Lay-off is the failure, refusal, or inability of an employer to provide employment to a workman whose name appears on the muster rolls of the establishment and who has not been retrenched, due to shortage of coal, power, or raw materials, accumulation of stocks, breakdown of machinery, natural calamity, or any other connected reason. Under Indian law, it is defined in Section 2(kkk) of the Industrial Disputes Act, 1947 and entitles the affected workman to lay-off compensation under Section 25C.
Legal definition
The Industrial Disputes Act, 1947 provides a statutory definition:
Section 2(kkk): "Lay-off" (with its grammatical variations and cognate expressions) means the failure, refusal or inability of an employer on account of shortage of coal, power or raw materials or the accumulation of stocks or the break-down of machinery or natural calamity or for any other connected reason to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched.
The key element is that lay-off is a temporary measure — the employment relationship subsists, but the employer is unable to provide work. Section 25C prescribes the compensation entitlement:
Section 25C: Whenever a workman (other than a badli workman or a casual workman) whose name is borne on the muster rolls of an industrial establishment and who has completed not less than one year of continuous service is laid-off, he shall be paid by the employer for all days during which he is so laid-off, except for such weekly holidays as may intervene, compensation which shall be equal to fifty per cent of the total of the basic wages and dearness allowance that would have been payable to him had he not been so laid-off.
New law equivalent: The Industrial Relations Code, 2020 defines lay-off under Section 2(p) in substantially similar terms and retains the 50% compensation entitlement.
How courts have interpreted this term
Workmen of Firestone Tyre and Rubber Co. v. Management [(1973) 1 SCC 813]
The Supreme Court held that lay-off compensation under Section 25C is a statutory right that cannot be denied merely because the employer's inability to provide work was caused by circumstances beyond its control. The Court reasoned that the burden of economic adversity should not fall entirely on the workman, and the compensation provision is designed to provide a minimum safety net during temporary work stoppages.
Management of Kairbetta Estate v. Rajamanickam [AIR 1960 SC 893]
The Supreme Court clarified that for a lay-off to be valid, the workman's name must be on the muster rolls of the establishment at the time of the lay-off. A workman who has already been retrenched or whose services have been terminated cannot claim lay-off compensation, as retrenchment extinguishes the employment relationship.
Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazdoor Union [AIR 1957 SC 95]
The Court held that the reasons for lay-off enumerated in Section 2(kkk) are not exhaustive. The phrase "or for any other connected reason" allows lay-off to be declared for reasons analogous to those specifically listed, such as a government order restricting production, financial crisis rendering continued operations impracticable, or force majeure events.
Why this matters
Lay-off occupies a distinct position in Indian labour law as a temporary measure that preserves the employment relationship while relieving the employer of the obligation to provide actual work. Unlike retrenchment, which terminates the relationship, a laid-off workman remains on the muster rolls and retains the right to resume work when the employer is able to provide employment again.
For employers, the critical practical consideration is the distinction between lay-off and retrenchment. If a lay-off continues beyond a specified period, it may be deemed a retrenchment, triggering the more onerous requirements of Section 25F (and Section 25N for establishments with 100 or more workmen). Under Section 25C, the employer's financial exposure during lay-off is limited to 50% of basic wages and dearness allowance — significantly less than the full wages payable during a period of illegal retrenchment.
For establishments with 100 or more workmen, Chapter VB imposes an additional requirement: prior permission of the appropriate government before laying off any workman under Section 25M. The failure to obtain such permission renders the lay-off illegal and entitles the workman to full wages, not merely lay-off compensation.
For workmen, the right to lay-off compensation under Section 25C is available only to those who have completed at least one year of continuous service (defined as 240 days of work in the preceding twelve months under Section 25B). Badli workmen (substitutes) and casual workmen are expressly excluded from this entitlement.
Related terms
Broader concepts:
Related employer actions:
Related entitlements:
Frequently asked questions
How much compensation is a laid-off workman entitled to?
Under Section 25C of the Industrial Disputes Act, a laid-off workman is entitled to compensation equal to 50% of the total of basic wages and dearness allowance for all days of lay-off, excluding weekly holidays. This compensation is payable for the first 45 days of lay-off in a twelve-month period. Beyond 45 days, the employer may retrench the workman in compliance with Section 25F or continue paying lay-off compensation.
Can an employer declare a lay-off without any restriction?
Employers in establishments with fewer than 100 workmen can declare a lay-off without government permission, subject to payment of compensation under Section 25C. However, in establishments with 100 or more workmen, Section 25M (Chapter VB) requires the employer to obtain prior permission of the appropriate government. Lay-off without such permission is illegal, and the workman is entitled to full wages rather than 50% compensation.
What is the difference between lay-off and retrenchment?
Lay-off is a temporary measure where the employer is unable to provide work but the employment relationship continues — the workman's name remains on the muster rolls. Retrenchment is the permanent termination of the workman's service. Lay-off entitles the workman to 50% compensation; retrenchment entitles the workman to fifteen days' average pay per completed year of service plus one month's notice pay.
Can a workman refuse lay-off compensation and demand full wages?
A workman cannot ordinarily demand full wages during a valid lay-off, as Section 25C fixes the entitlement at 50% of basic wages and DA. However, if the lay-off is declared without complying with statutory requirements — such as the failure to obtain government permission under Section 25M in larger establishments — the lay-off is treated as illegal, and the workman is entitled to full wages as if the lay-off had not occurred.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.