An amicable parting

Joint ventures, mergers, recession, tough competition, obsolete technologies, and lack of product demand, etc., call for pragmatic solutions to sever ties with manpower. The Voluntary Retirement Scheme (VRS), also known as the 'Golden Handshake,' is a tested middle way for many. It can be implemented by both the public and private sectors. VRS is sometimes considered a humane strategy that companies use to reduce workforce strength in times of need.

In VRS, an employee is offered the option to voluntarily retire or resign from services. The scheme allows companies to reduce employee strength, resulting in an overall reduction in the existing workforce.

In AK Bindal & Anr vs Union Of India & Ors, 2003, the Supreme Court observed that the amount paid under VRS is not for any work done or service rendered. It is paid in lieu of the employee voluntarily leaving the company or industrial establishment and forgoing all claims or rights therein. It is a package deal of give and take. In the business world, this is known as the 'Golden Handshake.' The main purpose of paying this amount is to bring about a complete cessation of the legal relationship between the employer and employee. After the amount is paid and the employee ceases to be under the employment of the company or undertaking, he leaves with all his rights extinguished, and there is no question of him again agitating for any past rights with his former employer, including making any claim regarding pay scale enhancement for an earlier period. The Court stated that if the employee is still permitted to raise a grievance regarding pay scale enhancement from a retrospective date, even after opting for VRS and accepting the amount, the purpose of introducing the scheme would be totally frustrated. The ruling emphasised that after applying for VRS, employees cannot contend that they exercised the option under any kind of compulsion.

Even in cases of resignation, it is well settled that after an employee submits an application and it is accepted by management, it cannot be later withdrawn.

In certain cases, the taxability of amounts received by an individual on voluntary retirement under a voluntary retirement scheme or any similar scheme is governed by Section 10(10C) of the Income Tax Act, 1961. As per the provision, any amount received or receivable by an employee on voluntary retirement or termination of service, in accordance with any scheme or voluntary separation scheme, shall be exempt to the extent that it does not exceed the stipulated amount. The exemption applies to employees of entities specified under the provision, provided that the schemes of the said companies, authorities, societies, universities, institutes, etc., are framed in accordance with the prescribed guidelines. The exemption is available to the employee for the assessment year in which the compensation is received. No exemption shall be allowed in any other assessment year. Further, if the employee has claimed tax relief under Section 89 of the Act in any assessment year for any amount received or receivable on voluntary retirement, no exemption under this clause shall be allowed for such amounts in that or any other assessment year.

In Indian labour laws, retrenchment of workman-level employees in factories, mines, and plantations is technical and involves compliance with various government permissions, which are difficult to obtain. Moreover, many entities have militant unions, leading to strikes and demonstrations. Downsizing in the public sector is also challenging. As a midway solution to amicably sever ties, VRS was introduced.

Voluntary retirement schemes are generally not strongly opposed by employees as they are 'voluntary' in nature, and no one can be forced to opt for them. Sizing and having appropriate human resources is a strategy deployed worldwide. One of the main goals of implementing a golden handshake scheme is to achieve cost-effectiveness. Overall, India has some well-structured legal provisions governing VRS, making these provisions attractive to foreign entities.

The writer is a practising Advocate in Supreme Court and High Court of Delhi. Views expressed are personal