Management?

Downsizing is a strategic management approach that involves reducing the size or scale of a business or organization. It may involve downsizing, restructuring or divesting certain business units or assets to improve the overall efficiency and competitiveness of the organization. Layoffs are used as a response to challenging economic conditions or market changes, to improve an organization's financial performance. It can also be used to refocus an organization on its core competencies or redirect resources to new opportunities.

What are the benefits of retrenchment?

1. Retrenchment is the process of downsizing the workforce using restructuring. Retrenchment is a harmful and demoralizing process for workers but can be beneficial for employers.
2. Downsizing the workforce through retrenchment can increase a company's profits, competitiveness, and efficiency.
3. Downsizing enables the company or employer to adapt to the market's new changes. And gain competitive advantages in the market.
4. Employers can refound competitive in the market by retrenching workers. And adopting new technologies, freeing up company resources. And creating new opportunities in the market

How can compensation on retrenchment be exempt?

Compensation for retrenchment is exempt from taxation subject to the provisions of certain laws. It would be better for you to take the advice of an expert lawyer to determine how the severance compensation received by the employee can be tax-free.

Conclusion

Since the decision to retrench is demoralizing for the employee, any employer should implement it with much study and planning. It is legally mandatory to give notice to an employee before dismissing him. If notice is not given to the employee, the law may favor the workman. For this reason, it becomes imperative for every workman to consult with an expert lawyer in the situation of retrenchment.

      Every employer should also bear in mind that frequent use of the weapon called retrenchment instills distrust in the organization among the workforce and causes long-term damage to the company and reduces its efficiency.

Every employer in effecting retrenchment should transfer the worker to another establishment if possible at the time of release and then effect retrenchment. Due to which there is harmony between the worker and the employer and maintaining the relationship can increase the efficiency of the company.

If you are also facing the problem of retrenchment, you can contact us at info@askbylaw.com to discuss with us and strengthen your strategy and get your query resolved.