Dear All,

I am Manager HR in a startup company which started its services in India since 2021. We have few of our FTE's on bench for a couple of months as they were not been able to put at our clients requirements. So, our CEO would like to Lay-Off those employees with a smooth procedure with few benefits given to them.

Request you to kindly advise if there is any law or procedure or best practices to be followed to amend the lay-off.

Best Regards,

Seasoned Ir Professional
General Manager-hr & Admin
+1 Other


Do you want to lay off them or retrench them? Lay off is only a temporary arrangement due to some reasons like absence of projects and laid off employees will continue to be in service and will get compensation equal to 50% of salary during the lay off period. But if you want to send them off, terminate the service, it should be called retrenchment. Retrenchment should also be done following the procedures listed in section 25F or 25N of the Industrial Disputes Act. Accordingly, if you have an employee strength of less than 100, you can give one months notice (in prescribe form with a copy to the Labour Officer) and pay retrenchment compensation of 15 days salary per year of service to those retrenched. This will come to an end of service.

In the instant case, I believe that the techies are hired for a project but the project has not come in to your hands and the employees are sitting idle. Obviously, they should be asked to go. Depending upon the contract of service, naturally, they should be on probation and as such even asking them to go without following the above section will be legal. And, in case the term for which they are hired is nearing, then you can wait for that date and get the contract be terminated automatically due to non renewal of contract. That is also a good choice.

From India, Kannur
Dear Madhu,

Thanks for your the information shared and the advise suggested.
As stated by you I have done some ground work and as told that as a company under section 25N and 25F we are supposed to send a letter to the Labour Officer stating the reasons of Lay-Off. But this case is different as our employees have worked under a project and that got rolled out. Later these few employees where put on bench so that we can place them on to other projects with other clients but their skills were not matching to that project. Also after a wait of few months we didn't find any project where they can be placed. So, management likes to relieve them from the services.
Is it advisable if we can give them a notice period of 15 to 30 days with the pay and relieve them from the services.

Your suggestion will be more valuable to take step and help the employees dis-satisfied.

Best Regards,


Subbhu, this is not a case of lay off but retrenchment/ termination. If you don't have projects suitable to them, give them a notice of retrenchment. Legally, these employees should be the employees joined last in that department or project. You can not pick and chose the employees for retrenchment. Now, in your previous post you had mentioned that they were employees on FTE (fixed term employment?) and have worked in the project for quite a few months. Then why don't you terminate them on the basis of the contract? Normally, the FTC is for one year or two years. But there will be a clause that the contract shall be terminated mutually before the term fixed by giving one/ two/ three months' notice from either side. You can follow that clause and send them out. If you do that, you will be legally safe also.
From India, Kannur
Thanks Madhu for your kind advise and support.


Dear Subbu,
Since you are HR Manager of a start up company, you need to frame the rules accordingly and intimate the candidates about the type of projects your company is handling at the moment and its duration. Based on that you can start hiring people based on the requirement and please stipulate in the offer/employment letter about the projects the person has to handle and its duration. This type of recruitment based on time bound projects can considered as temporary employment,since you made the type of employment clear and there can be no legal hassles and the person working on the project is considered as a consultant wherein only TDS can be taken and no other facilities are applicable like that of a regular employment.

Also, you may note that MNCs, Corporate and startups doesn't come under labour department and this being a separate entity, it becomes the prerogative of the Management to retain or lay off jobs. Under normal circumstances layoffs happen when companies are closed, or they do not have sufficient projects/businesses and of course anywhere between one month to three months salary will be given as per their confidential document maintained duly signed by the employee/consultant.

Many a times layoffs do happen when there are non-performing or under performing employees are there. Hence you need to check the type of recruitment done. Please ignore my first mail.

From India, Bangalore

I am very sorry to differ Dr Raghunath. You cannot run an establishments without employees but with 'consultants' only. Who is a consultant? the one who advises on various issues. He will not follow your office regulations with regard to office timing, leave, working hours etc. There will be a point of contact and whatever advise is required can be put by him and the consultant will report to that person only. He may come to your office regularly, but will not keep the office timings. he will be working for other companies also. You cannot take his services exclusively for you. He will raise invoice and collect his remuneration.

The above narrated should be the arrangement with a consultant. In all other cases, the employee employer relationship will be established and you will have to provide him with all benefits under the labour laws.

The second part of the comment also is not maintainable legally. There is no such relaxation given to any startups and MNCs with regard to labour laws. There may be some treatment as per state rules by separate notification. As such, an MNC employing 10 persons will be covered by ESI, an MNC employing 20 employees will be covered by EPF & MP Act. The women employed in a startup or MNC should be given maternity benefits. Those who leave after 5 years should be paid gratuity. You cannot simply close down your unit or retrench employees without following Industrial Disputes Act. Simply, there is no exemption from labour laws for MNCs or startups. As such if you lay off your division or department without following the provisions of ID Act, the same will be illegal. You can retrench employees if you feel that there are more employees than required for the project, it should be the last employee joined who should be sent off first and you cannot decide who should go first. Certainly, you can take a call on non performing employees but after following the principles of natural justice only. MNCs and Startups are not given any relaxation from the concept of natural justice in the functioning of a business.

From India, Kannur

As an HR Manager in a startup company planning to lay off employees, it's essential to follow the legal requirements and best practices to ensure a smooth and fair process. In India, the Industrial Disputes Act, 1947, governs the layoff, retrenchment, and closure of establishments. Below are some key points to consider:

Review Employment Contracts: Before proceeding with the layoff, review the employment contracts of the affected employees to ensure that the layoff is in line with the terms and conditions mentioned in their contracts.

Consult Legal Experts: Consult with legal experts or labor law consultants to understand the specific provisions and regulations applicable to your company and the affected employees. Labor laws in India can be complex, and it's crucial to comply with all relevant legal requirements.

Provide Notice Period: Generally, a notice period is required to be given to employees before implementing a layoff. The length of the notice period may vary based on the terms of the employment contract or as per the applicable labor laws.

Compensation and Benefits: Ensure that the affected employees receive all their entitlements, such as salary for the notice period, pending salary dues, and other benefits as per their employment contract and applicable laws.

Severance Package: Consider providing a severance package to the affected employees to support them during the transition period. This package could include compensation based on the years of service, gratuity, or any other benefits as per company policy or legal requirements.

Communicate Clearly: Communicate the layoff decision to the affected employees in a compassionate and transparent manner. Address their concerns and queries, and provide support during the transition.

Retention of Records: Maintain proper records of the layoff process, including communication with employees, documentation of notice periods, and settlement details.

Avoid Discrimination: Ensure that the layoff decision is not based on discriminatory grounds and is made solely on the basis of business necessity and performance.

It is crucial to consult with legal experts or labor law consultants who can guide you through the specific procedures and requirements applicable to your company and the affected employees. Implementing the layoff process in a legally compliant and empathetic manner will help maintain the company's reputation and protect the interests of both the organization and the employees.

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