18 Lay off, resignation, dismissal or discharge, retrenchment & VRS

Rajeev Jain

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

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.

(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:

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:

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:

(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.

(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.

(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;

(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;

(i) Plan:

(a) Prepare ahead of time for downsizing

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

(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

(iv) Communicate:

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

(b) Project positive energy & initiative from leaders

(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

(vi) Take Care of survivors:

(a) Implement layoffs in a fair & human manner

(b) Develop trust between management & surviving employees.

(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.

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Reference:

K. Aswathappa, “Human Resource and Personnel Management”, The McGraw Hill Companies, 4th Edition 2006, Pg. No. 510 – 516.
Pravin Durai, “Human Resource Management”, Pearson, Edition 2010, Pg. No. 452 – 459.
G.S. Sudha, “Human Resource Management – With Cases and Problems”, Ramesh Book Depot, 2009 – 10, Pg. No. 30.01 – 30.12.
C.B. Gupta, “Human Resource Management – Text and Cases”, Sultan Chand & Sons, Fourteenth Edition 2012, Pg. No. 18.13 – 18.20.