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

The IT industry in India is changing fast. New technology, cost cuts, and AI tools have made many companies reduce staff. Because of this, employee retrenchment has become more common, and many IT workers feel worried about losing their jobs.

Understanding your legal rights during employee retrenchment helps you stay protected and make sure your company follows the law.

This guide explains your rights, what employers must do, and how you can handle in a smart and confident way.

What Is Employee Retrenchment?

Employee retrenchment is when a company asks employees to leave because the job role is no longer needed.

In simple words, it happens when:

• The company is cutting costs
• The role becomes unnecessary
• The team is being restructured

It does not include resignation, retirement, firing for bad behaviour, or ending a fixed-term contract.
Most IT layoffs today happen because of employee retrenchment and not because of employee mistakes.

Your Core Legal Rights During Employee Retrenchment

1. Notice Period

During employee retrenchment, you must receive a notice period.

• Junior staff (workmen): At least one month’s notice or salary in place of notice
• Senior or managerial staff (non-workmen): Follow the notice period written in the employment contract (usually 30–90 days)

Companies must follow these rules to avoid legal trouble.

2. Retrenchment / Severance Compensation

During employee retrenchment, you must receive compensation.

• Workmen: 15 days of salary for every completed year of service
• If you worked 4 years and 7 months, it is counted as 5 years
• Non-workmen: Compensation depends on the contract. Many IT companies give 1 month of salary for each year of service.

3. Last-In, First-Out (LIFO) Rule

The law says that during the process, the newest employees in a group should be asked to leave first.
If the company skips this rule, they must record a strong reason like special skills needed for a project.

4. Preference for Re-Employment

If the company hires again in the same category later, employees removed through retrenchment must be given first preference.

5. Gratuity and Provident Fund

If you worked for 5 or more years:

• You must receive gratuity
• Your PF (Provident Fund) contributions must be paid fully

These benefits stay safe even during employee retrenchment.

What Employers Must Do Legally

During employee retrenchment, the employer must:

• Give proper notice
• Pay severance before or on the last working day
• Get government approval (if the company has 100+ workmen)
• Share clear reasons for any exceptions to the LIFO rule

If a company ignores these rules, employees can file complaints and may even get reinstated with back wages.

Industry Insights

The rise in employee retrenchment is visible across India:

• 98,834 IT employees lost jobs in 2024–25
• TCS removed 12,000 people in 2025
• 50,000 more layoffs expected due to AI and automation

This makes knowing your rights even more important.

Expert Opinions

• PwC says clear communication reduces employee stress and legal problems.
• Top law firms say companies must follow notice and severance rules during employee retrenchment.
• Nasscom says reskilling in AI can prevent many layoffs.

Real-World Cases

• TCS 2025: Many employees complained about forced resignations used to skip proper rules.
• Twitter India 2022: Fired 90% of staff without notice, resulting in heavy criticism.
• Paytm and Unacademy: Faced backlash for sudden job cuts.

These cases show why companies must follow employee retrenchment laws properly.

Future Outlook

AI and automation will increase employee retrenchment, but will also create new jobs.
Fixed-term contracts may become common, and companies may focus more on reskilling their teams.

Employees who upgrade their skills and understand their rights will be better prepared for any future employee retrenchment.

Action Steps for IT Employees

• Read your employment contract carefully
• Check if you fall under “workman” or “non-workman”
• Make sure your severance is calculated correctly
• Ask for legal help if procedures feel unfair
• Keep learning new skills to stay secure

These simple steps help you stay strong during employee retrenchment.

FAQs

1. What is employee retrenchment?

It is ending a job because of business reasons, not because of the employee’s fault.

2. Do IT employees count as workmen?

Junior-level roles sometimes do. Managers usually do not.

3. How is severance calculated?

Workmen get 15 days’ pay per year of service. Others follow their contract.

4. Is government approval needed?

Yes, if the company has 100+ workmen.

5. Can forced resignations replace employee retrenchment?

No. Forced resignations are illegal and can be challenged.

6. What happens if I challenge illegal retrenchment?

Courts can order reinstatement and back wages.

7. What will affect future

AI, automation, skills demand, and company restructuring.

Conclusion

Employee retrenchment is tough, but knowing your rights gives you power.
When companies follow the law and communicate clearly, the process becomes fair for everyone.
As the IT industry changes, employees who stay informed, skilled, and prepared will always have better opportunities ahead.

About LawCrust

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