One very important change under the IR Code, which has remained less discussed, is the issue of retrenchment cost. Under the Industrial Disputes Act, 1947, retrenchment compensation was linked to average pay. Under the Industrial Relations Code, 2020, the formula continues to be linked to average pay. On the surface, therefore, there appears to be no major change. But the real change lies elsewhere, not in the definition of average pay, but in the definition of “wages” on which average pay is computed. This makes wage structuring of workmen a strategic ER issue which, if not addressed, may create avoidable liability for the Company. This is what the present article seeks to examine: how the changed definition of wages under the Industrial Relations Code may impact retrenchment cost, and why employers need to revisit workmen’s wage structures with a clearer understanding of law, cost and future liability.
Position under the Industrial Disputes Act
Under Section 25F or Section 25N, as the case may be, of the Industrial Disputes Act,...
