Compulsory Redundancy - Meaning & Importance

Published in Human Resources Terms by MBA Skool Team

What is Compulsory Redundancy?

Compulsory redundancy is where companies can sack the employees based on criteria like low performance, unpunctuality, disciplinary action etc. The selection criteria for compulsory redundancy should be fair to all employees and employees should not be selected because they are union leaders, pregnant, disabled etc.

Importance of Compulsory Redundancy

Redundancy means no longer in service as being retrenched by the company. There are two types of redundancy – Voluntary redundancy and compulsory redundancy.

Voluntary redundancy means when employees leave the company voluntarily and higher compensations are offered to them as an incentive for leaving. Often the companies keep on launching various schemes to increase productivity. For example, voluntary separation after a specific age for employees with high compensation so that they can recruit new and young workforce.

Criteria for Compulsory Redundancy

However, as per statutory laws in India, the concept of redundancy cannot be applied if the retrenchment is not done on fair reasons. That is, if there is any kind of partiality in retrenchment. Companies have to justify the retrenchment with proper reason to government authority who is examining the redundancy. If redundancy is not as per the labor practices or no proper reason is provided, government authority can reject the permission for retrenchment.

The compensation for compulsory redundancy include the salary of three months but it can differ on the basis of reason of redundancy. The bona fide and joining document signed by employees when they join the company has clauses determining the grounds on which company can go for compulsory redundancy. The compensation in these cases is also mentioned most of the times.

As seen in the past, the reason for compulsory redundancies are generally performance of employees or economic condition of company when it becomes incapable to pay its employees. Then companies select low performers and often go for compulsory redundancy.

However, companies need to ensure that compulsory redundancy is never done of the basis of any kind of discrimination but only on the basis of performance and discipline. Criteria such as age, gender, color, cast, country, disability should not be a criteria for laying off employees.

Hence, this concludes the definition of Compulsory Redundancy along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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