Curious About Layoff Procedures in ITES/BPO? Let's Discuss the Real Process in India

Dear All,

Recently, someone questioned me about the layoff process in ITES/BPO sectors in India. I tried Googling and found the VA & VB Industrial Disputes Act of 1947; however, I think it applies only to IR/Manufacturing Companies and not to ITES/BPO. I would appreciate it if anyone could let me know the process of layoffs in ITES/BPO companies.

Thanks,
Goutham

Layoff Process Under the Industrial Disputes Act

The layoff process of the Industrial Disputes Act is only applicable to workmen as defined under this act. You have to check whether you are a workman; if applicable, then the provisions of the Industrial Disputes Act will automatically come into force.

Regards,
Trisha

Dear Sirs,

For the Industrial Disputes Act of 1947 to be applicable, the establishment/organization/company/factory should be an "industry" as defined under the Industrial Disputes Act. Furthermore, the individual in respect of whom the applicability of the Industrial Disputes Act of 1947 is discussed should be a "workman" as defined under the Industrial Disputes Act. Only if both these conditions are fulfilled, then the provisions of the Industrial Disputes Act are applicable. The Industrial Disputes Act of 1947, in Chapters V-A and V-B, lays down the procedures to be followed in case workmen are either laid off, retrenched, or if the establishment is closed. The Industrial Disputes Act of 1947 does not confer any power on the employer to lay off or retrench his workmen. The power of the employer to either lay off or retrench his workmen has to be read in the certified standing orders applicable to the establishment and the workmen who are employed there. If the certified standing orders are not available, then the Model Standing Orders have to be followed. If the Industrial Employment Standing Orders Act, under which the employer is statutorily obliged to have certified standing orders, is not applicable to the establishment in question, then the power to lay off has to be read in the appointment order. If the appointment order is silent about the power to lay off the workmen, then the workmen cannot be laid off. Assuming that an employer lays off his workmen without any power to lay off, then the workmen will be entitled to get full wages for the period of lay off. This post of mine is based on several judgments of the Honourable Supreme Court of India. In case you are able to lay your hands on any commentary on the Industrial Disputes Act, you will get the above points.

With regards.

Dear Mr. V. Harikrishnan,

Your post is very clear and detailed, so that I could understand the ID Act and its implications regarding layoffs to a greater extent. Thank you for that. I had a situation where a layoff occurred (layoff not mentioned in the offer letter) and I received the benefits as you mentioned.

My doubt is: As per my knowledge, IT/ITES companies fall under the Shops and Establishment Act. Does layoff fall under that act, or under which act can these employees be laid off? Kindly, please clarify the same.

Thank you,
Chandy

Dear Mr. Chandy,

IT/ITES/BPO companies come within the ambit of the definition of the term "industry" as defined under the Industrial Disputes Act 1947. Therefore, the definition section of lay off, Section 2(kkk), is applicable to these industries. As you said, these industries are covered by the provisions of the Shops and Establishments Act that are in force in the different States. Different States have different Shops and Establishments Acts.

As I pointed out in my previous post, Chapters V-A and V-B of the Industrial Disputes Act prescribe the procedure to be followed in the case of lay off, retrenchment, and closure. Either Chapter V-A or Chapter V-B is applicable depending on the number of workmen employed. If you go through section 25A(1), you will see that Chapter V-A is applicable to industrial establishments employing 50 or more workmen but less than 100. Also, if you go through the explanation to section 25C, you will see that the term "industrial establishment" is defined to include factories, mines, and plantations.

Similarly, if you go through section 25K, you will see that Chapter V-B is applicable to industrial establishments employing 100 or more persons. Furthermore, if you go through section 25L, you will see that the term "industrial establishment" is defined to include factories, mines, and plantations. Therefore, the entire Chapter V-A and Chapter V-B of the Industrial Disputes Act apply only to factories, mines, or plantations employing the prescribed number of workmen as the case may be.

Coming to your query, IT/ITES/BPO companies are neither factories nor mines nor plantations. Therefore, Chapter V-A and Chapter V-B are not applicable to IT/ITES/BPO companies. As mentioned in my previous post, the Industrial Disputes Act prescribes the procedure to be followed in the case of lay-off, retrenchment, or closure and does not confer any power on the employer to lay off, retrench, or close.

Therefore, the power to lay off must be found in the certified standing orders or model standing orders. If both the certified standing orders and the model standing orders are silent or in cases where the Industrial Employment (Standing Orders) Act is not applicable to the IT/ITES/BPO companies, then the power to lay off must be found in the contract of employment, which is the appointment letter. If the appointment letter is also silent, then the employer has no power to lay off, and if he lays off his workmen, they are entitled to full wages for the period for which they were laid off.

I have one query regarding the applicability of the act as you explained above. Is it necessary to register the IT/ITES/BPO under any act like the Shops and Establishment Act or Industrial Act? Can you please explain?

Regards,
Siva Kumar Tata

Thank you for the valuable suggestion on layoffs. I have a few questions:

1. During a layoff, does the company need to pay statutory obligations such as PF, ESI, PT, and other compliance?

2. According to the Factories Act, workmen are eligible for layoff benefits. What about employees in categories such as supervisors, executives, managers, etc.? What kind of benefits will they receive?

3. How many days in advance does the company need to obtain permission for a layoff from the labor department?

4. Can a company declare a shutdown without implementing a layoff and not pay the 3 months compensation (including workmen, supervisors, managers, etc.)?

Please provide concise answers to these questions.

Thank you and regards,
Prashanth Joseph

Dear Mr. V. Harikrishnan Sir,

Kindly provide information about the exemption for IT/ITES under The Industrial Employment (Standing Orders) Act in Tamil Nadu.

Regards,
Umesha

Understanding Workforce Redundancy in IT Software Companies

If an IT software company with 98 employees wants to implement workforce redundancy due to the non-availability of work, such as reducing their employee count by 10-20 individuals permanently, would this be considered a layoff?

Procedures for Reducing Workforce

What procedures need to be followed to reduce the workforce by 10-20 employees simultaneously?

Laws Governing Redundancy

What kind of laws govern redundancy in this scenario?

Compensation Requirements

What compensation is the company required to provide?

Notification to Employees

Should the company inform employees in advance or on the same day? What is the standard procedure typically followed?

Dear Mr. Umesha,

There is no exemption for IT or ITES companies from the Standing Orders Act in Tamil Nadu.