Retrenchment is strategy managers use to reduce the size of their workforce. A company may face retrenchment when it cannot continue operating at a certain level due to economic constraints or technological advancements. It may also happen because of its inability to adapt to new changes in the industry. The company’s financial situation may also force them into retrenchment.

According to the Industrial Dispute Act of 1947, retrenchment occurs when a company decides to reduce the number of employees by laying them off for any reason.

In some cases, retrenchments are not voluntary; external forces such as financial difficulties or government regulations force them. For example, if a company’s sales decline for an extended period and its profits continue to fall below expectations.

The following are considered not to come under retrenchment:

  1. When an employee retires voluntarily from their job.
  2. An employee who had an agreement stating superannuation benefits.
  3. If an employee has not renewed their employment contract.
  4. If an employee is continually suffering from health problems.

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