What Legal Rights Do IT Employees Have During Employee Retrenchment in India

Employee retrenchment is a growing concern in India’s IT sector. With technology shifts, cost optimisation, and AI adoption, many professionals face job insecurity. Understanding your legal rights during employee retrenchment helps you protect your benefits and ensures companies handle downsising legally and fairly.

This guide explains IT employees’ rights, employer obligations, and practical steps for navigating retrenchment in India.

Understanding Employee Retrenchment and Termination

• Employee retrenchment is a type of involuntary termination.
• Defined under Section 2(oo) of the Industrial Disputes Act, 1947 (ID Act).
• Applies when jobs end due to redundancy, cost-cutting, or restructuring.
• Does not include retirement, voluntary resignation, disciplinary termination, or non-renewal of fixed-term contracts.
• Most IT layoffs due to restructuring or surplus staff fall under employee retrenchment.

Core Legal Rights for IT Employees

1. Notice Period

• Workmen (junior IT staff under ID Act Section 25F) must get one month’s notice or pay in lieu.
• Non-workmen (managers or senior staff) have notice periods defined in their employment contracts, usually 30 to 90 days.
• Employers must comply with notice rules to avoid legal disputes.

2. Retrenchment or Severance Compensation

• Workmen: 15 days’ wages per completed year of service, including part-years over six months.
• Example: 4 years 7 months service counts as 5 years. If average monthly pay is ₹60,000, 15 days’ pay equals ₹30,000. Total compensation is ₹1,50,000.
• Non-workmen: Compensation depends on the employment contract or company policy. Many IT firms offer one month’s salary per year of service.

3. Last-In, First-Out Principle

• Employers must follow Section 25G of the ID Act.
• Newer employees in a category are retrenched first.
• Any deviation must be documented with objective reasons like specific skills or project requirements.

4. Re-employment Preference

• Section 25H gives retrenched employees preference for rehire in the same category if the company reopens those positions.

5. Gratuity and Provident Fund

• Employees with five or more years of continuous service are entitled to gratuity.
• Full Employee Provident Fund (EPF) contributions and statutory benefits must be paid.

Employer Compliance Requirements

• Employers must give notice to employees before retrenchment.
• Retrenchment compensation must be paid before or at the time of termination.
• For companies with 100 or more workmen, government approval is required before retrenchment.
• All deviations from legal rules, including LIFO, must be documented and justified.
• Failure to comply may result in labour disputes, court orders for reinstatement, or payment of back wages.

Data and Industry Insights

• In 2024–25, nearly 98,834 IT employees lost jobs across 337 companies in India.
• TCS retrenched 12,000 staff in 2025, mostly mid-level roles.
• Nasscom projects 50,000 additional layoffs due to AI and automation by the end of 2025.
• Urban unemployment reached 7.1% in June 2025, partly due to IT job cuts.

These figures highlight the importance of following labour laws and paying proper compensation during IT retrenchment.

Expert Insights

• PwC India states that transparent communication and strict compliance reduce litigation risk and maintain trust.
• Nishith Desai Associates advises that employers must provide notice and severance to avoid disputes.
• Nasscom emphasises reskilling 1.5 million IT workers in AI to reduce job losses.

Real-World Case Studies

• TCS 2025 layoffs involved alleged forced resignations to bypass retrenchment rules, leading to complaints.
• Twitter India 2022 laid off 90% of staff without notice, showing poor compliance consequences.
• Companies like Paytm and Unacademy faced unrest after cutting jobs without following legal procedures.

These examples show that ignoring labour laws can lead to costly legal and reputational problems.

Future Outlook

• AI and automation will continue to reshape IT employment and may increase retrenchment.
• Fixed-Term Employment contracts are emerging as an alternative, though legal interpretations vary.
• Employers investing in reskilling and upskilling can reduce retrenchment and maintain morale.
• Legal frameworks may evolve for stricter compliance and better employee protection.

Actionable Takeaways

• Check your employment contract to understand notice and severance rights.
• Verify if your role qualifies as workman or non-workman under the ID Act.
• Ensure mandatory severance payment is calculated and disbursed properly.
• Document reasons for LIFO deviations to avoid claims of bias or unfair treatment.
• Upskill continuously to improve job security.
• Seek legal guidance if retrenchment procedures are unclear or disputed.

Frequently Asked Questions

1. What is employee retrenchment under Indian law?

Ending jobs for business reasons, not misconduct, with notice and severance for eligible employees.

2. Do IT employees qualify as workmen?

Junior roles may qualify. Managerial or senior roles often do not. Contracts determine rights for non-workmen.

3. How is retrenchment compensation calculated?

Workmen: 15 days’ pay per completed year of service. Non-workmen: depends on contract or company policy.

4. Is government approval required for retrenchment?

Yes, for firms with 100 or more workmen under the ID Act.

5. Can companies bypass retrenchment laws with forced resignations?

No. This is illegal and can be challenged in labour courts.

6. What happens if retrenchment is challenged legally?

Courts can order reinstatement and payment of back wages if retrenchment is found illegal.

7. What trends affect IT retrenchment in the future?

AI, automation, global delivery centres, and reskilling initiatives.

Conclusion

Employee retrenchment is a challenging but necessary process in India’s IT sector. Companies that follow labour laws, communicate clearly, and respect employee rights can handle downsising ethically while maintaining trust and compliance.

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