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Can tech companies hire and fire in India?

By: Sharanya Ranga and Riya Dutta

As the jargon goes, we are now living in a VUCA (volatility, uncertainty, complexity and ambiguity) world. The spate of layoffs hitting the corporate India during the past few months has not shown any sign of letting up. And the country’s 7 per cent GDP growth in the October-December quarter in 2016 stands in stark contrast with sluggish job creation and record unemployment figures. Layoffs and trimming down the workforce have been a common thread cutting across conglomerates such as Larsen & Toubro, multinational tech companies such as IBM, Microsoft and Nokia, and not even sparing our homegrown e-commerce start-ups such as Snapdeal and Flipkart. The struggle to adapt to the ever-changing business environment and technological disruptions is on and layoffs have become a fairly common tool, affecting white-collar, blue-collar and pink-collar (service sector) workers as businesses streamline their workforce and embrace automation to stay competitive.

Indian labour laws were framed in the traditional socialist mould to provide statutory protection to the blue-collar workers, exploited by a ruthless capitalist class. The situation has become more complicated when we consider the power of both central government and the 29 state governments to legislate on labour! But where does this leave the new-age technology professionals? Indian law does not recognise “at will” employment and businesses looking to restructure their employee pool in the tech sector through layoffs have to keep some of the following aspects in mind:

  1. The employment documentation has to clearly flesh out the broad terms of employment, including probation period, job description, termination, notice period (or payment in lieu of notice) and so on.

  2. A company’s HR policies have to factor in applicable laws. This includes aspects such as maternity benefit, payment of gratuity and provident fund.

  3. A company has to follow due processes while proceeding with termination of employment and document the same. Summary termination of employment should generally be for breach of employment terms.

  4. Prior notice (or payment in lieu of notice) for termination of employment is always recommended when the employment relationship is terminated without cause. While no approvals are required from government authorities for the tech sector, such companies adopt a range of measures to ‘soften’ the blow. This includes transparent communication with the affected employee, doling out a good severance package, referrals for future job placements and career counselling initiatives.

Labour compliance in India is quite often (and rightly so) seen as a never-ending maze of archaic regulations and compliances with both state and central legislations in force. The Industrial Disputes Act, 1947, is the central legislation dealing with layoffs and termination of workmen in industrial establishments. Indian courts have traditionally interpreted labour statutes in favour of employees. What this means is that most businesses carrying on an industrial activity or engaged in manufacturing, production or distribution of goods or services may be construed as industrial establishments. The Act differentiates between manual, unskilled, skilled and technical workers (workmen) as against those employed in a managerial or administrative capacity. Those employed in a supervisory capacity and drawing remuneration exceeding a prescribed statutory limit (around $150 at present) will also be out of the purview of statutory protection. The key to determine if an employee is a workman is the actual nature of work performed by the employee and not so much his designation. Most of the labour statutes, including the Act and the state-specific shops and establishment laws, exclude managerial and supervisory personnel. This offers companies a fair amount of flexibility in having specific provisions for termination of employment for managerial and senior resources.

While there is no clear pronouncement till date by the Indian Supreme Court on the applicability of these legislations to the technology sector, companies like TCS and HCL have been sued by their employees for unfair/wrongful dismissal on the basis that they are entitled to statutory protection available to workmen. In two such cases reported in the media, the Madras High Court and the labour courts have treated software technology professionals (software developer/engineer/programmer) as workmen and directed companies to reinstate the terminated employees. It is, therefore, important that employee layoffs be structured considering both the letter and the spirit of the law.


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