Retrenchment | Meaning and Definition

What is Retrenchment?

Retrenchment meaning corresponds to the expenditures being cut down to make the employees financially solvent. Retrenchment in HRM is quite common when the performance of the employee is not up to the mark or to the level that is required or in case he breaches the professional code of conduct.

Retrenchment is quite a common way of termination of the employees not only during poor employee performance but also if the company/organization is suffering from financial difficulties. The organization might also be compelled to downsize the employee number to balance the losses incurred during business operations, and it is termed retrenchment.

In India, the employee-related disputes are dealt with by the Industrial Dispute Act, 1947, and as per Section 2 of the Act, the termination of a working man of his or her service by the employer for any reason apart from punishment under disciplinary action is termed as retrenchment. However, the process of retrenchment does not follow the conditions given below:

  •       In case an employee retires as he reaches the superannuation age, only the agreement of the employment includes a provision in regards to superannuation.
  •       An employee retires on his or her own.
  •       In the absence of the employment agreement renewal, the service of the employee gets terminated.
  •       Continued ill health termination.