Libertatem Magazine

Downsizing in the Companies: An Economic Conundrum for Indian Companies During the COVID-19 Crisis

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The wrongful dismissal of the employee means the termination of an employee of a company without any sufficient cause or without severance pay. Indian law provides for remedies to such a situation. But, in certain conditions, it is difficult to ascertain wrongfulness. When a company is facing severe financial problems, and it lays off some of its employees to keep itself afloat, a wrongful dismissal suit might not be the best option.  With the country facing a pandemic and a possible economic slowdown, this has become very relevant.

Wrongful Dismissal under Indian Law

Fair-grounds of dismissal include misconduct, discharge, or retrenchment. For clarity purposes, retrenchment means cutting down costs during economic difficulty. This mostly excludes downsizing from the area of wrongful dismissal. But the ultimate judgment relies on the bench deciding the matter. When an employee is dismissed for motherhood reasons, breach of employment contract, prejudice, or personal bias, it can be classified as unfair or wrongful. If an employee is wrongfully dismissed from their position, they can file a suit in a Labor Court for the restoration of their position.

If their unfair dismissal has to do with procedural errors while dismissal, they can file a suit for a breach of their employment contract from their employer’s end. Courts sometimes order employees to pay fines or pay compensation to the disgruntled former employee instead or in addition to the restoration of designation. In reality, it becomes very difficult to prove wrongful dismissal as several employers are able to prove that the dismissal was on fair-grounds.

Financial Impact of COVID-19 on Companies

Due to the spread of the COVID-19 global pandemic, the Central Government of India itself gave orders to their employees to work from home. The nation-wide lockdown from mid-March reinforced it. It was extended until May 31. But the lockdown continued in containment zones under July 1. This was termed as the beginning of Unlock 2. As per the speculations, it will stretch up to 31 July. It is pertinent to note that the lockdown has led to an abrupt halt of the tourism, hospitality, retail, film, sports, and personal service industries. It also affected the industries which rely heavily on human resources. Moreover, in early March, the United Nations Conference on Trade and Development (UNCTD) predicted India’s likely loss in trade impact due to COVID-19 to be about 348 million USD.

Dismissal of Employees During the Lockdown

Due to the lockdown, the industries have stopped functioning and have no means of revenue. As a result, they are resorting to downsizing their taskforce at a high rate. Big companies have also followed this step. They have suffered financial losses due to functioning being limited to online and from home means. To name a few, OLA and UBER, the taxi aggregator services, and Swiggy and Zomato, the food delivery services, announced lay-offs for the employees and pay cuts for the ones that remain. News organizations Times of India, The Quint, and News Nation Network laid off a lot of their employees. Chairman and MD of Raymond Group talked in a video to the company employees about ‘tough decisions’ that the executives might have to take and making of ‘personal sacrifices’, implying job cuts or pay cuts.

All of these dismissals and pay cuts have been announced publicly. This makes one wonder how many such layoffs and worse have occurred in the informal job sector where employees are not even aware of any rights that they might have.

Government Advisory Prohibiting Dismissals During the Lockdown

The Secretary of the Labour Ministry, Heeralal Samariya, sent out an advisory on 23 March. It urged private and public companies not to terminate the services of any of their employees or cut their pay. This, the advisory stated, would help avoid deepening the crisis.

Plea in SC against unfair dismissal and pay cuts in media houses

The National Alliance of Journalists, the Delhi Union of Journalists, and the Brihanmumbai Union of Journalists filed a petition in the Supreme Court in April. It accused the media houses of arbitrarily laying off their workers after the Centre’s advisory. The bench, headed by Justice NV Ramana, heard the plea. They asked the Centre to urgently respond to the matter.

Pune Labour Commissioner Office Issues Notice to Hexaware Technologies

National Information Technology Employees Senate (NITES) filed a complaint against Pune-based IT firm. It accused Hexaware of alleged ‘non-payment of employee salaries for 3 months’ and dismissing employees to ‘maintain profitability’. It apparently received complaints from their employees about the same. The Labour Commissioner office at Pune sent Hexaware a notice on 15 May warning them with legal actions, if they terminate any employments or cut the pay of any employee.

Possible Solutions: the Middle Ground

The increase in unemployment during COVID-19 made India’s unemployment go up to 27.4%.  27 million people between the ages of 20 and 30 years lost their jobs in April itself. No doubt many of these happened due to downsizing. India has a problem that it needs to acknowledge and attempt to solve immediately.

There are many ways companies can avoid ridding people of their means of livelihood while facing an economic crisis. They can stop hiring new employees. Reducing a workweek can reduce short-term payroll costs. Employees can also be offered voluntary sabbatical leaves with reduced pay or no pay for the time being. The lending of employees to another company is also a practice common in firms when they are experiencing financial troubles. Early retirement is also a way of taking the sting out of laying people off. Lowered additional benefits can further help people stay on with companies.


The author submits that even after all these measures, some companies might have to resort to dismissing some employees. It is very important to treat these employees in a humane manner. Giving them letters of recommendation, resources, and support might help make their lives and the process easier. Employers may also open up their networks for these people so that they get employed again is more accessible to them. It is important not to cut off contact with these former employees. Such a step will not alienate them.

In the end, we need to remember that the entire world is going through the same crisis, and helping each other out is how we will survive this. is now on Telegram. Follow us for regular legal updates and judgments from the court. Follow us on Google News, InstagramLinkedInFacebook & Twitter. You can also subscribe to our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.

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