The global financial meltdown is taking its toll on Indian companies. Many are resorting to layoffs to cut costs and sustain business. The largest domestic private air carrier Jet Airways (India) Ltd, for instance, laid off 27 expatriate pilots recently. In October, the carrier had announced it would cut 1,900 jobs but had to reverse its decision following employee protests and government concerns over the mass layoff.
New York-based credit cards and travel services firm American Express Co., or AmEx, has begun downsizing its workforce in India as part of its worldwide effort to cut costs. Around 120 to 150 employees are likely to lose their jobs as a result. A day after the news of layoffs at American Express India on 3 November, mobile handsets maker Motorola Inc. announced its India operations would face job cuts as part of a plan to shed 3,000 jobs, or about 5% of its global workforce. There are several such instances where companies have announced job cuts.
To be sure, retrenchment is an immediate and effective way of reining in costs and providing financial succour in difficult times and companies are well within their right to discharge employees if they need to do so. But in the process, most employers tend to forget the sensitivities involved. “Letting people go for the larger interest of business is only fair,” says Sanjay Bali, vice-president, human resources, Samsung India Electronics Pvt. Ltd. “But one has to deal with it delicately.”
Illustration: Jayachandran / Mint
The employer-employee relationship in India is very different from that in the rest of the world, say most human resource experts. Not only is there an emotional element involved, but our intricate social structure and the lack of a legal framework that could protect both employer and employee in such situations makes the process extremely complex.
“Here, retrenchment is not viewed the way it is in the West. There is a social taboo attached to job loss,” says K. Raghavendra, vice-president and head, human resources, Infosys BPO Ltd. The company has identified around 440 surplus employees in the last three months but hasn’t let them go because of several such reasons.
“Severance is a complicated issue. There are legal, human and cultural aspects to it and, therefore, it is virtually impossible to execute an ideal severance,” says Anoop Narayanan, partner, Majmudar and Co., a Mumbai-based law firm. The law firm has been engaged by a large US manufacturing company to retrench the staff of a loss-making unit of its Indian subsidiary. This will result in 200 employees losing jobs. “We are developing a severance strategy which would include communication with employees, trade unions, government authorities, obtaining approval from the government on severance compensation,” says Narayanan.
Human resource managers say proper communication between employer and employee, changes in the laws on retrenchment and steps related to the emotional and financial security of employees can go a long way in making retrenchment less painful.
Need to review laws
The laws here make the retrenchment process extremely cumbersome. Currently, there are around 47 Central laws and 157 state regulations that directly affect the labour market. Most of these regulations are often inconsistent and, at times, overlap. Labour experts say it is impossible for either firms or workers to be aware of their rights and obligations when rules and regulations are spread over such numerous national and state-level Acts. “The key challenge is that in these rapidly changing times, we are governed by 60-year-old laws,” says Tapan Mitra, chief, human resources, Apollo Tyres Ltd.
Although amendments to the Industrial Disputes Act and the Contract Labour Act were proposed by the then finance minister, Yashwant Sinha, in 2001, these amendments, along with several others, have been pending Parliament’s approval since 2002. “The fact of the matter is that all political parties have a casual approach on labour legislations. These regulations require constant review in the wake of a fast-changing work environment,” says Jaideep Bedi, managing proprietor of RP Bedi and Co., a New Delhi-based management consultancy and legal advisory services firm. While flawed laws cause a lot of problem for employers, the brunt is often borne by employees. “Employees are the main casualty mostly,” says Bedi.
Labour law experts point out that international labour laws, while giving companies the freedom to sack employees, also have adequate clauses to safeguard the rights of blue- and white-collar workers. Bedi cites the US Worker Adjustment and Retraining Notification Act that requires companies to give employees a 60-day notice before mass layoffs or an eventuality such as the closure of a business unit or a plant.
Sensitive issue: All political parties have a casual approach to labour legislation, says RP Bedi’s Jaideep Bedi. Ramesh Pathania / Mint
In India, employees in the services sector or industries where there is no manufacturing activity have little legal protection against layoffs because it is yet to be decided whether such workplaces should be treated as industrial establishments under the Industrial Disputes Act. “Many companies have exploited the absence of legal guidelines and there are several instances where employees have been fired without even a day’s notice,” says J. John, editor, Labour File, a journal on labour and economic affairs that comes out once in two months.
In the absence of strong legal safeguards, the employment contract is a way to ensure that termination is in accordance with the terms and conditions of the employment agreement and the contract of employment, say experts. An employment contract will include standard clauses such as terms of employment, probation, compensation, confidentiality provisions, work hours, benefits payable, notice period, compensation and other requirements for termination, non-compete and governing laws. “If the termination is not in accordance with the employment agreement, then the employee can initiate legal proceedings against the employer for breach of contract, claiming damages and other remedies,” says Narayanan. Though employee contracts for senior executives in India have protection in the form of strong severance clauses and termination benefits, it is not so in the case of junior and mid-level employees.
There can never be a perfect and easy layoff but companies can definitely make it easier for the person who is going to go back home jobless. Experts say taking employees into confidence and explaining to them the compulsions for retrenchment can mitigate the injury and insult to a great extent. Some experts argue that companies should admit job cuts are a fallout of their own non-performance rather than the fault of employees. “Companies must learn to admit to their non-performance rather than label laid-off employees as unproductive workers,” says John. “Employers need to get their act together and handle layoffs with fairness.”
Bali agrees: “You shouldn’t spring a surprise on your employees. You have to be able to honestly explain the reason for disengagement.”
One of the most significant issues is how employees are told they no longer have jobs. “The hurt of losing jobs can be alleviated if the human resource department and senior management plan this well in advance, involve counselling consultants well before the announcement is made and partner with them through the entire transition process,” says Medha Jatar, managing director (Middle East and South Asia), Human Dynamic Asia Pacific Ltd. The Hong Kong-based consultancy focuses on people management and offers outplacement consulting service. Backup plans
Many developed countries have a strong social security infrastructure that acts as a cushion during periods of involuntary retirement. “We have no such thing here,” says Bedi. “In India, the absence of a strong social security network and system creates an additional responsibility for companies,” adds Mitra. “We need to work towards a fair and uniform process that benefits both the employers and employees.”
Countries such as the US have a fairly well-established practice of helping discharged employees find new jobs. In India, most companies don’t have any such policy. Some, however, are waking up to the necessity of having an outplacement policy—the process of finding employees a job outside the company.
Loopholes: Many firms have exploited the absence of legal guidelines—and some have fired employees without even a day’s notice, says Labour File editor J. John. Ramesh Pathania / Mint
In July, one of the country’s largest corporate groups, Reliance Industries Ltd, sought the help of recruiters to outplace around 400 employees from its fuel retailing business. The business was being downscaled after expansion plans didn’t take off as expected.
AmEx, too, is making efforts to make the process less painful for the laid-off employees. “People who are displaced will receive full severance, outplacement assistance and other support to aid their transition,” said an AmEx statement.
“Through an outplacement service, companies saddled with extra people can get rid of them without causing much heartburn,” says Ramesh Hande, director, Insync Consulting India Pvt. Ltd, a human resources solutions company that also offers outplacement services. “These are employable people who can be easily placed in firms that are hiring.” Typically, outplacement services can cost a company up to 15% of an employee’s salary. Still, the benefits far outweigh the cost. “It should be understood that a painful retrenchment impacts even the morale of those employees who have not faced the axe,” says Jatar. A cordial parting not only helps the employee who has been shown the door but also helps the firm project a more humane face among its present and prospective employees.
As Bali puts it, the perceptions shaped by how you have treated your disengaged employees have a bearing on who you can hire in future. “You might need the same people to come back when things are back to normal. If you have been good to them, there are better chances of them coming back to you,” he says.
Infosys BPO’s Raghavendra says his company has not laid off people in its six-and-a-half years. “Laying off is an easy option,” he says. “The challenge is to take care of your people in tough times as well as manage costs.”