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.

What is the fair process of retrenchment?

A process has to be followed for retrenchment:

  • An employer must talk with the employee who are affected during whole retrenchment process.
  • A written notice must be sent to the consulting employee and all information must be disclosed before him.
  • The employer should ask the consulting employee to make a presentation about all the matter contained in the notice.
  • A fair criteria should be set on the basis of which employees are retrenched with proper communication.
  • After proper consultation an employer may retrench the employees following a particular procedure.

FAQs (Frequently Asked Questions)

Employee retrenchment is the process of laying off/ terminating/ downsizing the employees in the organization as a measure of cost cutting.

Layoffs refer to the temporary suspension of an employee by the employer. Retrenchment is the permanent termination of an employee.

Once the role is redundant, the employer can either redeploy the employee into another role or terminate their employment.

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