Indian Labor Law Mandatory Provisions on Layoffs

When an enterprise wants to dismiss employees who do not meet the performance or meet the company's requirements, the company's human resources usually consider directly initiating the contract clauses related to termination of employment in the labor contract. Foreign companies in India often operate in this way, but this actually overlooks one point: India’s labor legislation is more effective than the contract clauses of autonomy between the parties. The usual impression is that hiring and dismissal are very simple things. In fact, it seems that simple dismissal of employees is more difficult. There are some mandatory provisions in the law to regulate the dismissal of workers and non-workers. Individual states (such as Punjab, Maharashtra, Tamil Nadu, etc.) also have different regulations on the notice period for arbitrary dismissal and dismissal of employees due to misconduct. Some large manufacturing companies even need permission from the state government in individual cases.



Legal basis for layoffs in India

The general understanding of "layoffs" refers to the reduction of some employees or redundant employees who do not meet the company's performance requirements due to economic reasons. In India, the main law governing "layoffs" is the "Labor and Management Dispute Act of 1947" (ID Act). Section 2 stipulates:



Layoffs do not include the following categories


a. Workers retire


b. Retire because the worker reaches the retirement age stipulated in the labor contract


c. Ended because the worker’s labor contract expires and is not renewed


d. Due to the worker's persistent physical illness



It should be noted that India’s "Labor Dispute Law" stipulates that employment can be terminated by layoffs for any reason. In the case of "Delhi Cloth and General Mills Co. Ltd. v. Sambu Nath Mukerji" of the Supreme Court of India, even the removal of employees who were absent from work because they did not take leave was defined as "layoffs." Therefore, the reasons for layoffs are not limited to any specific reason, of course, not only because of economic reasons, such as staff redundancy.


In addition to the need to understand the definition of layoffs, when layoffs (excluding dismissal due to misconduct), employers must also comply with the provisions of Section 25F of the Labor Dispute Law, which stipulates that employers should meet the requirements before layoffs. Some conditions. The clause stipulates that workers who have been continuously employed for no less than one year in any industry shall not be laid off, except in the following circumstances:



a. A written notice has been given one month in advance and explained the reason for the layoffs and the notice period has expired, or the employee has been paid in advance to replace the notice


b. Each year (or the part greater than 6 months) is equal to 15 days' salary paid to the employee;


c. According to the "Labor Dispute Act", for certain "industrial organizations" (such as factories, mines or farms with more than 100 workers), the employer is obliged to provide 3 months' notice or pay compensation accordingly.



Clause 25F(c) also requires employers to send notices to specific government departments. It is very important that the notice must clearly state the specific reasons for the layoffs and be sent to relevant government departments in accordance with the requirements of the Act. In addition, Section 25N stipulates that units employing more than 100 workers on an average day in the past 12 months need to obtain prior approval from the state government for their layoffs in the written notice of the reasons for the layoffs. 

The state government has the right to approve or suspend its layoff application after completing the relevant inquiry procedures. Therefore, once the layoff application is questioned and not approved by the government of the host state, dismissal based on a simple labor contract will bring more serious consequences.



In addition to the central-level legislation "Labor and Management Disputes Law", various state governments have also enacted relevant legislation, such as the "Shops and Commercial Establishments Act". 

This bill is the most important local legislation related to labor and employment. This legislation includes such as working hours.  Rest interval, overtime, vacation, leave, dismissal, stipulated working hours, rest interval, overtime, vacation, leave, dismissal, employment of children, young people and women, other rights of employees, and obligations of employers and employees, etc. Some states stipulate that unless the employer can prove the employee’s misconduct or the employee’s violation of company discipline, the labor contract cannot be terminated. 

The notice stipulated in the Law on Stores and Commercial Institutions is also a mandatory requirement, and you need to pay more attention and strictly abide by it in the individual case, so as not to be sentenced to invalid dismissal by the court. After all, employers face more lawsuits for the termination of employment contracts happening. 

If the employer fails to comply with the layoff notice required by the law, once the employee goes to the labor court and is ruled invalid by the court after the long-term lawsuit that the layoff violates the mandatory provisions of the law, all the efforts of the employer will be in vain. 

Moreover, the court will also require the employer to resume payment of the employee's full remuneration, including the entire time before the litigation decision is made.



The "Labor Dispute Law" also stipulates that when some employees are laid off due to employee redundancy, the "last-in, first-out method" shall be adopted, which means that the company shall lay off lesser workers first when layoffs, except for the following two cases:

 1 ) The employer and the worker have a special agreement on this in the contract

2) The employer has a written legal reason for termination. In addition, the employer shall not immediately supplement the retrenched positions after layoffs. 

If an employee is laid off and the relevant employer re-recruits, then the employer needs to give the laid-off employee a chance to re-employ, and the opportunity needs to be better than other applicants.


Indian Labour Law Provisions Infographics


In recent years, more and more foreign companies have been attracted to invest in India by India's huge demographic dividend and potential consumer market. Investment in the localization of factories will inevitably require the employment of a large number of local workers. India’s labor and employment legislation is divided into categories and complex. There are dozens of legislation on labor and employment at the central level alone, which does not include the labor legislation of various states.



The main central legislation is:

1947 "Labor and Management Disputes Act", 1948 

"Factory Act", 1946 

"Employment Act", 1986 

"Child Labor Act (Prohibitions and Regulations)", 1948

 "Minimum Wage Act", 1936 

"Wage Payment Act", 1976 

"Equal Pay for Equal Work Act", 1952 

"Employee Provident Fund and Other Provisions Act", 1948

"Employees National Insurance Act", 1965 

"Bonus Payment Act", 1972 

"Remuneration Payment Act", 1961 

"Maternity Allowance Act", 1932

 "Employees Compensation Act", 2013

 "Workplace" Sexual Harassment against Women (Prevention, Prohibition, and Correction) Act, 1970 

Contract Workers Act (Regulations and Repeal), 1926 

Association Act, 1938

 Employer Responsibility Act, 1961 

Apprenticeship Act, 1952

Mine Act, 1986 

"Dock Workers (Safety, Health and Welfare) Act", 1996 

"Building and Other Construction Workers (Employment Management and Conditions of Service) Act", etc., the local level legislation is mainly related to each state government's own corresponding "shops and commercial establishments (Non-factory) Act.



Faced with such complicated labor legislation, it is very important for Chinese investors to abide by Indian laws and protect their own interests in recruiting, hiring, dismissing and layoffs. First of all, it is necessary to understand the labor legislation and regulations of India and the state where you live, including working conditions, employee benefits, wages, vacation and social security regulations, labor contracts and termination of employment, etc., so as to avoid stepping on the red line of the law.

 Whether it is the establishment of the company's internal personnel system and discipline, or the drafting of the labor contract dismissal notice, it is best for professionals to intervene to guide the drafting or review, and to better protect the interests of the employer on the basis of abiding by the law; finally, in the dismissal and layoffs or when labor disputes occur, you should consult legal professionals in a timely manner, properly collect and save evidence, and resolve them through legal channels. 

In addition, a recent employee protest incident also reminded investors to do a good job of employee training for both parties during local employment, respect local customs and culture, and better localize employment.