Retrenchment Benefits

Please advise me on Retrenchment benefit that can be claimed by an Individual working for an organization Overseas at a managerial level

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An Indian citizen that is working abroad but employed by an Indian entity may not be able to claim all the benefits of the Indian labour laws. Further, the Indian exchange controls provide a ceiling for grant of stock options by an Indian company to employees working abroad. However, certain provisions of the Employee’s Compensation Act 1923 (ECA), which has been extended to workmen recruited by Indian companies but are working abroad, and the Employees Provident Fund Act, will apply to an Indian national working abroad who is employed with an Indian company, irrespective of the choice of law. Indian labour laws do not extend to Indian citizens who are working in a foreign country and are employed by a foreign company.


Thus, if your employer is an Indian Company, i.e. registered in India, only then can you claim retrenchment benefits, else you cannot.


Only workmen are entitled to the notice periods under the Industrial Disputes Act. An employer must give one month’s notice to terminate employment of eligible workmen in the case of retrenchment . Retrenchment means termination of a workman’s employment other than for:

1- Punishment inflicted under a disciplinary action. „

2-Voluntary retirement. „

3-Retirement on reaching the agreed superannuation age. „

4-Expiry of a fixed-term employment contract. „

5- Continued ill-health.

A workman is a person that is employed to do any manual, unskilled, skilled, technical, operational or clerical work for hire or reward. A workman does not include, among others, a person who is employed: „

1-Mainly in a managerial or administrative capacity. „

2-In a supervisory capacity and draws wages exceeding INR1,600 per month.


The notice must indicate the reason(s) for retrenchment. In all the above cases, the employer can pay salary in lieu of notice. Notice is unnecessary for dismissal as a result of serious misconduct. The employer must prove misconduct by conducting an internal enquiry based on the principles of natural justice. Employees that are not workmen may be able to rely on contractual notice periods. Severance or retrenchment compensation is payable on retrenchment of 15 days’ pay for every completed year of service or part of a year of service which is in excess of six months (IDA). For example, if you worked in an organisation for 7 full years and 4 months into the eight year, and had a salary of about 30,000 INR, then your retrenchment compensation will be- 15,000 (15 days of payment in a month) multiplied by 12 months (12 months of payment for every year) , further multiplied by 7 full years of work (the eight year not being counted due to only 4 months having had passed before your retrenchment) , for a total retrenchment compensation of 12,60,000 Rupees.   An employer which is categorised as an industrial establishment, i.e. a factory, mine or plantation unit where at least 100 workmen are employed must obtain the prior approval of the labour authorities before dismissing a workman Other employers must notify the labour authorities afterwards, stating the reasons for dismissal. For other employees, the procedural requirements will depend on the relevant contractual or statutory provision.


In case your employer, in spite of having fulfilled the above mentioned pre-conditions, has refused to pay you severance package, you may approach the Overseas Affairs Department of the Ministry of External Affairs at-

Answered on January 15, 2017.
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