Article (September-2018)

Articles

Lay-offs and the law - How it plays out in the Information Technology Sector

Archana Balasubramanian

Designation : -   Partner

Organization : -  AGAMA Law Associates, Mumbai

01-Sep-2018

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A shocking study released a couple of years ago found that one out of every two employees in corporate India shows signs of anxiety and depression. The top most cause of depression has been believed to be fear of retrenchment or termination1.
Termination flows from regulative legislations such as the Industrial Disputes Act, standing orders and local shops and establishment laws and where the ID Act doesn't apply, contracts. Employment retrenchment/termination issues are governed under Industrial Disputes Act, 1947 (IDA) and the Model Standing Orders of the Industrial Employment Standing Orders Act, 1946 read with the shops and establishment legislations in the states.
The objective of this article is to provide brief insights into the legal issues surrounding such retrenchment policies/termination policies for people left holding the can - the HR Managers.
Retrenchment is largely governed by Section 25F of the IDA. Section 25F of the Act has been drafted more as a negative covenant on the employer and stipulates that "no workman may be retrenched except in compliance with the conditions mentioned therein."
It can be read to mean that on compliance with the three conditions mentioned therein, the employer shall have a virtually unrestricted right to retrenchment of the workman. These are conditions precedent and have to be complied with for ensuring retrenchment is legal. The principle therefore appears to be that so long as you have monetarily compensated someone (as per the formula in the section), no one can have a guarantee of their job.
The three conditions stipulated in Section 25F are as follows :
Retrenchment compensation is "equivalent to fifteen days 'average pay' for every completed year of continuous service". "Average Pay" of monthly, weekly or daily-rated workman for the purposes of section 25F(b) and for certain other purposes in this Act. There are three categories set-forth, and a residual category. The first is the case of a monthly-paid workman; the second is the case of a weekly-paid workman and the third is the case of a daily-paid workman. Then there is a residual category and it is of those persons whose "average pay" cannot be calculated upon any of these three basis. In such cases, the pay is to be calculated as the average of the wages payable to a workman during the period that he actually worked.
To put it differently, the right to retrench the un-economic dead - weight of surplus labour is inherent in the right of management of the business of the employer provided the conditions precedent to retrenchment are complied with. This has also been endorsed by the current Law and IT Minister who has stated in his interview to Economic Times that "Routine retrenchment is part of any commercial or industrial operation" (May 2017). Of course employers need to intimate the competent authority as a conditionality for retrenchment. IT companies in Gurgaon (Haryana) can heave a sigh of relief as some exemptions from notification have been provided in 2016, where the threshold has been increased to 300 as compared to 100 for other states.
In addition to Section 25F, the employment termination provisions under the state - specific statutes applicable to shops and establishments, standing orders, the employment contract and HR policies also need to be complied with. In case of a conflict, the provision that is more favourable to the employee would need to be adhered to.
Know your employees
Employers should know at all times what are the categories of employees that would fall under the definition of workman under the IDA. 
Workmen as defined under the IDA exclude the following classes of employees :
a) Those earning over INR 10,000 and discharging supervisory nature of duties.
b) Those employed in managerial capacity. 
c) Those employed in administrative capacity.
The protection under Section 25F also applies only employees who have been in continuous employment for atleast 1 year. Under section 25B, a workman, who during the period of twelve calendar months has actually worked in an industry for not less than 240 days, is to be deemed to have completed one year's service in the industry.
Termination under employment contracts
Employment contracts have termination for convenience clauses, where someone can be asked to go for no apparent reason - at the whims of the management, by giving notice of X days. A similar right is also offered to an employee. However, termination for cause i.e. default /breach by the employee is subjective and quite a tricky situation.
Immediate termination for misconduct
The standing orders offer a whole host of causes for termination for misconduct. Employers should carefully include all such provisions either in their employment contracts or in the employment handbook. Again termination for misconduct should be made after following due process as contained in the employment handbook or service rules. The process should be fair and transparent. Interestingly, performance issues may need to be included in the definition of misconduct under standing orders or employment handbook in order for termination on account of performance to be accepted by courts.
Consequences of termination
Wrongful termination offers employees the right to seek back wages with continuity of service. Termination for cause should be carefully done following a process. Often courts call into question termination of employees on account of poor processes rather than facts. As per a recent amendment under the IDA any workmen may directly approach the Labour Court/Tribunal without any conciliation in case of termination, discharge or dismissal from the services as against the same being a dispute only when referred by the appropriate government.
Recent past
Until the path breaking Chennai Additional Labour Court judgment that IT employees were "workmen" within the meaning of the IDA, the applicability of the IDA was a grey area. But that judgment has brought the 4 million plus IT employees within the definition of workmen permitting the workmen to raise their voice against random termination or benching and then phasing them out.
Since 2013, news of IT employees asserting their rights has being doing the rounds. TCS, Cognizant, Infosys, HCL and Tech Mahindra to name a few, are giants that have been in the news for laying off people. In this background, employees are resorting to unionisation. Recently, the labour commissioner of Karnataka, home to the country's largest tech hub in Bengaluru, has certified the formation of the Karnataka State IT/ITES Employees Union (KITU) under the Trade Union Act, 1926, and Karnataka Trade Unions Regulations, 1958.