Is It legal to lay off in India?

Is firing by IT companies legal?

With the recession looming large, lot of Indian IT companies have resorted to firing their employees.

Does the indian law allow firing?

In terms of ID (Industrial Disputes Act, 1947) Act, if an industrial establishment employs more than 100 workmen, a company may not terminate the services of any workman who has been in continuous service for not less than one year unless the (i) workman has been given three months notice in writing indicating the reason for retrenchment and the period of notice, and (ii) the prior permission of the concerned state government has been obtained for the retrenchment (section 25N of the ID Act).

It is nearly impossible and companies seldom follow the legal procedure to terminate an employee. It has to be noted that the punishment for not following the above said law is either one month imprisonment or a fine of Rs.1000 or both.

How do companies get around the law?
The question whether software companies fall under the definition of 'Industry' as defined under the ID act is yet to be answered by the courts. Companies which have hardware units (viz. Motorolla, Samsung, HCL, Wipro, Siemens, etc.) may be termed as 'industries' and therefore may come within the perview of the ID act. Other companies which are pure software/services firms, may shy away from implementing the provisions of the ID act. However, if a case is taken up in court, it is for the court to decide on the matter.

What can the government do?

The government must enact a legislation to put an end to the ambiguity of whether a software company is an 'Industry' or not as per the ID act so that the law is clear and companies don't resort to the loopholes in the law to terminate employees indiscriminately.

What to do if you are fired

Never submit your resignation. If you resign, legally you are helpless. It becomes your own decision. You will also not be eligible for the basic notice period/pay as per the employment contract.

Seek legal assistance. Know your rights as an employee. Explore legal avenues.

Don't take it personally. Don't be on the defensive thinking that you are being fired because of your performance. The decision on whom to fire depends on several factors including employee cost, skill set and future direction of the company.

Speak to your boss. He may help you with contacts to get you a new job.

Negotiate severance benefits. If it has to come down to leaving the company, negotiate the severance benefit. Typically a 'caring' company should give 2/3 months salary and notice before asking you to leave.

Employer - How to handle downsizing

Never blame it on performance - Indian IT behemoths brand their firing exercise as 'weeding out non-performers'. This practice is a barbaric way of treating employees. They are not only causing injury by firing the employees but also rubbing salt on the wound by calling them poor-performers. Is one to believe that the so called 'non-performers' were never there during boom time? These companies' performance appraisals are often a one-man's judgement (the immediate boss) of the empolyee and are often biased and politically motivated.

Explain the situation - Employees are congizant of the fact that their company is going through a bad time. Non-availability of projects is the main motivator for firing employees. Acknowledge this fact. Make it clear that this the only reason for firing the employees.

Provide a good severance benefit - Going beyond the contractual obligation and offering a better deal to the employee being fired will help the company's reputation in the long run.

Never try to 'cover it up' - Employers all too often resort to asking the employee being fired to leave the company withing 2 hours in the hope that the news doesn't spread. This is traumatic and ridiculous and will hurt the company's reputation badly. Any news of firing spreads like wild-fire.

A chance to improve your reputation - Pradoxical it may seem but by firing employees in a proper way and by treating them with respect, companies actually improve their reputation. I have heard of employees saying "I like my earlier company. They not only paid 3 months of salary after asking us to look for other oppertunities, but also allowed us to stay at home or use the office facilities to enable us to look for a job. They really care for employees".

What do you think? Does your company follow a legal/sympathetic procedure for downsizing? How are you handling the situation as an employer/HR? Please leave a comment for further discussion.