Managerial employees excluded from “workman” status cannot claim retrenchment compensation under Sections 25F and 25FF.

Eleven employees of Henkel India Limited and/or Henkel Marketing India Limited, formerly employed at the Chennai corporate office, were terminated in the course of the transfer of management, takeover and subsequent amalgamation involving Jyothy Labs Limited.

Although initially designated as junior accountants, assistants, sales officers, secretaries, trainees and similar posts, several employees were later promoted to managerial or executive positions.

They were terminated after being given three months’ notice or salary in lieu thereof, together with ex gratia payments.

The employees challenged their termination under Section 41(2) of the Tamil Nadu Shops and Establishments Act, 1947, initially seeking reinstatement and back wages.

They subsequently sought severance compensation under Sections 25F and 25FF of the Industrial Disputes Act, 1947, relying on settlements granting enhanced compensation to workmen at Henkel’s Karaikal factory.

The Appellate Authority held that the employees were “workmen”, treated their termination as retrenchment arising from transfer of undertaking, applied the doctrine of functional integrality, and awarded compensation equivalent to 90 days’ salary for each completed year of service with 12% interest.

The Single Judge reduced the compensation to 70 days’ salary per completed year and interest to 6% per annum.

Both the management and the employees preferred intra-court appeals.

Whether the employees were “workmen” within the meaning of Section 2(s) of the Industrial Disputes Act, 1947, notwithstanding their designations and promotions to managerial or executive posts.

Whether the employees’ termination constituted retrenchment on account of transfer of undertaking under Section 25FF of the Industrial Disputes Act, or was instead the consequence of closure of the Chennai corporate office and shifting of operations to Bangalore.

Whether the Appellate Authority under Section 41(2) of the Tamil Nadu Shops and Establishments Act had jurisdiction to grant severance compensation under Sections 25F and 25FF of the Industrial Disputes Act.

Whether the employees were entitled to parity with the Karaikal factory workmen on the basis of the doctrine of functional integrality.

Whether the compensation already paid under the employees’ appointment and promotion terms was inadequate, and whether any additional compensation was payable.

The Court applied Section 41 of the Tamil Nadu Shops and Establishments Act, 1947, which permits termination for reasonable cause upon requisite notice and provides a statutory appeal against dismissal.

Section 41(2-B), inserted with effect from 01.04.2017, empowers the appellate authority to direct reinstatement or payment of compensation in lieu thereof, but the Court held that the provision could not retrospectively govern terminations made in 2011.

Under Section 2(s) of the Industrial Disputes Act, the status of “workman” depends on the actual nature of duties, while persons employed mainly in managerial or administrative capacities are excluded.

Sections 25F and 25FF provide, respectively, for statutory retrenchment compensation of 15 days’ average pay for every completed year of service and compensation upon transfer of an undertaking where the statutory conditions are not satisfied.

The Court relied on Bangalore Water Supply and Sewerage Board v. A. Rajappa, AIR 1978 SC 548, for the triple test of an “industry”.

The Court relied on H.R. Adyanthaya v. Sandoz (India) Ltd., (1994) 5 SCC 737, and R. Kannabiran v. Deputy Commissioner of Labour, 2002 (3) LLN 541, for placing the burden on the employee to establish workman status.

The Court relied on T.N. Chandra v. South India Corporation, (1992) 1 LLJ 739, and M. Arunagiri v. Bata India Ltd., (1992) 2 LLJ 46, for the proposition that Central industrial-dispute legislation may be invoked where the Shops and Establishments legislation is silent on retrenchment compensation.

Functional integrality requires unity of ownership, management and control, interdependence between establishments, and a common system of employment or transfer.

The Court held that the employees had failed to plead and prove that, despite their managerial designations, they performed clerical, technical or supervisory work falling within Section 2(s).

Their promotion letters, documentary service records and managerial designations indicated advancement to posts such as manager, secretary, finance executive and account executive; oral assertions that they continued to perform clerical duties, raised without supporting pleadings or documents, were insufficient.

The Court further found that the termination was not caused merely by transfer of ownership.

The Chennai corporate office was closed and its functions shifted to Bangalore; consequently, the termination did not attract the legal fiction of retrenchment under Section 25FF.

The Court also rejected parity with the Karaikal factory employees because there was no evidence of interdependence, common seniority, interchangeability of employees, or unity of employment between the factory and the corporate office.

The settlements applicable to the Karaikal workmen could not therefore be imposed upon the transferee company in favour of employees belonging to a different managerial category.

Since the employees were not workmen and had received compensation in accordance with their appointment and promotion terms, the Appellate Authority lacked a proper legal basis to award 90 days’ salary per completed year.

The Single Judge’s award of 65/70 days’ salary was also unsupported by a lawful or evidentiary basis.

Accordingly, the orders of the Appellate Authority dated 16.12.2015 and the Single Judge’s common order dated 19.07.2023 were set aside.

However, as a gesture of goodwill, the employees were granted liberty to seek payment of the difference equivalent to 15 days’ salary for every completed year of service.

Any such request made within 30 days of receipt of the judgment was directed to be considered and paid with 9% interest from the date of termination until the date of judgment.

All management and employee writ appeals were disposed of without costs, and the connected miscellaneous petitions were closed.