India has experienced significant workforce restructuring between 2022 and 2025. In 2022 alone, over 154,000 workers across 1,000+ Indian companies lost their jobs as businesses responded to global economic pressures. By 2025, the landscape evolved dramatically—not just in layoff patterns, but in the fundamental legal framework governing employment in India.
The layoff wave continued through 2025, driven primarily by AI adoption and automation. Tata Consultancy Services cut over 12,000 positions in 2025, marking its largest workforce reduction. Gaming unicorn MPL laid off 60% of its India staff after regulatory changes banned real money games. Conversational AI unicorn Gupshup reduced its workforce by 500 employees, while e-commerce platform CARS24 and electric vehicle company Ola Electric each conducted significant layoffs to optimize operations and manage costs.
Startups alone shed an estimated 20,000 to 25,000 jobs in 2025, reflecting a broader shift toward operational efficiency over growth-at-all-costs. The driver? Nearly 64% of Indian IT companies integrated generative AI tools in 2025, accelerating automation of routine tasks and redefining workforce needs.
But the most significant change came in November 2025, when India overhauled its entire labor law framework—directly affecting how companies must handle layoffs, retrenchment, and workforce management. Understanding these changes is critical if you're considering hiring from India or managing teams there.
Major Changes to India's Labor Laws (November 2025)
On November 21, 2025, India implemented a historic reform: four new Labour Codes that consolidated 29 outdated labor laws into a unified, modern framework. This transformation replaced the Industrial Disputes Act of 1947 with the Industrial Relations Code 2020, alongside three other codes covering wages, social security, and occupational safety.
What Changed for Layoffs and Retrenchment
The most significant change for tech companies: the threshold for requiring government approval for layoffs increased from 100 employees to 300 employees. This gives mid-sized companies substantially more flexibility in workforce decisions.
Key changes under the Industrial Relations Code 2020:
- Higher threshold: Only companies with 300+ employees must now seek government approval before conducting layoffs, retrenchments, or closures (previously 100+)
- Fixed-term employment: Companies can now offer time-bound contracts with full wage and benefit parity; employees become eligible for gratuity after one year
- Faster dispute resolution: Two-member Industrial Tribunals replace older mechanisms, with direct tribunal access after failed conciliation within 90 days
- Reskilling fund: Employers must contribute 15 days' wages per retrenched worker to a fund for retraining displaced employees
- Expanded strike definition: Mass casual leave now falls within the definition of strikes, requiring 14-day advance notice
- Digital compliance: Electronic record-keeping, registration, and reporting are now standard, streamlining administrative requirements
Important: While the Labour Codes are in effect, many state-level implementing rules are still being finalized. During this transition, relevant provisions of older labor laws remain enforceable where they don't conflict with the new Codes. Companies should monitor state-specific rule notifications as they emerge over the coming months.
Understanding Layoffs in India
Under India's current legal framework (Industrial Relations Code 2020), companies with 300 or more employees must seek approval from the appropriate government authority before conducting layoffs, permanently closing operations, or retrenching workers. Companies below this threshold have greater operational flexibility but must still comply with notice, compensation, and documentation requirements.
Distinguishing Between Layoff, Retrenchment, and Closure
In Indian labor law, three distinct terms govern workforce reduction:
Layoff
A layoff in India, defined under Section 2(kkk) of the Industrial Disputes Act (still applicable under the transition), refers to a temporary suspension of work due to factors like resource shortages, machinery breakdowns, or natural disasters. Employees receive compensation but not regular wages during this period.
Retrenchment
This occurs when employees are permanently terminated for business reasons such as financial difficulties or operational restructuring. Retrenched employees receive compensation based on their years of service.
Closure
Closure happens when a business or a substantial part of it shuts down permanently, often due to financial insolvency or strategic exit. Affected employees are entitled to closure compensation.
Conditions for a Legitimate Layoff in India
Even under the new Labour Codes, certain foundational criteria determine whether layoffs are legally permissible:
Business Must Be Ongoing
Layoffs apply only to businesses that remain operational. If a business closes permanently, closure provisions apply instead.
Meet Legal Criteria
Layoffs must follow specific legal criteria outlined in labor statutes. Failure to meet these criteria renders layoffs illegal and subject to penalties.
Employer Doesn't Offer Work
Layoffs occur when employers temporarily cannot provide work to employees due to circumstances beyond immediate control.
Valid Reasons for Layoff
Acceptable reasons include resource shortages, equipment failures, supply chain disruptions, natural disasters, or other factors that genuinely prevent work from continuing.
Employees Must Be on Official Roster
Only employees listed on the company's official employment register are subject to formal layoff provisions.
No Repeat Layoffs
Workers who have already been laid off for the same reason should not face repeated layoffs without intervening employment periods.
Compensation for Laid-Off Workers
As per Section 25C of the Industrial Disputes Act (maintained under the Industrial Relations Code), employees facing layoffs are entitled to compensation equal to 50% of their total wages and allowances for the duration of the layoff period.
Exemptions from Layoff Provisions
Section 25A clarifies that certain categories of companies are exempt from layoff approval requirements, including:
- Companies with fewer than 300 employees (updated threshold under Labour Codes)
- Seasonal or occasional operations
- Specific industries covered under Chapter V-B provisions
What Happens If Companies Don't Comply with Labor Laws?
Companies that violate India's labor codes face serious legal and financial consequences:
Legal Action by Authorities
When companies fail to comply with the Industrial Relations Code, both central and state-level labor authorities can take enforcement action, including fines, penalties, and prosecution. The specific authority depends on the industry and jurisdiction—for example, labor commissioners, industrial tribunals, or sector-specific regulatory bodies.
Principle of Double Jeopardy
An important legal protection incorporated into India's labor framework ensures that an employer cannot be prosecuted multiple times for the same labor law violation. Once a company faces legal action and penalties for a specific non-compliance issue, it cannot be prosecuted again for that identical offense.
How Does This Law Impact the Tech Industry in India?
The 2025 Labour Code reforms have generated mixed reactions from India's tech sector. While the higher 300-employee threshold provides greater operational flexibility for startups and mid-sized firms, critics worry that even these modernized provisions struggle to keep pace with the rapid transformation driven by AI and automation.
The AI-Driven Restructuring of 2025
The layoffs that swept through India's tech sector in 2025 highlight the tension between labor protections and technological change. TCS, India's largest private employer, cut 12,000 jobs in 2025—primarily middle and senior management—citing "skill mismatches and limited deployment opportunities." While the company attributed this to business factors rather than AI, industry observers noted that 64% of Indian IT firms integrated generative AI in 2025, fundamentally changing workforce requirements.
The shift wasn't limited to large enterprises. Startups faced similar pressures: companies that over-hired during the 2020-2021 boom now confronted reduced venture funding and the efficiency gains (or workforce displacement) of AI automation. The result: an estimated 20,000 to 25,000 startup jobs lost in 2025 as firms prioritized profitability over growth.
The Threshold Debate: 300 vs. 100 Employees
Under the previous Industrial Disputes Act, the 100-employee threshold meant even medium-sized tech companies needed government approval for layoffs—a process that could take months and significantly slow business adaptation. The new 300-employee threshold addresses this concern for many companies.
However, critics argue the threshold still constrains larger tech firms during periods of rapid technological change. When AI can automate entire categories of work—from customer support to code testing to content creation—companies argue they need the agility to restructure quickly or risk becoming uncompetitive globally.
Government Intervention and Its Effect on Tech Companies
The risk of government intervention in layoff decisions remains a concern, particularly for companies above the 300-employee mark. While the 2025 reforms streamlined some processes and introduced faster dispute resolution mechanisms, the fundamental requirement for government approval in large-scale layoffs persists.
This became visible in past cases like Byju's, where state government intervention led the edtech giant to reverse planned layoffs and office closures. While protecting workers is important, such interventions can make it challenging for struggling companies to implement necessary restructuring to achieve profitability or manage cash flow during difficult periods.
Balancing Labor Laws and Innovation in India
Sometimes technology fundamentally changes how work gets done. In 2023, Indian startup Dukaan replaced 90% of its customer support staff with an AI chatbot that reduced resolution times from nearly two minutes to instant responses—a 98% improvement. The CEO openly shared that the AI-powered system delivered dramatically better customer service while significantly reducing costs.
This case illustrates a core tension: labor laws designed to protect jobs can struggle to accommodate situations where technology doesn't just improve efficiency—it fundamentally replaces the need for certain roles. As AI capabilities expand across code generation, data analysis, content creation, and customer interaction, this tension will only intensify.
The challenge for India's tech industry—and its regulators—is finding the balance between:
- Protecting workers from arbitrary or exploitative terminations
- Ensuring companies can adapt to technological disruption
- Fostering an environment where innovation and entrepreneurship can thrive
- Creating pathways for workers to reskill and transition to new roles
The 2025 Labour Codes attempt to strike this balance through higher thresholds, faster dispute resolution, and reskilling funds. Whether these reforms adequately address the pace of AI-driven change remains to be seen.
Navigating Challenges Without Layoffs: Strategies for Indian Tech Companies
For companies operating in India, exploring alternatives to layoffs isn't just good practice—it can help avoid legal complexity and maintain team morale and institutional knowledge.
The landscape has shifted since 2023. Back then, TCS publicly committed to avoiding layoffs, choosing instead to focus on internal talent development and salary increases. By 2025, even TCS had to conduct significant workforce reductions. This evolution demonstrates that while alternatives to layoffs are valuable, they may not always be feasible—especially for companies facing funding constraints, market shifts, or fundamental changes in business models driven by AI and automation.
Nevertheless, companies should consider these alternatives before resorting to layoffs:
Alternatives to Consider
- Hiring Freeze: Stop filling vacant positions to control costs naturally through attrition. Ensure this is implemented transparently and doesn't mask de facto layoffs, which could create legal issues.
- Reduced Work Hours: Decrease full-time work schedules temporarily to lower payroll costs. This must comply with employment contracts and statutory provisions. Consult with employees and, if necessary, labor authorities before implementing significant hour reductions.
- Furloughs: Implement temporary unpaid leave periods while maintaining the employment relationship. Remember that employees must be paid for all work performed. Maintain clear communication and adhere to legal requirements during furloughs.
- Voluntary Retirement Schemes (VRS): Offer voluntary exit packages with enhanced benefits for employees who choose to leave. VRS programs are well-established in India and can be mutually beneficial when designed with attention to legal regulations and fair compensation.
- Job Sharing: Allow two employees to share one full-time role, each working part-time. Ensure both employees receive fair compensation for their hours worked. No specific legal prohibition exists for job sharing in India.
- Employee Reassignment: Redeploy employees to different roles, departments, or projects within the organization. This must be done transparently and with employee consent, especially if it involves significant changes to job duties, location, or compensation. Clear communication and adherence to labor laws are essential.
- Reskilling and Upskilling Programs: Invest in training programs that help employees transition to roles aligned with changing business needs. Under the 2025 Labour Codes, companies conducting retrenchment must contribute to a reskilling fund—making proactive internal reskilling both a retention strategy and a future cost-saver.
- Performance Improvement Plans (PIPs): Before terminating underperforming employees, implement structured improvement plans with clear goals, timelines, and support. This protects both the employee and the company legally.
Important: In India, labor laws are designed to protect employee rights and job security. When considering any alternatives to layoffs—or layoffs themselves—strict adherence to legal requirements is non-negotiable at every step.
How can Borderless Help?
If you're interested in hiring talent from India, navigating the evolving labor law landscape doesn't have to be overwhelming. Partner with Borderless to simplify the process of hiring, onboarding, and managing talent from India. Our team of experts ensures you remain compliant with every regulation—including the new Labour Codes implemented in November 2025.
We offer a comprehensive suite of services that make it easy to hire employees in India:
EOR Services
We act as your Employer of Record (EOR) in India, making it easier to hire, manage, and pay talent. With us as your EOR, you can focus on workforce management while we handle the compliance details and administrative complexity.
Legal and Administrative Support
Setting up a local legal entity in India can be complex and time-consuming. We already have an established entity, saving you the hassle of navigating Indian legal and regulatory intricacies.
Compliance Handling
We understand India's unique legal requirements, including the new Labour Codes effective from November 2025. As your EOR, we take care of work permits, employment contracts, payroll processing, compliance reporting, and termination procedures—ensuring your practices align with current Indian labor laws.
Contracts and Documentation
We manage all necessary documentation for hiring in India, including employment offers, compliant contracts, onboarding paperwork, and banking details. This administrative support frees up your time for core business activities.
Employee Insurance and Benefits
To attract and retain top talent, we offer comprehensive employee benefits packages including medical insurance, life insurance, retirement plans, and other benefits for your Indian employees—all structured to comply with local regulations.
Tax Compliance
India's tax system can be intricate, with both central and state-level requirements. We handle payroll processing to ensure compliant, timely payments while keeping your organization fully aligned with Indian tax laws.
Local Expertise
With deep experience in India's employment landscape, we ensure your hiring processes align with local norms, cultural expectations, and the latest regulatory changes—including the transition to the new Labour Codes.
Risk Mitigation
Partnering with us helps mitigate compliance risks. We stay current on Indian legal developments, regulatory changes, and enforcement trends—helping you avoid potential complications, penalties, or disputes.
Reach out
Overall, we simplify hiring and employment in India, allowing you to focus on your core business activities while we handle the complexities. Whether you want to explore business process outsourcing in India, hire a single software engineer, or expand your entire cloud computing team in the Indian market—we've got your back. Get in touch.
Disclaimer
Borderless does not provide legal services or legal advice to customers, contractors, employees, partners, or the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
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