With the arise of the Recession, the year 2023 has also observed the rise of the mass lay off done by considerable amount of prominent reputed Companies like Meta, Alphabet Inc., Intel Corp etc. According to the Chief Executive Officer of Meta, Mark Zuckerberg, this year would be observed as the “Year of Efficiency”.[1] The Meta has laid off over 11,000 employees and 13% reduction in its first major layoff. While it has startled everyone by laying off 12,000 or 6% of its work force. Outside Tech companies, other companies like FedEx Corp is Reducing Global Officer and Director’s Job by more than 10% for better efficiency and agility in the company.[2]
Lately this Pattern has been observed in the Indian Tech Startups, for instance if we take a major company like Swiggy into consideration; it has laid off around 380 workers in January 2020[3]. While Wipro had let go of 452 fresher’s after claiming that the employees had poorly performed in the assessments repeatedly.[4]With the ongoing Lay off, it has led us to question the real applicability of the labor laws in our society. In the countries like the US and India, who are known for its powerful democracies, such action also led us to observe whether the laws of the state will be able to protect the rights of these individuals?
MEANING OF LAY OFF
A Layoff can be defined as the temporary or permanent termination of employment by an employer. The reasons here are unrelated to the employee’s performance[5]. Usually, in most of the cases, layoff does not occur due to the employee’s fault but because the organization wants to downsize or is experiencing issues with personnel management. While in this case, permanent termination is usually due to redundancy in positions.[6]
If we look into the Indian laws they have expressly defined what exactly the concept of lay off is in the acts like, Industrial Relation Code 2020 and Industrial Dispute Act 1947. According to the Section 2 (kkk) of the Industrial Dispute Act, 1947 the term “Lay Off’ has been Observed as inability, failure, or refusal of the employer to provide employment to an employee whose name has been mentioned in the muster roll of its industrial establishment and who is not retrenched due to lack of power, coal, raw materials accumulation of stocks, breakdown of machinery or natural calamity for any other relevant reason. In the Industrial Relation Code, 2020 the meaning of the term layoff has been defined as the inability of an employer, due to the shortage of coal, or power, or power material or breakdown of machinery, accumulation material or natural calamity from giving employment to a worker whose name is on muster roll and has not been retrenched. [7]
While in the US laws, the very definition of the layoff is not mentioned expressly, instead it has been mentioned as “Mass lay off” in the 20 CFR 639.3 definition, in the electric code of the federation. According to this, Mass lay off can be defined as the reduction in force due to two conditions namely;
1. Reduction is not due to the plant closing and
2. Reduction of force has happened within the thirty day period. [8]
While observing the two definitions, The Indian Laws did not mention employee’s performance as a criteria for layoffs, while the US laws also did not mention this criteria, but due to the ambiguity in the language of the laws and can be used to interpret this condition. Though both the laws also stated that layoff can only happen in the case of shortage of power and non-ability of the employer. But the real scenario state otherwise.
HISTORY OF LAY OFF
If one has to talk about the history of lay off, it is observed that in the American Capitalism, workers have been laid off either in the recessionary period or during the rapid technological change. According to Marx (1977), the army was expelled as a result of change in organic composition of capital. Because of this change, there is deterioration in the material conditions due to which there can be chances of revolt and the establishment of a new political economic system, therefore to avoid such circumstances the army was expelled. In terms of Durkeim, the layoffs were due to the financial crisis. Due to the disturbances in the collective order, it weakened the society’s capacity to regulate the individual passion for self-enrichment. [9]
Though this idea changed, as according to the Disposable American, from the era 1890s through the 1970s, mass lay off were considered as a sign of bad corporate behavior and a violation of acceptable business behavior. Throughout the Mid-20th Century United States prevailed the idea that it was the Government’s responsibility to ensure full employment. Though this started to change when the Former US president Jimmy Carter, advocated and celebrated the idea of free market, as well as focus towards bringing the greater competition leading to the creation of an environment in which thousands of jobs can disappear. It was in the early 1980s, that the man name General Electric Jack Welch, popularized the idea of layoffs as a sign of corporate competitiveness. As this idea started to get popularize, executives emphasized layoff as something which is done for greater good. According to Robert Eaton, the former CEO of the Chrysler Corporation,“Downsizing and layoff are part of the price of becoming more competitive.” With this, the idea of layoff started to be seen as something which is strategic and effective for the Business’s’ growth.[10]
EMPLOYER’S VIEW TOWARDS THE LAY OFF
To observe the Employer’s viewpoint, one can explore and analyze from different theories that have prevailed in the society. Such as Economic theories, human capital theories, etc. According to the human capital theory, lay off is done on the basis of last hired and first fired. Thurow challenged that lay off is based on the concept of marginal productivity, in which worker’s individual productivity is almost impossible to determine because it gets interlinked within the team efforts. Due to this reason, employer depend upon the experienced employee by giving them the assurance of security. Therefore, the employer laid off their employee on the reverse terminology. Moreover, more the employer invest on training, less will be the chances for employee to get laid off. On the contrary, if the employee is specifically trained, then the chances will be difficult to get laid off.
Though while selecting the basis of the layoff, the management focuses towards whether the job is superfluous or not. Moreover, it also observes whether the job is at the proximity to the production. The two types of job has been mentioned i.e. direct job and indirect job. Direct job is seen as a job which provides the solution to the manufacturing, while the indirect job can be observed as the temporary, manual and repetitive work. With the decrease in demand, the workload of the direct job also decreases, since it is linked to the production of output. Thus, during the recession period the blue collar jobs are laid off more as compared to the other jobs.
To conclude, it can be said that the while laying off, employer emphasizes towards the production, skills of the employee, resources involved in its training etc.
WHAT HAPPENS TO EMPLOYEE?
According to the Harvard Business Review, The process of layoff lead to devastating effects not just on the employees who have been terminated but also on the employees who have survived[11]. According to the Charlie Trevor University of Winscoin- Madinson and Anthomy, it was discovered that downsizing a workforce by 1% can lead to increase in voluntary turnover by 31%. Voluntary Turnover can be defined as when an employee leaves the job due to various reasons such as getting the job elsewhere or they have taken an internal transfer or have retired. Moreover, while getting laid off, employers exhibit signs of shock, anger, distrust, doubt, frustration and escapism. If not handled properly, it can lead to the protest affecting the company’s reputation. According to the Labour Department Survey, employees who have suffered the loss, only 41% of the employee found work at equal or higher pay, while the 26% worked at lower pay, while the rest 21% either suffered from unemployment or left the work force. Layoff also tarnishes their image as an employee, which result in making the process of getting a job more difficult.
Those who have survived the layoffs are also not very contended. According to the Harvard Business Review, Layoff leads to low morale which further leads to weakening the engagement. Also, the concept of layoffs send out the message that hard work and good performance won’t guarantee the employees job stability. Moreover, a 2002 study given by the Magnes Sweke and Jonny & Hellgren of Stockholm University and Kathatrine Naswall of University said that after the Layoffs there has been 41% decline in Job Satisfaction, 36% decline in organizational commitment while 20% decline in Job performance.[12]
LEGAL REMEDIES, THEY CAN ACQUIRE IN CASE OF LAID OFF?
With the increase of massive layoffs, the government started to show concern to how to tackle this situation according to Harvard Business Review, many countries have started to create written laws in order to protect the employees from such issues. Many of the European Countries, have stated that in order to do the laid off, the companies need to provide the justification both on the social and economic grounds. Though this has not happen in other countries such as France, where such justification are not followed and the United States where companies conduct the laid off at its will.
If one has to talk about India, the Industrial Dispute Act 1947 looks after the protection for the workmen. Though, this act only protects the blue collar employees while the employment Contract helps to govern employment in the case of the White Collar jobs. There is no legislation to protect the technical staffs in case of termination. [13]Moreover, Chapter VA of the Industrial Dispute Act states that layoff would not be applicable if the establishment is less than 50 workers. Another factor which needs to be looked upon is the definition of the workmen. Workman can defined as the person who works in any industry, any physical, unskilled, technical, operational, clerical work.[14] A manager and Supervisor would not be considered as the Workmen, therefore making them difficult to go the Labour Courts. In Indian Laws, right of compensation is provided for 45 days, if the workmen who has been laid off has its name mentioned in the Muster Roll.
While in the United States, The situation is bit different. According to the National Conference of State, The Conference has defined as the way in which employer can laid off the employee at any time and for any reason except in the case of the illegal ones. In the simpler sense, it means that the employer can change the relationship between the employee and employer without any notice. Though this scenario is different in the case you are part of protected class. [15]Protected class can defined as the class which have been protected by the state on the basis of the sex, race, age etc. Some of these are:
- If you are age is Forty years and above: If the employee age is forty year and above then he can avail its right under the age of Discrimination Employment Act of the 1967. If you are part of the group lay off, one can take protection under Older benefit Protection Act.
- If you are part of the Minority: If you are part of the minority, then you can avail under the Title VII of the Civil Right Act, which prohibits companies from making decisions related to the decision based on the race/colour, sex and pregnancy etc.
- In the Case of Disability: The American with the Disability Act (ADA) of 1990, prohibits employment discrimination with regards to the disabilities.
Though no such statutory protection has been mentioned if you are not part of protected group or RIF.
ANALYSIS
Laid off as the concept and its applicability, it can observed that there vast differences with legal application and its psychological interpretation by the employer. Though the employer’s does the laid off purely on the basis to cut off the organizational structure and expenses, yet they fail to determine the consequences of laid off, leading to the disparities among the employee. Moreover, even though legal remedies are provided to the employees but it has its own loopholes. If one observe the US legal System as discussed above, the remedies are only provided to protected groups. Moreover, the terminology of the protected groups are varied to state to state. The unprotected groups’ feels discouraged by these remedies and even if they try to find the solutions, the legal complication due to non-availability of the specific statuary rights, make them more demotivated.
If we talk about the India, the situation is not much better, According to the Modi Food Products Co. V/s Shri Faqir Chanel Sharma and others, it was held that there are no statutory provisions rules which prescribe the conditions under which there could be laid off, that it should be based on the adequate Interpretation. Due to the liberal interpretations, it gives wide discretion to the employer to lay off its employee. Even the concept of the adequate grounds became subjective as it can varied to case to case. Moreover, it was also held that according to the Section 25D of the Industrial Dispute Act 1947, workmen can be provided with compensation of 45 days. [16]Though this, also raise to the question whether 45 days compensation is sufficient for a workmen who has provided it time and skills to the company he has worked in?
CONCLUSION
This article tries to focus towards the loopholes in the legal system with regards to lay off in India and United States. Even though the companies think from various perspectives while laying off, but statutory provisions for the employee are not sufficient to administer them with justice.
[1] Editorial, “A Clear Target Emergences in Tech Layoffs: Middle Managers” Mint, Feb 8 2003.
[2] Editorial, “A Clear Target Emergences in Tech Layoffs: Middle Managers” Mint, Feb 8 2003.
[3] Abhik Sengupta,”Tech layoffs 2023: January was the worst month for job cuts, over 1 lakh techies sacked”, India Today, Feb 1, 2023.
[4] Vaani Mani and Sheelpa Mandi, “Wipro layoffs 2023: Wipro fires 452 freshers for poor performance”, Times of India, Jan 22, 2023.
[5] Will Kenton, What layoff means, Plus Statistics and an Example, Investopedia, November 30, 2022
[6] Corporate Finance Institute, available at Laid Off – Definition, Reasons, Alternatives to Layoffs (corporatefinanceinstitute.com) (Updated on 11 Dec 2022)
[7] Udita Prakash, “An Industrial Relation Code 2020, an Overview”, I Pleaders, September 30, 2021.
[8] Electronic Code of Federal Regulations, Cornell Law School.
[9] Daniel B Cornfield, “ Chances of Layoff in Corporation: A Case Study” Administrative Science Quarterly, Vol. 28, No. 4 (Dec., 1983), pp. 503-520.
[10] Sarah Todd, “The Short but Destructive History of Mass Layoff”, Quartz, July 12, 2019
[11] Sandra J. Sucher and Shalene Gupta, “Layoffs that don’t break your Companies”, Harvard Business Review, May-June 2018.
[12] Sandra J. Sucher and Shalene Gupta, “Layoffs that don’t break your Companies”, Harvard Business Review, May-June 2018.
[13] Editorial,” Are you a Laid off Techie? Here are the Few Legal Remedies”, The Economic Times, Jan 27, 2023
[14] R Sai Gaytri,” A Comparative Analysis of lay off and retrenchment”, I-Pleaders, July 6 2021
[15] Dwen Parpendra, “Laid Off? These are the Legal Rights that can protect you, Monster.com (https://www.monster.com/career-advice/article/layoff-legal-protection)
[16] Modi Food Products.Co Vs Shri Faqir Chand Sharma and Others, 1956 AIR 628, SCR 560
Author: Kanishka Singh
Juris Centre 