Paper: 01, Human Resource Management

Module: 18, Lay off, resignation, dismissal or discharge,

retrenchment & VRS

Prof. S P Bansal
Principal Investigator Vice Chancellor
Maharaja Agrasen University, Baddi

Prof YoginderVerma
Co-Principal Investigator Pro–Vice Chancellor
Central University of Himachal Pradesh. Kangra. H.P.

Prof. Rajeev Jain

Paper Coordinator Department of Commerce and Management
University of Kota, Kota

Prof. Rajeev Jain

Content Writer Department of Commerce and Management
University of Kota, Kota
Items Description of Module
Subject Name Management
Paper Name Human Resource Management
Module Title Lay off, resignation, dismissal or discharge, retrenchment & VRS
Module Id Module no. 18
Pre- Basic knowledge of what Lay off, resignation, dismissal or discharge, retrenchment &
Requisites VRS is.
Objectives To study the basic concepts of Lay off, resignation, dismissal or discharge,
retrenchment & VRS
Keywords

QUADRANT-I

Module 18: Lay off, resignation, dismissal or discharge, retrenchment & VRS
Learning Outcome
1. Introduction
2. Types of Employee Separations
References

Learning Outcomes:

Employee separation is a sensitive issue for any organisation. Usually, an employee leaves the
organisation after several years of services. Thus, the permanent separation of employees from an
organisation requires discretion, empathy & a great deal of planning. An employee may be separated as
consequence of resignation, removal, death, permanent incapacity, discharge or retirement. The employee
may also be separation due to the expiration of an employment. contract or as part of downsizing of the
workforce. Organisation should never harass the employees, especially in the case of resignation, just
because they are quitting the organisation. In fact, quitting employee of the organisation must be seen as a
potential candidate of the future for the organisation & also the brand ambassador of its HR Policies &
practices. However, many organisations are still treating their employees as “expendable resources” and
discharging them in an unplanned manner whenever they choose to do so.

Each organisation must have comprehensive separation policies & procedures to treat the departing e
employees equitably & ensure smooth transition for them. Further, each employee can provide a wealth
of information to the organisation at the time of separation. Exit interview can be conducted by the HR
department to ascertain the views of the leaving employees about different aspects of the organisation,
including the efficacy of its HR policies.
18.1. Introduction:

An employee separation occurs when an employee ceases to be member of an organisation. “Termination

of employment, or of service,
broadly signifies the separation of
any employee from an
organisation.” (Bhowmick
Amaledu ). Davis says, “A
separation is a decision that the
individual & the organisation
should part. The service agreement
between the employee & the
employer comes to an end & The
employee decides to leave the
organisation.”

Source: http://sanjeevhimachali.blogspot.in/2012/08/employee-separation-termination-of.html

From the above definitions, employee separation has following characteristics:

1. Procuring employee from the society for use in the organisation is the first function. Separation is the
return of those employees to that same society & it is the final function of HRM

2. It can be a complex & challenging.

3. Separation is either the action of the employee or the employer, bringing their relationship to end.

4. Sometimes, separation can be traumatic event for the employee & the organisation. Hence, it can &
should be managed. Reason given for leaving must be analysed carefully.

5. It may not be total elimination of employee.

6. It has costs as well as benefits. Separations can produce values to the organisation.

In addition, there are several reasons for separations some are:-

1. Resignation or voluntary retirement of the employee

2. Non renewal of the contract of employment on its expiry.

3. Continued ill-health or death.

4. Redundancy or retrenchment

5. Punishment for serious misconduct by way of disciplinary action.

6. Termination for moral turpitude, loss of confidence

7. Discharge of employees who do not meet the organisation’s expectation

8. Loss of production.

18.2. Types of Employee Separation:

Employee separations can be classified in the following ways:

I Voluntary separations:

1. Quits

2. Voluntary Retirements

II. Involuntary separation

1. Mandatory Retirement

2. Discharge, Dismissal or Termination

3. Lay off & Downsizing

4. Retrenchment

5. Suspension

Fig. 18.1. Types of Separation

18.2.1. Voluntary separation:

Voluntary separations are initiated by the employee himself. These occur when an employee decides for
personal or professional reasons, to end the relationship with the employer. The reason for voluntary
separation may be:

(a) Employees obtaining a better job.

(b) Changing career, job or firm.

(c) Wanting more times for family or leisure activities.

(d) Finding the present job unattractive because of poor working conditions.

(e) Bad Relationship with a supervisor or officer

(f) Being unhappy with any aspect of the current job

(g) Staffing mistakes.

(h) Poor match between the employee & his job & so on take their former employers to court for
wrongful discharge. Voluntary separations can be either avoidable or unavoidable. Unavoidable voluntary
separations result from an employee’s life decisions that extend beyond an employer’s control.

There are two types of voluntary separation:

Voluntary
Separation

Voluntary
Quits Retirement
Scheme

18.2.1.1. Quits:

W.H. Mobleys says that the decisions to quit depend on (1) the employee’s level of dissatisfaction with
the job and (2) the number of attractive alternatives the employees has outsides the organisation. The
employee can be dissatisfied with the job itself; the job environment, or both.
18.2.1.2. Voluntary Retirement or Resignation:

Like a quit, a voluntary

retirement is initiated by the
employee. However, a retirement
differs from a quit in a number of
respects:

(i) A retirement usually occurs at

the end of an employee’s career.
A quit can occur at any time.

(ii) Retirement is initiated with

the object of taking rest after
long services. Quit is initiated in
the early stages of one’s career
with the object to change jobs.

Sources: https://www.slideshare.net/AshwiniPise/voluntary-retirement-scheme1

(iii) In case of retirement, an employee receives retirement benefits from the firm. People who quit do not
receive these benefits.

(iv) The organisation normally plans retirements in advance. HR staffs can help employees plan their
retirement & managers can plan advance to replace retirees by grooming current employees or recruiting
new ones. Quits are much more difficult to plan for.

An employee may decide to resign voluntarily on personal or professional grounds. Sometimes an

employee may be forced to resign the firm compulsorily on grounds of negligence of duty,
insubordination, misuse of funds, etc. The resignation in this case, unlike voluntary separation, is initiated
by the employer. If the employer refuses to quit, he may have to face disciplinary action.

When employees resign or quit an organisation, the firm has to bear some costs: (a) disruption to the
normal flow of work, (b) replacing an experienced & talented person may not be easy in a short span of
time; (c) training new recruits would take time, (d) it adds costs. Hence, the HR department should
examine the factors behind resignation carefully. Exit interviews must also be conducted to find out the
reasons for quit or resignation. There should be an attempt to listen to the department’s views, opinions,
critical remarks patiently & sympathetically.

Voluntary retirement policies consist of two features:

1. A package of financial incentives that make it attractive for senior employees to retire earlier than they
had planned; and;

2. An open window that restricts eligibility to a fairly short period of time.

Voluntary retirement policies can reduce the size of a company’s workforce substantially. Managing early
retirement policies requires careful design, implementation & administration. When not properly
managed, early retirement policies can cause a host of problems. Too many employees may take early
retirement, the wrong employees may leave & employees may perceive that they are being forced to
leave.

In case of voluntary retirement, the normal retirement benefits are calculated & paid to all such
employees who put in a minimum qualifying service. Many companies have started voluntary retirement
schemes (VRS) which are called in Golden Hand Shake Plans. Beginning in the early 1980’s companies
both in public & private sectors have been sending home surplus labour for good. Workers are given
freedom to opt this plan. VRS is considered as a time saving method to reduce surplus staff. It is a
painless easy plan by which unproductive the older workers can be reduced.

18.2.2. Involuntary separation:

Mandatory Retirement

Discharge, Dismissal & Termination

Layoffs

Retrenchment

An involuntary separation occur when management decides to terminates its relationship with an
employee due to (i) economic necessity or (2) a poor fit between employee & the organisation.
Involuntary separations are the results of very serious & painful decisions that can have a profound effect
on the entire organisation & especially on the employee who loses his job.

These are following types of involuntary separations which need proper consideration:

18.2.2.1. Mandatory Retirement:

Retirement has been characterized by some as a “roleless role”, with a society built on work ethic, it is a
move from recognizable productive work role to a roleless role. Some people believe that retirement leads
to mental & physical illness & sometimes premature death. But many studies have concluded that health
declines are associated with age, but not retirement.

Many unskilled workers demonstrate a slight improvement in health after retirement. In other studies, no
support has been found that retirement is detrimental to the health of older persons. Other research has
emphasized, the extent to which poor health actually induces workers to retire, thus making health the
cause of retirement instead of an effect.
Many managers are in favour of this view that compulsory retirement at fixed age for all is more
beneficial. Among the reasons cited in favour are:

(i) It is simple to administer with the fixed age

(ii) Openings are created to which younger employees can advance;

(iii) Human resource planning is facilitated when retirement schedules are known;

(iv) Graceful exits are provided for employees who are no longer qualified; &

(v) It stimulated employees to make plan for retirement in advance of a known date.

The arguments against any fixed compulsory retirement age are as follows:

(i) People have freedom to decide their retirement event;

(ii) Utilisation of all available talents is possible

(iii) People age at different rates in terms of productivity, energy & creativity.

(iv) Forced retirement would result in significant losses of real talents.

(v) A fixed retirement age will often leads to employee antagonism & resentment, as well as a “short-
timer” attitude in the years just prior to retirement. “Short-timer” tend to be less interested & committed
to the organisation’s challenges & problems, & may even “retire” on the job. (Edwin & Flippo)

(vi) The organisation is forced to do a more effective job of appraising employee performance.

18.2.2.2. Discharge, Dismissal & Termination

In general, these are one & the same thing. Discharge is the most drastic disciplinary step the manager can
take. Hence, special care is required to ensure that sufficient cause exists for it.

Furthermore, discharge should occur only after all reasonable steps to rehabilitate or salvage the
employee have failed. However, there are undoubtedly times & reasons when discharge or dismissal is
required, perhaps at once.

Dismissal is the termination of the services of an employee as punitive measure for some misconduct.
Discharge also means termination of the services of an employee, but not necessary as a punishment.
Discharge is serious because it impairs earnings & image of an employee. A discharge takes place when
management decides that there is a poor fit between employee & the organisation. The discharge is a
result of either poor performance or the employee’s failure to change some unacceptable behaviour that
management has tried repeatedly to correct. Sometimes employees engage in serious misconduct, such as
theft or dishonesty, which may result in immediate termination. It is the most stressful & distasteful
method of separation. Discharge makes the ex-employee ineligible for further employment in other
organisation.
Grounds for Discharge are as under:

Unsatisfactory Performance

Misconduct

Lack of Qualification for the

Job

Insubordination

(i) Unsatisfactory Performance: due to (a) excessive absenteeism; (b) tardiness; (c) a persistent failure to
meet normal job requirement; and (d) adverse attitude towards the company, supervisor, or fellow
employees.

(ii) Misconduct: It is a deliberate the willful violation of the employer’s rules & may include stealing &
rowdy behaviour.

(iii) Lack of Qualification for the Job: It is an employee’s inability to do the assigned work although he is
diligent.

(iv) Insubordination: Though a form of misconduct, insubordination is sometimes harder to translate in to

words. Acts of insubordination include for instance the following:

(a) Direct disregard of the boss’s authority

(b) Hat-out disobedience of the boss’s orders.

(c) Deliberate defiance of company policies, rules & procedures

(d) Public criticism of the boss

(e) Blatant disregard of reasonable instruction

(f) Contemptuous display of disrespect & making insolent comments.

(g) Disregard for the chain of command.

(h) Participation in an effort to undetermined & remove the boss from power.

(v) Other Reasons:

(a) Willful damage to company property

(b) Falsifying the application blank & work records.

(c) Possession of narcotics & fire arms

(d) Fighting on the job

(e) Theft & embezzlement of company property

(f) Inebriation & alcoholism

(g) Carelessness & inefficiency

(h) Violent & aggressive acts

(i) Unauthorised absence from duty for a long time.

18.2.2.3. Layoffs:

A Layoff is a temporary separation of the

employee from his employees at the instance of
the later without any prejudice to the former.
Section 2(KKK) of the Industrial Disputes Act,
1947, defines lay-offs as the failure, refusal or
inability of an employer to give employment to a
worker whose name is present on the rolls but
who has not been retrenched. A lay offs may be
for a definite period on the expiry of which the
employee will be recalled by the employer for
duty. It may extend to any length of time, with
the result the employer is unable to estimate
when he can recall his employees. The services
of the employee are not utilized during the layoff
periods.

Source: http://wraltechwire.com/laid-off-tech-workers-sue-disney-outsourcing-firms-hcl-cognizant/15277761

The employer- employee relationship, therefore, does not come to an end but is merely suspended during
the period of layoffs. The purpose of layoffs is to trim the extra fat & make the organisation lean &
competitive.

A lay off differs from a discharge in this way: In a lay off, employees lose their earnings because a
change in the company’s environment or strategy forces it to reduce its workforce. Global competition,
reductions in product demand, changing technologies that reduce the need for worker, & mergers &
acquisitions are the primary factors behind most layoffs. In contrast, the actions of most discharged
employees have usually been a direct cause of their separation.
According to Section 25(c) of the Industrial Disputes Act, 1947, a laid off worker is entitled to
compensation equal to 50 percent of the basic wages & dearness allowance that would have been payable
to him had not been laid off. However in order to claim this compensation, the laid off workman must
satisfy the following conditions:

(a) he should not be a badli or a casual worker;

(b) his name must appear on the muster rolls of the industrial establishment;

(c) he must have completed not less than one year of continuous services; and;

(d) he must present himself for work at the appointed time during normal working hours atleast once a
day.

The right to compensation is lost if the worker refuses to accept alternatives employment at a place within
5 miles of the establishment from which he has been laid off. No compensation is payable when the layoff
is due to strike or slowing down of production on the part of workers in another part of the establishment.

An industrial establishment of a seasonal character or in which work is performed only intermittendly or

which employs less than 50 workers is not required to pay the compensation

There are some ‘Golden Rules from effectively Managing Layoffs’ i.e;

Plan

Take care of Focus on

survivor Productivity

Take care of
Involve
Laid off

Communicate

(i) Plan:

(a) Prepare ahead of time for downsizing

(b) View human resources as assets rather than liabilities.

(c) Asses skills, abilities & knowledge of all employees to help improve HR decisions.
(d) Identify the firms future strategy & strategic imperatives; treat downsizing as providing a clear vision
for the future, not just an escape from the past.

(e) Use HR planning practices that consider alternatives to layoff.

(f) Set targets, deadlines & objectives for downsizing

(g) Implement downsizing by starting with small wins i.e; things that can be changed quickly & easily &
that achieve the desired results.

(ii) Focus on Productivity Improvement:

(a) Approach downsizing as an opportunity for overall improvement.

(b) Focus on attacking sources of organisational fat.

(c) Map & analyse all processes in the organisation to eliminate inefficiencies, redundancies, and non-
value added activities.

(d) Measure all activities & processes, not just output, to identify how improvement can be made.

(e) Institute a variety of cost-cutting procedures, not just head-count reduction

(iii) Involve:

(a) Involve employees, which includes the use of cross-level & cross-functional teams to identify what
needs to change & how.

(b) Hold everyone, not just top management, responsible for achieving targets & goals

(c) Involve customers & suppliers.

(iv) Communicate:

(a) Ensure that leaders are visible, accessible & interactive.

(b) Project positive energy & initiative from leaders

(c) Ensure that every employee is informed about what is

happening

(d) Make clear, direct & emphatic announcement of layoff

decisions

Source: http://combiboilersleeds.com/keywords/communicate-1.html

(e) Explain why retrenchment must occur; if a clearly visible scapegoat exists that does not implicate
management & is easy to understand, use it.
(f) Over communicate as layoffs proceed.

(v) Take care of those Laid off:

(a) Give advance notification of layoffs.

(b) Provide safety nets for those who must leave, including severance pay, extended benefits &
outplacement assistance

(c) Arrange collaboration between private & public sector organisations in providing services for those
laid off.

(vi) Take Care of survivors:

(a) Implement layoffs in a fair & human manner

(b) Develop trust between management & surviving employees.

(c) Manage the rumour mill effectively.

(d) Provide training, cross-training & retraining in advance for survivors, so that they will be able to
handle the new demands.

(e) Do everything possible to maximise the retention of high performers.

(f) Change appraisal, reward & pay systems to match new goals & objectives.

Further, there are some wrong impacts of layoffs i.e;

(i) Layoff can affect the morale of the organisations remaining employees who may fear losing their jobs
in the future.

(ii) It can affect a region’s economic vitality. When lay off happen, the entire community may suffer.

(iii) More than emotional impact, the financial impact on workers may be serious. Their incomes are
impared.

(iv) Investors may interpret a layoff as a signal that the company is having serious problems. This, in turn,
may lower the price of the company’s stock on the stock market.

(v) It can change a company’s image. It can hurt a company standing as a good place to work & makes it
difficult to recruit highly skilled employees.

(vi) The company may have difficulty in attracting talented engineers & professionals.

18.2.2.4. Retrenchment:

Retrenchment is the permanent termination of an employee’s services due to economic reasons. These
include: (a) replacement of labour by machines; (b) closure of a department due to continuing lack of
demand for the products manufactured in
that particular department; (c) closure of
plant; (d) surplus staff; (e) general
economic slow down etc. It should be noted
that termination of services on disciplinary
grounds, illness, retirement, winding up of a
business does not constitute retrenchment.

Retrenchment differs from layoff.

Retrenchment is a permanent separation of
an employee from his employer. In layoff,
the employees continue to be in the
employment & are sure to be recalled after
the end of the period of layoff.
Retrenchment also differs from dismissal.
An employee is dismissed because of his
own fault, whereas retrenchment is forced
by the employer. Moreover, retrenchment
involves the termination of the services of
one or two employees.

Source:https://www.slideshare.net/manumelwin/retrenchment-strategies-corporate-level-strategies-strategic-
management-manu-melwin-joy

According to section 25(f) of Industrial Disputes Act, 1947, retrenched employees are entitled to get
compensation which is equivalent to fifteen days average pay for every completed year of continuous
services. To get compensation four conditions are essential: (a) he should not be a casual worker: (b) his
name should appear on pay roll, and (c) he should have completed 12 months of continuous services, and
(d) the company should employ 100 or more persons. It is also obligatory for the employer to give
advance notice for retrenchment. To claim 50 percent of basic wage plus dearness allowance, the
workman must present himself on each working day at the appointed time inside the factory premises
during the layoff period.

Summary:

Every company should have proper policies relating to transfer and promotion. Demotion is the reverse of
promotion. Separations take place in the form of resignation, retirement, layoff, retrenchment, dismissal
and death of employees.