What is Retrenchment?
Retrenchment means the termination of an employee by an employee for any reason other than the punishment meted out by the disciplinary action. Employees who are terminated in such a manner are compensated by the employer. This compensation is known as retrenchment compensation.
In other words, Retrenchment is when an organization determines that it needs to reduce the number of employees in the workplace to meet the operational requirements.
Eligibility of Retrenchment Compensation
- The employee must be a workman
- The employee must have worked for the company for a period of 240 days in the last 12 months. This will be calculated as a year of continuous service.
What is not covered under Retrenchment?
- Voluntary retirement of the workman
- Termination due to continuous illness
- Termination due to non-renewal of contract
- Employee’s retirement at the age of superannuation
Reasons of Retrenchment
- Downsizing the workforce to meet the organization’s operational requirements
- Technological Advancements replacing humans
- Restructuring of the company
- Need to reduce costs to survive
Also, See: Deferred Compensation