IT firms are firing. Do you have any legal safeguards?

The top burning and contentious issue of late has been the massive job losses that have been taking place in the IT sector or are anticipated to take place in near future. Recently, a controversy was sparked by an audio clip of Tech Mahindra HR executive that found its way into the public and soon became viral. In this audio clip, the executive is heard saying: “This is a corporate decision. If you read the offer letter carefully, there is a clause that states – the company reserves the right to revoke your services at any moment by paying the basic salary. I can ask you to leave the company today end of the day as per the conditions mentioned on the offer letter, which you duly accepted when you joined Tech Mahindra. Why did you sign the offer letter if you were not in agreement with the termination clause that was clearly mentioned in there?”

It might seem at first glance that the HR’s argument, although rude and insensitive, is justifiable. Because the employee agreed to the terms of employment in the offer letter, including the termination clause, out of free will and under no pressure, he/she does not have a case in his/her favour. But is it really so? I find it strange that no one has yet bothered to explore the legal options around this issue.

The government legislation that deals with the termination of employees by firms can be found in the Industrial Dispute Act, 1947 (the “ID Act”). This act deals with the ‘retrenchment’ of employees, and the term ‘retrenchment’ is defined in section 2(oo) as: ‘retrenchment’ means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include –

(a) voluntary retirement of the workman or

(b) retirement of the workmen on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf; or

(bb) termination of the service of the workman as a result of the non- renewal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation in that behalf contained therein;

(c) termination of the service of a workman on the ground of continued ill-health.”

Simply stated, retrenchment means termination of employment of a “workman” by the employer for any reason other than the ones listed above. Firing for financial reasons, poor performance etc. fall into the definition of ‘retrenchment.’

It is crucial that an employer must carry out ‘retrenchment’, as per the regulation is section 25F, ID Act. It states that no workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until-

  • the workman has been given one month’ s notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice:
  • the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days’ average pay for every completed year of continuous service or any part thereof in excess of six months; and
  • notice in the prescribed manner is served on the appropriate Government or such authority as may be specified by the appropriate Government by notification in the Official Gazette.
  • The condition given under section 25F(c) states requires the employer to give notice to appropriate government in addition to the other two conditions. What is important to note is that the notice must state the reason for retrenchment of the employee and the notice must be issued as is prescribed in the rules framed under the Act.

Moreover, the employers of industrial units, who have employed one hundred workmen or more on an average per working day for the preceding twelve months are required to comply with additional conditions. Unlike the notice requirements of section 25F, the employer is required under section 25N to make an application along with the reasons of intended retrenchment to the State Government for seeking its prior permission to retrench the employee. The State Government has the discretion to grant or withhold such permission after making enquiries. Hence, a simple termination as per the contract of employment can prove disastrous in the event the termination is challenged.

The definition of the term ‘workman’ is central to the ID Act because only a ‘workman’ is protected under this act. Section 2(s) defines workman as any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work, for hire or reward, terms of employment be express or implied and includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of dispute. It excludes persons:

  1. who is subject to the Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of 1950), or the Navy Act, 1957 (62 of 1957); or
  2. who is employed in the police service or as an officer or other employee of a prison; or
  3. who is employed mainly in a managerial or administrative capacity; or
  4. who, being employed in a supervisory capacity, draws wages exceeding INR 10,000 per month or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, function mainly of a managerial nature.

The employer might try to invoke point (4) arguing that since the employee is drawing more than INR 10,000 per month in wages, he/she does not qualify as a workman, and hence is excluded from the purview of the ID Act. However, as stated in the act, only those people in managerial or supervisory roles and drawing more than INR 10,000 per month are to be excluded. All technical employees, irrespective of their income, qualify as a workman. Hence, most of the IT technical staff who have spent over one year in the company qualify as ‘workman’ and cannot be dismissed without taking prior permission from the state government. Even if permission is granted, retrenchment must be carried out on the principle of “first-in-last-out.”

It is hhardlythe case that a state will give permission to an industrial unit of a firm to retrench employees. The ‘offer letter’, which the HR executive is referring to in the leaked audio clip, has no legal binding whatsoever.  In most cases, the employers prey on the fears and ignorance of their staff members. They will usually ask the employee for resignation first, stating that non-compliance will lead to firing. Believing that “being-fired” will be a stain on their CV most of the employees concur to avoid jeopardising their career. If one can overcome this fear or has secure backup, he/she should rest assured that his/her employment cannot be LEGALLY revoked by the firm.

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