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Year Of Layoffs?
The mega layoffs announced by the US tech giants since the beginning of the year as well as more than 22,000 job cuts effected through 2022 by our very own tech startups may not be the last time we have heard this sordid story this year
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In early 2021, North America witnessed the 'great resignation', also known as the 'big quit' or the 'great reshuffle'. Employees in the US and across some European countries were voluntarily quitting en masse in the wake of the pandemic, rising cost of living, inflexible remote-working policies or an overall change in the thinking process due to the pandemic. Maintaining a greater work-life balance was cited as among the key reasons for mass quitting.
Fast-forward to 2023, the Silicon Valley, once considered the 'dream destination' especially for the Indian IT professionals, was jolted almost overnight. The year started with the announcement of the 'biggest layoff' in the history of tech-giant Google's parent firm Alphabet. It announced layoffs of 12,000 people or 6 per cent of the total workforce. Alphabet CEO Sundar Pichai said senior executives would also be taking significant pay cuts. Global slowdown, funding winter, fear of recession, among others, were cited as the top reasons for this measure.
Ecommerce giant Amazon also announced in early January its plan to lay off more than 18,000 people or around one per cent of its total workforce (around 1,000 in India). This was the biggest job cuts in the 28-year history of Amazon. Since November 2022, like Amazon, Meta, the parent firm of social media giant Facebook has been trimming its workforce. Facebook has let go of nearly 11,000 employees, mostly from Instagram, Facebook and WhatsApp. This would amount to a 13 per cent cut in the overall workforce.
Google's competitor Microsoft it is set to fire 10,000 people by the end of March 2023. Microsoft is also led by an Indian origin CEO Satya Nadella and employs thousands of Indians on work visa. Experts say Indians on H1-B visa need not panic despite the fact that foreign nationals with H-1B visas have only 60 days following termination to find another job or leave the country.
“The ideal option is to find a new employer for such employees or getting hired with a different work visa, such as the H-4 dependent visa for spouses of H-1B holders, the O-1 visa for anyone at the top of their field, or the E-1 or E-2 visa for citizens of certain treaty countries,” says Achal Khanna, CEO, SHRM India, APAC & MENA. Society for Human Resource Management (SHRM) is the world's largest HR association.
There are alternate solutions as well, according to Khanna. “If you've got some savings and can buy some time to find a new job, you can stay in the United States by doing ‘non-work activities’ on visas that allow you to be in the country and not be employed. These options include changing to a ‘non-work status’ such as the visitor B-1 or B-2 visas or the F-1 visa for students,” she adds.
These big layoffs have made it to the headlines back home. But on the other hand, in India, the startup sector has let go of nearly 22,000-23,000 employees all through 2022 and early 2023 without much hoopla. In January, once again, Mohalla Tech, which runs social media platform ShareChat and short video platform Moj, laid off around 20 per cent of its employees (around 500 people) due to ‘external macro factors’ that were impacting its cost-revenue structure. “In hindsight, we overestimated the market growth in the highs of 2021 and underestimated the duration and intensity of the global liquidity squeeze," Mohalla Tech’s India CEO had said in an internal email to the employees, that was later widely reported.
Various reports peg an estimated 22,000-plus layoffs in the past 12-13 months, with the largest share belonging to the edtech, fintech, ecommerce and affiliated tech platforms and others including online pharmacies. TeamLease, one of India's leading employment services providers, in its latest Employment Outlook Report for Q4 (2023) delves into attrition trends which are just the continuance of the ‘Great Churn’. It says the attrition across industries witnessed a 0.46 per cent increase, from an average of 7.81 per cent in Q2 to 8.27 per cent in Q3.
In the report, a comparison between manufacturing and services sectors indicates that the information technology services sector had higher average attrition (+27.19 per cent) as compared to the healthcare & pharmaceuticals industry in the manufacturing sector (+15.67 per cent). “Among startups in manufacturing, attrition rates were alarmingly high (26 per cent). From a services sector perspective, key industries which witnessed higher attrition were information technology (27.19 per cent), educational services (18.02 per cent), ecommerce & allied startups (15.13 per cent), knowledge process outsourcing (13.79 per cent) and telecommunications (12.05 per cent),” the report said.
But why? Explains Ajoy Thomas, Vice President & Business Head, TeamLease Services: “Influenced by upcoming appraisals, economic turmoil in the ecosystem, and increased migration between allied industries, attrition has increased significantly. Attrition has been reported to be higher also due to increased new-age opportunities.”
Layoffs by the tech platforms could also be explained by a consistent decline in funding. “In the last few years, technology enabled companies went on an overdrive to recruit employees amid a pandemic-fuelled economy of tech products and services boom; however, with the broader economy being hit by the perfect storm of inflation, rising interest rates, fears of a recession, an overcrowded startup marketplace and Russia's war in Ukraine, the layoffs will stay for a while. Recruitment plans will take a slower approach as we proceed in 2023,” says Khanna.
Do these mega layoffs also reflect poorly on the management? Are these also a result of misjudgement? The answer is both ‘yes’ and ‘no’, according to Khanna. “Initially, layoffs seemed specific to businesses in more fragile financial situations, like if they are unprofitable and funding dried up or if they do not have the runway to continue to operate without additional funding. Nevertheless, in the past few months, we have had big tech and stable sectors also giving pink slips,” she says. What should be done going forward? “The CEOs and CHROs of 2023 will need to be more sensitive to geopolitical issues, technology disruptions, and a changing economic paradigm to avoid such situations in the future,” she adds.
Legal Position on Layoffs
In India, labour law is a concurrent subject in the Indian Constitution, which implies that labour and employment regulations in the country are governed both at the federal and state levels. This means a significant legal risk for firms if complex norms and policies are not followed in the layoff process.
Experts in employment law point out that the employers have the right under law to organise their workforce to align with "one's business requirements" when faced with an unfavourable business climate. However, any such action of reduction needs to adhere to the process prescribed under law. Explains Pooja Ramchandani, Partner, Employment Law at Shardul Amarchand Mangaldas & Co: "Broadly speaking employees can be classified into workman and non-workman. The former having more protections under statues than the latter when it comes to lay off/retrenchment."
The laws prescribe that the process for termination of employment on account of redundancy in case of workman involves displaying a seniority list of the workman, complying with the ‘last in first out’ role (unless there are justifiable reasons in writing to deviate from the rule), providing a prior notice or pay in lieu thereof of at least 30 days, payment of a retrenchment or severance compensation and all other statutory and contractual dues and notifying the labour authorities within the stipulated timeline. "For non-workman there is no statutory requirement to pay retrenchment/severance compensation or complying with the 'last in first out rule'. Payment of severance compensation for non-workmen is embodied in the policies of the employer, if any," says Ramchandani.
Many organisations adopt the mutual and voluntary separation route. "This manner of separation though costly is least contentious and mitigates risk of challenge if the separation package is attractive and employer and employees achieve consensus and idem. Many employers also offer additional benefits such as insurance, medical benefits, bearing the cost of recruitment agencies, etc. to make the separation package lucrative," says Ramchandani.
What happens if those who are part of the list of 'terminated/ laid off employees' challenge the action taken by the employer? "It is important that the rationale for a sudden redundancy is explained to the employees, especially in cases of mass terminations," says Kriti Kaushik, Partner, Benefits & Compensation, Shardul Amarchand Mangaldas & Co. This, according to Kaushik, helps in demonstrating the bona fide of the employer. The communication also should be handled in a sensitive and humane manner, and to the extent possible the actions proposed to be taken by the employer to help ease out the impact of exit should be explained to the employees in the first meeting itself, says Kaushik. "In many cases, employers also provide assistance to outgoing employees in exploring other avenues and upskilling training to enhance future employability. These measures, though not absolutely fool-proof, definitely help in mitigating the risk of challenge from employees and avoiding frivolous claims," says Kaushik.
Digitally skilled talent for 5G and digital transformation initiatives will be a key driver of India’s growth journey. According to a recent TSSC report, India needs around 22 million digitally skilled resources by 2025 to reap the full potential of 5G. Telecom and tech companies need to think at the industry or even national level. Ankit Agarwal, Managing Director, STL says: "We are creating a skilled pool of talent for critical areas like fibre, 5G and cloud computing for India. Our digital skilling initiative - STL Academy -- has already trained nearly 37,500 people and this is just the beginning." While layoffs of the scale and nature seen of late are a business cycle phenomenon that has short-term implications, what matters more is that India vigorously pursues its agenda for creating more jobs, both in the public and the private sector in 2023.