Navigating Workforce Redundancy in IT: How to Handle Layoffs and Legalities?

Understanding Workforce Redundancy in IT Companies

If an IT software company with 98 employees wants to implement redundancy in the workforce due to a lack of available work, such as reducing their employee strength by 10-20 people permanently, is it considered a layoff?

Procedure for Workforce Reduction

What procedure should one follow to reduce the workforce by 10-20 people at once?

Legal Considerations for Redundancy

What kind of laws govern redundancy, and what compensation does a company need to provide? Should the company inform employees beforehand or just on the same day? What is the general procedure followed?

Greetings,

In IT, performance records remain the best guidance. You can also identify the skill sets that you are no longer using. However, when these talents were hired, didn't you optimize workforce management? How was the billability calculated? I guess that can be the third parameter.

Looking forward to hearing from you.

If you closed your appraisals, you may use the bell curve rating system to identify the bottom 10% and act accordingly. Please note that the bell curve is not very popular nowadays, but since you want to retrench, you may use the same. Also, prepare a fair and employee-friendly pink slip policy and ensure that even if people have to go, they are taken care of. You can't ask people to leave in one day. They are earning members of their families. The IT sector has the highest turnover ratio in the corporate world. The insurance industry has taken a conscious decision not to provide insurance services to the IT sector, as per recent news. Therefore, this is going to be a sensitive issue.

All the best.

Understanding Retrenchment in Workforce Downsizing

Since the downsizing is a permanent arrangement, it cannot be called a layoff but rather retrenchment. Retrenchment can only be effected after following Section 25F of the Industrial Disputes Act. Since the number of employees in the establishment is less than 100, Chapter VB of the Act will not be applicable, and hence you do not need to obtain permission from the government in order to retrench the employees. However, you are required to send a notice (preferably in Form P or any other relevant form as per your state rules) to the government informing them of your intention to retrench employees.

All employees who are terminated should be given one month's notice before their termination, and they should also be compensated by paying retrenchment compensation at the rate of 15 days' pay for every completed year of service. This compensation is not required for employees who have not completed one year of service with the company.

There should be no termination of employment based on performance but rather purely on a 'last come, first out' basis. This means the last employee who joined in a particular kind of work should be retrenched first. Similarly, there should be one condition that those terminated should be given employment once you restart the functions or start recruiting people. This clearly indicates that the management should not use this right conferred under the ID Act as an opportunity to get rid of non-performing employees.

In respect of employees who have supervisory rights and to whom other employees report, nothing mentioned above will be applicable.

Regards, Madhu.T.K

This redundancy is due to the company facing financial issues and the need to reduce the headcount. I would like to understand the process that should be followed and how to communicate with those who will be affected by the layoff. Should the communication be in the form of a letter or an email? What is the general procedure that is typically followed?

Procedure for Handling Redundancy

Please conduct research on the procedure to follow, as you would understand the mindset of your staff. If they are aware of the company's financial problems, they may have already started searching for new opportunities. Have a one-to-one meeting with each employee and then hand over the letter. Ensure you take acknowledged copies for your future records. Compensate with at least a month's notice pay if you are reducing immediately and/or offer them some time to look for another job.

Finally, send an email to all employees explaining the retrenchment, as this will impact your existing staff too.

Hi Rasba,

In cases of layoffs, the notice period is typically 45 days within a 12-month period, and 50% of the basic salary and dearness allowance are paid in accordance with Section 25C of the ID Act 1947. For retrenchment procedures, you may refer to the suggestions provided by Madhu T K.

Since your firm is an IT company, it is essential to clarify whether the ID Act is applicable in your situation. Specifically, your organization may handle this in two ways:

1. Retrenching employees based on performance.
2. Providing a comprehensive Retrenchment Package.

Thank you,
Manish

Procedure for Employee Retrenchment

You have to prepare a category-wise seniority list of the employees and start retrenchment on the basis of "last come, first go." For this, you have to pay 15 days' salary for every completed year of service or part thereof and one month's salary towards notice pay. You need to inform the authorities about the retrenchment.

First of all, you need to put up a general notice setting out the reasons for the retrenchment. If it is challenged in a court of law, you should be able to justify your action before the court with evidence in support of the retrenchment, so you need to have proper paperwork and documents in place.

It is necessary that your total strength of workmen in the previous calendar year from the date of proposed retrenchment does not exceed 100; otherwise, government permission is required for retrenchment. This aspect needs to be examined strictly because any action in violation of this provision will render your action redundant by law.

Regards

Thank you all for your advice. I consulted a local lawyer as our company is located in Punjab. He mentioned that only a 45-day notice is required for redundancy, and no information to the government is needed. I am confused as I have received different advice. What is the best and most reliable way to seek advice on this matter? I want to avoid putting my organization in legal issues.

Thank you.

Legal Requirements for Workforce Redundancy

You may proceed with your local lawyer, but please ask them to refer to Section 25F of the ID Act. This section makes it clear that one month's notice (not 45 days' notice) is required to be served, and the notice should also be served to the Labour Officer. As stated in my previous post, no permission is required since the number of workers is not more than 100. However, an intimation must be given to the government, showing the reasons for retrenchment, the number of workers to be retrenched, etc.

Regards,
Madhu.T.K

Only workers can seek relief under the ID Act as the ID Act is applicable to them only. Supervisors and above cannot seek relief under the ID Act.

Referring to a good resource for anything and everything about Retrenchment - http://asklabourproblem.info/?s=retrenchment

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Hi! I wanted to share a valuable resource with you regarding retrenchment. You can find comprehensive information and guidance on this topic at the following link: http://asklabourproblem.info/?s=retrenchment

This resource covers various aspects of retrenchment, providing insights and solutions that may be helpful to you. Feel free to explore the content and utilize it as needed. Let me know if you have any questions or need further assistance.

Just to reconfirm if Section 25F of the ID Act or ID Act is applicable for IT/ITeS companies in Karnataka. What is the procedure to be followed by software developers and administrative/business support people?

Many thanks.

IT and IT-enabled services are covered by the Industrial Disputes Act. Therefore, the same procedures required for layoff, retrenchment, closure, etc., are to be followed by IT companies as well.