Labour Law Notes for Labour Law Notes

Posted on

Security of Service - Retrenchment, Resignation, layoff and Compulsory Retirement

Security of Service:

In an ILO report from 2001, and an earlier ILO report from 1995, uses the following definition of employment security for wage and salaried workers as follows:

  • Employment security generally refers to protection against unfair or unjustified dismissals. According to the most commonly used definition, “employment security means that workers have protection against arbitrary and short notice dismissal from employment, as well as having long-term contracts of employment and having employment relations that avoid casualization.”
  • Job Security is an assurance that an individual will keep his or her job without the risk of becoming unemploye- S/he will have continuity in employment and it may be from the terms of a contract of employment, collective bargaining agreement, or labor legislation that prevents arbitrary termination.
  • Job security may depend on economy, prevailing business conditions, and the individual’s personal capacity. Employees have more job security in times of economic expansion and less in times of a recession. Normally, government jobs and jobs in education, healthcare and law enforcement are considered very secure. Private sector jobs are generally believed to offer lower job security.
  • The service of any permanent worker or employee may not be terminated without following the procedures prescribed by this Act or the Rules or Bylaws made under this Act. (Section 10 of the Act)


Retrenchment simply means the reduction or cutting back on expenditure to achieve financial stability. By retrenchment, means reducing the workforce to enable the company/organization to be financially viable and healthy. In other words, to be able to function as an entity, it is inevitable that the company/organization reduce its workforce by ‘retrenching’ (terminating) some of its employees. Hence, retrenchment means cutting off or cut down, reduce, or diminish; curtailment (expenses). According to labor law, retrenchment refers to the reduction or cutting off the employees.

Retrenchment (Section 145)

  • Reasons of Retrenchment: -Due to harsh economic conditions, -Due to increment in number of employees as a result of merger, -Due to other conditions.

  • Notice: 30 days prior notice specifying the reasons for retrenchment, possible date of retrenchment and likely number of employees to be retrenched should be provided to Labor Office and authorized trade union of the entity, if any or effective trade union or Labor Relation Committee.

  • Employees can be retrenched after reaching a consensus with the Trade Union or Labor Relation Committee.

  • Where such a trade union or Labor Relation Committee does not exist or where the consensus cannot be reached, the employees can be retrenched by giving information to the Labor Office.

  • These provisions of the New Labor Act on retrenchment are not applicable to entities in Special Economic Zone or when the entity is partially or fully closed by the order of Labor Court or Government of Nepal.

  • Priority in Retrenchment:

Retrenchment shall be generally done in the following order:

  • Foreign Nationals

  • Employee subjected to disciplinary action more often in comparison

  • Employee with poor work performance

  • Employees last appointed among employees engaged in similar nature of work. However, the employer may retrench an employee appointed earlier by providing reasons thereof.

    • Unless otherwise agreed with the trade union, members of the Collective Bargaining Committee or authorized trade union shall be retrenched at last.

Case relating to retrenchment:

Section 12 of Labour Act has provided some grounds for retrenchment process in any enterprise. Supreme Court had clarified the retrenchment provision of the Act with its illustration in the landmark case of Purusottam Bhandari v. Ministry of Labour and Transportation and others[1] which was a certiorari writ.

Fact of the case:

An employee, Purusottam Bhandari, junior clerk, who had been made permanent after completion of the trial period, is curtailed by the Necon Air Limited as per approval of the application from the government authority for retrenchment of employees as the company is suffering from loss.

In this case there are three law in issue. Section 12 of the Labour Act, 2048 which deals with the process and manner of retrenchment under special circumstances with approval from government authority another is Article 11 of the Constitution of kingdom of Nepal, 2047 which states about right to equality as all are equal before law and the last one is Section 34 of the Evidence Act, 2031deals with provision of estoppels which restricts denial of already accepted fact.

Claim of petitioner:

Necon Air being a profitable private airline company has not suffered any loss that there is no any condition arouses as to curtail employees under special circumstances under section 12 of the Labour Act. The application provided to Labour Department and labour office dealt with number of planes which is not true. The decision of the government was executed after 4 months and under installment employees were curtaile- The company and the government authority ignored the rule of giving priority in curtailment for those who had joined lately. Further the labour department ignored right to information when the petitioner demanded the copy of the decision of application provided by the company. There is no situation of loss and the situation does not come under special circumstances under section 12 of the Act that the company cannot curtail its employees arbitrarily. The decision of the company as well as approbation by the government authority to execute the decision should be made invalid with issuance of mandamus and certiorari by the court.

Defendant’s submission:

The Company has suffered loss as its two airplanes were damaged by accident; three others were grounded in the airport, The Company is in no position to fulfill the administrative cost of all employees. So under the provision of section 12 of the Labour Act, company had applied for curtailment of its employees and the authority upon investigation had granted permission for the same. Further no any other employee who had curtailed filed a petition. The company had retrenched the employees putting in priority list where the late joined come first. Even Purusottam Bhandari in one hand accepted all his facilities provided by the company under curtailment. He could not claim for any kind of injustice in curtailment as per section 34 of the Evidence Act—the provision of estoppels.

The decision of the case:

For the purpose of Section 11 and 12 the “Special Circumstances” shall mean damage, break down or failure of machines of the enterprise and thereby causing stoppage in the production or failure in the supply of fuel, electricity, coal or similar energy or due to natural calamity or insufficient supply of raw materials or stockpiling of the produced goods due to decline in sale or other similar situations.

As the company’s two airplanes had already faced an accident, three were grounded; it is obvious that the company is suffering from loss. Further, the company is bound to fulfill all the administrative costs including remunerations to the employees, being in loss it could not manage its economic liabilities which s definitely a special circumstance. The court cannot issue an order to recruit a fixed number of employees in any industry.

It is observed that the Necon Air limited has fulfilled the condition as stated in law and it is found that through various documentary transactions between government and the Company, the governments had examined the situation and approve the curtailment of employees. Further, as per rule, the employees who had joined later were curtailed.

Again Purusottam Bhandari had already taken all the facilities provided by the company on curtailment which shows his acceptance to the decision made by the company.

There is no ground for granting the order as demanded by the petitioner rather the writ is quashed.

[1] Writ No. 3232/2058, Decision No. 7545, Nepal Law Journal 2062, pg. 626


Compulsory Retirement Before the Amendment:

As per the sec 15 of Labor act, 2048 the proprietor may compulsorily retire any worker or employee who has crossed the age of fifty-five years. Provided that he/she may extend the period of service of any worker or an employee by five years, in case the worker or employee is indispensable for the operation of the functions.

After the Amendment: As per sec 147 of the New Labor Act, it has increased the age of compulsory retirement and can be retired after the age of 58 years.

Time-Bound Employee-Sec 140: As per the new act, the employee can be terminated after the expiry of the time period provided in the employment agreement.

Work-Based Employee-Sec 140: According to the new act, the employee can be terminated after the completion of the work specified in the employment agreement.

Lack of Performance-Sec 142: The employment of a worker may be terminated by the employer if the performance of the employee is found unsatisfactory in the performance appraisal for three or more times.

On the ground of bad health-Sec 143: The employer may terminate the employment of an employee upon the recommendation of a medical practitioner if: – an employee is physically or mentally disabled or injured – rendering him/her unable to work – requiring a long period for medical treatment effecting in the work of the entity.

Termination by Notice-Sec 144: The employee or employer terminating the employment should provide the notice except in the situation of termination by dismissal.


If a worker or employee intends to resign his or her post voluntarily, he or she tender resignation in writing with the office or enterprises where he or she is serving.
The office with which resignation has been tendered as above has to be got identified by the concerned employee.
The employer or official having identified the resignation so tendered by a worker or employee approve the resignation.
The procedure and mode of approval of resignation of the resignation tender by a worker or employee shall be as prescribed in the laws and regulations so concerne-
Layoff and compulsory retirement: old provisions

The Proprietor may layoff or compulsorily retire any worker or employee who has crossed the age of fifty five years.

Provided that he/she may extend the period of service of any worker or an employee by five years, in case the worker or employee. (Section 12 of the Act)

Top comments (0)