Context

• Last year, around 1,60,000 workers in the tech industry were laid off globally. In contrast, in just this month alone some 60,000 tech workers have been laid off till now. On the back of a gloomy global economic outlook and prospects of a possible recession, tech firms across the world from US-based giants like Alphabet, Amazon and Meta to early-stage startups have engaged in large-scale retrenchments.

What is means by Lay-Off?

• A layoff is the temporary or permanent termination of employment by an employer for reasons unrelated to the employee’s performance.
• Employees may be laid off when companies aim to cut costs, due to a decline in demand for their products or services, seasonal closure, or during an economic downturn.
• When laid off, employees lose all wages and company benefits but qualify for unemployment insurance or compensation (typically in USA).

Inflation after strong recovery of the global economy: Two factors

• Outpaced demand: Buoyed by extraordinary pandemic relief support to households, aggregate demand in advanced economies outpaced supply.
• Supply chain disruption as a result of Russia- Ukraine war: the armed conflict between Russia and Ukraine caused supply-chain disruptions, leading to global inflationary pressures for food and fuel. In response, the US Federal Reserve has rapidly hiked rates.

Layoff drive in India

• Lay-offs in India: As multinational firms seek to cut their payroll figures worldwide, this lay-off drive has made its way to India as well.
• Impact on Indian workers: Indian workers, including expatriates and local employees, in both the traditional IT sector and the tech-based startup sector have been affected.
• Slowdown in funding in 2022: Despite a strong start, funding in India began to slow down in 2022, with third-quarter funding falling to a two-year low.
• Rising interest rates and cost of capital: Rising interest rates have meant that the cost of capital has increased and venture capitalists have to be more selective about how they deploy funds in this funding winter.
• Restructuring and cost-cutting for Indian tech startups: Indian tech startups are under pressure to cut costs and restructure their businesses in search for profitability. As a result, startups, including unicorns have engaged in broad-based retrenchments.

Retrenchment conditions according to Industrial Disputes Act

• One month notice with reasons is must: Employers must give a one-month notice with reasons for retrenchment to workers who have been in continuous service for at least a year.
• Must provide compensation: Employers must give retrenchment compensation.
• Notice shall be served: A notice in the prescribed manner must be served on the appropriate government.
• Principle of last come first go shall be followed: Employers must follow the principle of last come, first go while retrenching employees.

Concerns for contract workers

• Employers often skirt legal requirements by asking for voluntary resignations to remain outside the scope of retrenchment provisions.
• In any case, these mandates only apply to non-managerial employees; managerial employees are governed by their employment contracts.
• There are no similar protections available to gig or contract workers.

Conclusion

• Even as India seeks to lead a digital and technologically-driven world, it is important to note that the tech sector is not immune to harsh macroeconomic realities. It is crucial for the government and private sector to work together to mitigate the impact of layoffs on workers and to ensure that the industry continues to grow and create opportunities for all.

Mains question

Q. Layoffs have been frequently reported in the news recently. In this context, briefly explain the term layoffs and discuss the factors contributing to them? Highlight the impact of layoffs in India.

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