One of the most critical need of the burgeoning Indian software industry and other outsourcing service providers is to have the flexibility and the retrenchment benefits mom to hire the most worthy of the manpower and fire the unproductive employees. There is also a growing need to draw a fine balance between the hire and fire policy of the employer and the rights of the workmen. This article proposes to discuss the Indian retrenchment laws, right of compensation of employees and applicability of these laws to Indian Information Technology (the “IT”) industry.

Termination of employment needs to be in accordance with the Shops and Establishments Act as applicable to the jurisdiction where the IT company is situated and the Industrial Disputes Act, 1947 (hereinafter the “ID Act”). The Shops and Establishment Act usually enables the employer to discharge his employee, other than an employee engaged for a specified period or in a leave vacancy, from the service by providing the employee a thirty (30) days notice in advance or such longer period as may be required under the terms of employment or salary in lieu thereof.

The Shops and Establishments Act is not usually applicable to employees occupying positions of confidential, managerial or supervisory nature, i.e. all non-workmen can be terminated at will in terms of the contract of employment entered into with the respective employee.

The ID Act which is applicable to all industrial and commercial establishments defines employee/workmen and both skilled or unskilled persons may be considered as ‘workmen’. However, a person employed mainly in a managerial or administrative capacity or if the nature of services rendered by an employee is supervisory in nature, the employee may not be considered as workman. In view thereof, the Head, Project Managers, Manager (business development) of the project teams at an IT or outsourcing company may not be termed as ‘workmen’ subject to actual assessment of their roles and responsibilities. However, it is likely that the other team members, associates, trainees, etc., employed by an IT company may be considered ‘workmen’ subject to assessment of their specific job profiles, roles and responsibilities.