India hasn’t been immune to the worldwide trend of layoffs in recent years. In response to a bleak global economy and fears of an impending recession, over 1,000 Indian companies laid off 154,336 workers in 2022 alone.
Sharechat, an Indian social media startup backed by Google and Twitter, cut approximately 20% of its workforce to appease investors and brace for longevity. Ola, a ridesharing and electric vehicle company, recently laid off 10% of its team of software developers.
Google-backed delivery provider Dunzo recently announced plans to lay off 3% of its workforce. Amid a restructuring, voice automation startup Skit.ai is also in the process of laying off employees. These are a few examples of Indian companies laying off employees to reduce costs and secure a stronger financial future.
The Indian government took notice. In December 2022, Labor and Employment Minister Bhupendra Yadav reminded employers that mass layoffs are illegal if they’re not in line with the Industrial Disputes Act (ID Act) provisions. He was prompted during Rajya Sabha, the upper house of the bicameral Parliament of India when asked how the government plans to approach the widespread layoffs in Indian software companies, education technology, social media, big tech companies, and the IT industry.
Now, let’s get into the details surrounding this legislation. We’ll examine how it impacts the tech industry and what companies in India can do to navigate the law. This information is valuable if you’re considering hiring from India. So, let’s get into it.
Understanding Layoffs in India
The ID Act stipulates that companies in India with 100 or more employees must seek approval from the relevant government before conducting layoffs, closing down, or making retrenchments.
Distinguishing Between Layoff, Retrenchment, and Closure
In Indian labor law, there are three important terms related to workforce reduction:
Layoff
A layoff in India, defined under Section 2 (kkk) of the Industrial Disputes Act, 1947, a temporary pause in work because of things like a lack of resources or natural disasters. Employees get compensation but not regular wages during this time.
Retrenchment
This is when employees are permanently let go for reasons like money troubles or business changes. They get compensation based on their years of service.
Closure
It's when a business or part of it closes down, often due to money problems. Employees affected by this get compensation too.
Conditions for a Legitimate Layoff in India
There are certain situations where employers with over 100 employees allow layoffs in India. Such as:
Business Must Be Ongoing
Layoffs are only allowed for businesses still operating. If a business permanently closes, layoffs don't apply.
Meet Legal Criteria
Layoffs must follow specific legal criteria outlined in Section 2 (kkk) of the Industrial Disputes Act 1947. If these criteria aren't met, layoffs are illegal.
Employer Doesn't Offer Work
Layoffs happen when employers don't provide work to employees.
Reasons for Layoff
Layoffs occur when factors like resource shortages, machinery problems, or natural disasters lead to a lack of work.
Employees Must Be Listed
Employees facing layoffs must be on the company's official employee list.
No Prior Layoff
Workers shouldn't have been laid off before for layoffs to occur.
Compensation for Laid-Off Workers
As per Section 25C of the Industrial Disputes Act 1947, employees facing layoffs are entitled to compensation amounting to half of their total wages and allowances during the layoff period.
Exemptions from Layoff Provisions
Section 25A clarifies that certain companies in India are exempt from layoff provisions, including those with fewer than 50 employees, seasonal or occasional operations, and those covered under Chapter V-B, added by the Industrial Disputes Amendment Act of 1976.
What Happens If Companies Don't Comply with the ID Act?
Companies that fail to comply with the ID Act can face serious legal consequences. Let's take a closer look at what happens when companies violate it:
Legal Action by Authorities
When companies in India don’t adhere to the provisions of the ID Act, both central and state-level governments have the authority to take legal action against them, including fines and penalties. The government body responsible for taking legal action against a company that violates labor laws in India can vary depending on the industry or sector in which the company operates. For example, in certain states or industries, labor commissioners or boards may be responsible for regulating employment-related issues.
Principle of Double Jeopardy
An important aspect of the ID Act is that it incorporates the legal principle of double jeopardy. This ensures that an employer cannot be prosecuted repeatedly for the same offence related to labor matters. In other words, if a company faces legal action and penalties once for non-compliance with the ID Act, it cannot be prosecuted again for the same offence.
How Does This Law Impact the Tech Industry in India?
Critics of India's Industrial Disputes Act raise concerns about how it affects India’s tech industry. The law, intended to safeguard employees, can create major hurdles for companies in India during tough times.
One big criticism is that the law's provisions might make it difficult for tech companies in India to hire and fire staff. This could potentially discourage them from taking on risky or ambitious projects. If it's difficult to lay off staff, tech companies may hesitate to hire for projects with a high risk of failure, potentially limiting their ability to grow and scale.
Government Intervention and Its Effect on Tech Companies in India
Another concern revolves around government involvement in layoffs, which can add more red tape and complexities. You can see this in the case of Byju's, a global leader in innovative technology in the education tech industry. It’s one of India’s big tech companies with an impressive market capitalization that’s jumped 35% yearly.
Byju’s wanted to lay off 140 employees and close an office. The goal was to help the company cut back on costs and operate more efficiently. However, after a meeting with the Kerala state government, they changed their decision, kept the office open, and didn’t proceed with the layoffs.
Critics have said that this government intervention could set a precedent that makes it tough for struggling companies to focus on functioning more effectively. While protecting workers is important, too much government involvement can hinder business growth.
When exploring labor laws in India, it's crucial to consider more than just the Industrial Disputes Act. Other rules that can impact a company's workforce plans need attention, too. For example, recent discussions in Parliament have raised concerns about moonlighting, where employees take on extra jobs.
This issue is particularly noteworthy in IT services, where some workers have turned to moonlighting during challenging times. As the world's leading provider of IT and software engineers, the IT industry in India is an important piece of the country’s overall tech industry. Although the government has clarified its stance on moonlighting, it's vital to understand how these regulations and broader labor laws can shape the strategies of your software company in India.
Balancing Labor Laws and Innovation in India
Sometimes, tech companies must lay off employees to make room for innovative technology. Take, for instance, Dukaan, an Indian startup. Its CEO, Summit Shah, let go of 90% of its support staff to make room for a smart chatbot that uses artificial intelligence and machine learning.
This chatbot can answer customer questions much faster than its human counterparts, reducing the time it takes to solve customer issues by 98%. It responds instantly, while humans take nearly two minutes.
This is an instance where the Industrial Disputes Act could potentially hinder innovation. Imposing strict layoff regulations can make it challenging for companies to adapt quickly to technological advancements. This delicate balance between innovation and labor laws is critical for tech companies operating in India.
While the Industrial Disputes Act is intended to safeguard workers' rights, critics argue that it might get in the way of the broader tech industry in India. They worry that it’s making it challenging to build an environment that genuinely supports entrepreneurship and innovation.
Navigating Challenges Without Layoffs: Strategies for Indian Tech Companies
For companies in India, exploring alternatives to layoffs is essential. Having a game plan can help you avoid the legal headache and navigate the system compliantly.
For example, let’s take a look at how Tata Consultancy Services (TCS), a prominent consulting firm and global professional services company in India, approached difficult times. Instead of laying off any employees, TCS chose a different path.
They focused on developing talent inside the company and gave salary hikes to their employees. TCS's decision to focus on a retention strategy demonstrates its commitment to supporting its employees and finding solutions that don't involve job cuts.
However, this isn’t an option for many companies in India, especially as they struggle to find funding. There are other approaches they can take to avoid layoffs:
Hiring Freeze
Implementing a hiring freeze is a viable option to control costs by not filling vacant positions. Ensure that it doesn't mask layoffs to avoid legal issues.
Reduced Work Hours
Reducing full-time work hours is permissible, but it should be done in line with employment contracts and statutory provisions. Consult with employees and, if necessary, labor authorities for significant reductions.
Furloughs
These can provide temporary relief, but remember that employees must be paid for their work. Make sure that you adhere to legal requirements and maintain transparency during furloughs.
Voluntary Retirement
Offer voluntary retirement schemes with attention to legal regulations. These schemes are well-accepted and can be beneficial for both employers and employees.
Job Sharing
Job-sharing arrangements can be implemented if both employees are compensated fairly. No specific legal prohibition exists for job sharing.
Employee Reassignment
Reassigning employees is a practical solution, provided it is done transparently and with the employees' consent. Clear communication and adherence to labor laws are essential.
In India, labor laws are designed to protect employee rights and job security. So, when considering alternatives to layoffs, adhere to legal requirements every step of the way.
How can Borderless Help?
If you’re interested in hiring talent from India, don’t let this law get in the way. Partner with Borderless to simplify the process of hiring, onboarding, and managing talent from India. Our team of experts will help ensure you comply with every law, including India’s legislation on layoffs.
We offer a suite of services that make it easy to hire employees in India. Here's how we can help:
EOR Services
We act as your Employer of Record (EOR) in India, making it easier to hire, manage, and pay talent. With us as your EOR, you can focus on workforce management while we handle the details.
Legal and Administrative Support
Setting up a local legal entity in India can be complex. We already have an established entity, saving you the hassle of navigating Indian legal intricacies.
Compliance Handling
We understand India's unique legal requirements. As your EOR, we take care of worker visas, work permits, contracts, payroll, compliance, and termination procedures, ensuring your practices align with Indian labor laws.
Contracts and Documentation
We manage all the necessary documentation for hiring in India, including employment offers, contracts, and banking details. This administrative support frees up your time for core business activities.
Employee Insurance and Benefits
To attract and retain talent, we offer comprehensive employee benefits like medical, dental, vision, life insurance, and retirement plans for your Indian employees.
Tax Compliance
India's tax system can be intricate. We handle payroll processing to ensure compliant payments, keeping your organization in line with Indian tax laws.
Local Expertise
With our experience in India, we ensure your hiring processes align with local norms and regulations.
Risk Mitigation
Partnering with us helps ease compliance risks. We're well-versed in Indian legal matters, helping you avoid potential complications.
Reach out
Overall, we simplify hiring and employment in India, allowing you to focus on your core business activities while we handle the complexities. Whether you want to pursue business process outsourcing in India, hire a single software engineer, or expand your team in the Indian market whole cloud computing team - we’ve got your back. Get in touch.
Disclaimer
Borderless does not provide legal services or legal advice to customers, contractors, employees, partners, or the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
