Why Companies Must Pay Heed to the ID Act During Layoffs?

As of December 2022, 52 Indian firms, including startups, have laid off over 18,000 employees. The unicorns on this list include prominent startups like BYJU’S, Unacademy, MPL, Chargebee, Cars24, LEAD, Ola, OYO, Meesho, Innovaccer, Udaan, and Vedantu. Further, this list includes 15 EdTech startups, which collectively saw 7,868 employee layoffs.

Amidst the news of layoffs, Labour and Employment Minister Bhupender Yadav stated that retrenchment and layoffs will not be deemed legal if they are carried out outside the provisions of the Industrial Disputes Act of 1947.

What is the Industrial Disputes (ID) Act?

The Industrial Disputes Act, constituted on March 11, 1947, is legislation that governs industrial dispute resolution in India.

The Act aims to prevent illegal lockouts and strikes and offer relief to employees who are illegally laid off without following due process. It provides guidelines for various processes, such as conciliation, arbitration, and adjudication, with the aim of promoting mutually beneficial relations between employers and employees.

Relevance of the ID Act to Layoffs

Here’s a snapshot of the provisions of the Act:

• In the context of the ID act, a layoff is defined as a condition where the company has no option but to deny its employees further work opportunities due to circumstances that make it unable to continue operations. Some examples include a shortage of raw materials, a breakdown of machinery, or a natural calamity.
• Firms employing more than 100 persons are required to seek the nod of the appropriate government before conducting mass layoffs. However, if there is no response from the government for over 60 days, the permission will be deemed to have been granted.
• According to Yadav, the jurisdictional authority for mass layoffs in sectors such as EdTech, social media, information technology (IT), and related sectors resides with state governments.
• The ID Act has certain provisions under which layoffs are deemed legal. For instance, a worker is entitled to compensation equivalent to 50 percent of the total basic wages and dearness allowance for the layoff period, provided they have been in service for over a year.
• The ID Act also has provisions for the reemployment need of professionals. If a company aims to rehire people in the future, it must prioritize the rehiring of retrenched employees first.

What Companies Must Keep in Mind

Companies need to keep in mind the various laws that govern incidents such as retrenchment and mass layoffs. Besides having an in-depth understanding from a legal standpoint, they must also plan such pivotal events strategically.

The aim is to reduce the negative impact on employees while also keeping the business’ sustainability and profitability in mind. Completely circumventing the law can result in a loss of reputation, reduce employee branding, and lead to financial losses in the event of employee lawsuits.

What Employees Must Keep in Mind

It is important for employees to understand the terms and conditions of their employment contract. They must go through it in great detail.

If they feel they are being treated unfairly without adequate financial compensation, they can seek legal support or appeal to the consumer court to seek a fair outcome.

In Conclusion

In 2022, tech-enabled businesses have seen the most number of layoffs. Of these, EdTech leads with over 8000 layoffs across content, HR, sales, and tech teams. Around five EdTech companies have shut shop altogether.

The social media industry has also seen a large number of layoffs, with Twitter and Meta leading the way. As tech-enabled businesses continue to face new challenges, layoffs will continue to be a part of the cycle.

Companies should seek timely interventions to navigate the legal and financial hurdles of these times. By partnering with legal finance specialists such as  Treelife early on, companies can build resilience and emerge stronger. 

References:

https://inc42.com/features/indian-startup-layoffs-tracker

https://labour.gov.in/sites/default/files/THEINDUSTRIALDISPUTES_ACT1947_0.pdf

https://www.business-standard.com/article/economy-policy/layoffs-deemed-illegal-if-not-carried-as-per-industrial-disputes-act-yadav-122120800970_1.html

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Pooja Savla

Principal Associate | Transactions | pooja.s@treelife.in

Specializes in transaction advisory, including mergers and acquisitions, investment structuring, and corporate legal matters. Combines a strong background in law and finance to drive seamless transactions and business growth.

Koustubh Athavale

Senior Associate | Legal | koustubh.a@treelife.in

Provides expertise in commercial contracts, dispute resolution, and data privacy. Leverages extensive experience in the startup ecosystem to deliver tailored legal solutions for diverse business needs.

Garima Mitra

Co-founder | garima@treelife.in

Spearheads Transactions, Contracts, and Compliance verticals. Combines expertise in business law and a passion for social impact to shape the legal and financial ecosystem for startups.