On a regular Wednesday morning, Prem* reached his office ready to take on his tasks for the day at an IT company in Chennai. He found himself denied access to his office as he had been laid off from the job he had held for the past six months. There were a few other workers like him who knew about the termination only after reaching the office that day.
The ramifications of a global slowdown in the IT industry have begun to be felt in India, with over 21,000 techies facing layoffs in the last quarter. Employees in Chennai have been affected by layoffs, with the outlook seeming grim for the coming months.
Causes for churn in the IT industry in Chennai
“Around 40% to 50 % or even more of Chennai’s GDP come from the IT sector. The contribution of the service sector to Tamil Nadu is around 49% to 51%. Chennai and Kancheepuram districts, which have many of these IT companies, have a huge employment base. Also, a huge revenue is generated from here. Notably, Chennai and Kancheepuram also have highly active labour departments as a result of this,” says Alagunambi Welkin, General Secretary of the Union of IT and ITES Employees (UNITE).
During the COVID-19 lockdown, many new markets were created that were found to be unsustainable once restrictions were lifted, says Sathieswar B, a software consultant.
“For instance, as the schools were closed during the lockdown, the schools required an online platform. Educational technology (EdTech) companies started gaining traction at this point. Both the schools and the tech companies required used licensed online platforms to provide lessons during the lockdown. Once physical classes resumed, both parties had no use for the platform. Eventually, this has come to affect the service providers,” he adds.
Based on the market projections during the first wave of the pandemic, many companies carried out recruitment drives. Now that the market trends have changed, companies have started laying off their employees.
“This could also be seen as a market correction period following the impact of COVID-19,” says Sathieswar.
Companies that found themselves without a proper roadmap in the aftermath of the pandemic have had no choice but to lay off employees.
While the big players in the industry can survive a recession as they have multiple streams of revenue, the biggest challenge for startups is funding, says Srinivasan*, a senior member of a technology company in Chennai.
“Big companies have deep pockets. They can survive by reducing costs or general expenses. Startups do not have that luxury,” he notes.
Srinivasan says that the way investors are sizing up startups is changing now.
“Earlier, they were focusing on growth at any cost. They did not care about profits as long as the companies were showing growth. Now, they are focused on the margins. A lot of startups will either fold or cut costs and be on a flat growth phase until the outlook improves. Many companies have taken an approach of slowing down now and are focusing only on key customers, which is a smart decision,” he observes.
Trends in layoffs in IT companies in Chennai
The decision to terminate employees is usually the result of cuts in the budget that takes place over a period of time. Based on the percentage of cuts to each department, the number of layoffs is determined.
“Those who do not directly impact the revenue and perform corporate functions are the most vulnerable during times of mass layoffs,” says Srinivasan. “For instance, the terminations start with employees in admin or HR as they do not bring direct revenue to the company. It is then followed by those on the bench in IT services. The skillset of the employees is also a determinant. Machine Learning and Analytics have a high demand in the market, making employees skilled in these areas safe. Companies are hesitant to lose employees with skills that are in high demand.”
“If one particular technology is not doing well in the market but the other is doing well, the companies would attempt to cross-skill existing employees over hiring afresh,” says Srinivasan.
Another key factor is the performance of the employees. Those with poor performance reviews are always vulnerable, especially during times when there is a downturn in the overall market.
Sathieswar says, “The internal politics between the senior employees and their respective juniors in the team will impact the junior employees at times of mass layoffs.”
The other way the layoffs in IT companies in Chennai and other cities are handled is by eliminating specific roles.
“The companies will have to pay out the notice period for the employees according to the law. In addition, companies should also pay severance when they terminate an employee by retrenchment,” says Sathieswar.
While some companies attempt to accommodate employees in other roles, many do not or cannot afford to follow this approach.
Read more: Covid-19 lockdown: Small businesses in Chennai feel the pinch
Chennai’s IT employees in a fix
Amudha*, who has over 10 years of experience in the IT sector in Chennai, was laid off earlier this month. Since she has many years of experience, her salary package is higher than that of a fresher, a factor that played into her layoff from the company.
“When given a choice, the companies would rather recruit a fresher for a low salary than paying me more,” she says, adding that she has been finding it hard to find a new job now.
“Recession is definitely around the corner,” says Srinivasan. “While end customers try to figure out how to reallocate budgets, some projects could be put on hold. I see the growth of IT companies in Chennai slowing down but they may not have to lay off employees en masse as we have seen at the global level. There may be hiring freezes for a period of time.”
It is not advisable to attempt to switch jobs at present, with many companies having two to three months of the notice period.
“The risk is more when the employee has to serve a notice period before moving to the new company as the status of the global market is unpredictable at present. If the outlook does not improve, there is a chance that the new company might revoke their offer,” says Jenisha Rani, a Senior HR Manager in an IT company based in Chennai.
Read more: What Chennai should know about the IT industry shake-up
Unions help fight layoffs in the IT industry in Chennai
“The industry has been practising illegal retrenchments in order to hire freshers for low pay in place of experienced employees. These companies are using reasons like the economic crisis to send a massive number of people out of the industry,” says Alagunambi.
He notes that many employees sign the employment agreement without paying heed to the terms being agreed to.
“Companies use a variety of tactics to lay off employees. The employees are also threatened with bad appraisals or being blacklisted in the industry in order to force them to resign or continue working under poor conditions,” says Alagunambi.
Over the past five years, employee unions have been formed to help voice concerns around these issues.
UNITE was formed in 2017 and has so far filed around 300 cases against various issues like illegal layoffs and sexual harassment in the IT companies in Chennai.
“Only a few employees come forward to file cases against illegal terminations as it is not sustainable for them to continue the legal battle. From our experience, we find this strategy unviable. We are now trying to form unions within the companies. Without expecting the government to intervene, we want to discuss and resolve the issues with the employer. The employer and employee should have a democratic dialogue. That is our focus now,” says Alagunambi.
Read more: Why is Chennai trailing Bengaluru as a destination for IT jobs and startups?
UNITE has also come up with a model law to regulate employment practices in the IT industry and is making attempts to engage with the State and Central Governments.
“We have met with the officials of the Labour Department and various Ministers over the past few years. We have found that the government is not keen on regulating IT companies owing to their complex structure. This has allowed IT companies to create their own policies and operate with impunity,” says Alagunambi.
While the IT sector has powered jobs and growth in Chennai in the past decades, this global slowdown poses important questions about the resilience of the industry and the ways in which employees navigate uncertain times.
(*Names changed on request)
What is “retrenchment” and what does it mean for a company layoff an employee using “illegal retrenchment”?