Asia-Pacific employment law bulletin 2023
In India, many companies are facing challenges in the “post-pandemic” era. Moonlighting is one of the challenges that IT firms are now experiencing and struggling to handle, and we are also witnessing massive layoffs in the global BigTech companies. These challenges have many implications that employers can learn and make use of for their employment practices and employee management in the post-pandemic era.
In the wake of the “post-pandemic” era, whilst it seems that the ‘work from home’ trend is here to stay, companies are abuzz with issues stemming from this new working environment. One of the issues that has emerged as a key challenge - spurred in part by the socioeconomic necessities caused by the pandemic - is “moonlighting” i.e., employees taking up dual or multiple employments especially in the information technology, software development, marketing, human resources, and operations sectors. Though moonlighting as a concept is not alien to India (especially in the unskilled sector), it was only in the latter half of 2022 that it came under scrutiny when a leading IT firm discovered a number of its employees were taking up dual employment.
Indian organisations largely, have an expectation of exclusive employment for myriad reasons ranging from loyalty and efficiency to data security and competition. As a result, this practice has triggered strong reactions from Indian IT sector. Leading IT companies have moved to take disciplinary actions against employees who were found to be moonlighting. On the other hand, some companies have lent support to their moonlighting employees subject of course to transparency and necessary approvals.
At present, the legal position in India is not very clear – with Indian law neither expressly permitting nor prohibiting moonlighting in the white-collar sector. In the absence of an explicit regulation on moonlighting, the employment contract between an employer and employee becomes determinative. Accordingly, employers seeking to curtail moonlighting will need to ensure that their employment contracts are watertight and explicitly prohibit parallel employment and also include detailed provisions around conflict of interest, confidentiality, non-compete, non-solicitation and protection of intellectual property.
How the front runners in the business address this issue (i.e., whether they choose to prohibit and/or regulate, or alternatively adopt a more laissez-faire approach till the business and operations are not impacted) will be interesting to watch.
In line with global trends and as a domino effect of the global BigTech cost cutting agenda, India witnessed massive layoffs last year. As of December 2022, 18,000 employees were laid-off by around more than 50 Indian start-ups – many of which were, or were poised to be, unicorns. The sectors which saw the most layoffs were edtech, social media, ecommerce and other consumer services companies. This has mostly come as a result of a decline in business for these organisations in the “post-pandemic” era (for instance reopening of schools wreaked havoc on the edtech companies which had modelled their business around online classes), over-hiring during the pandemic and most importantly an overall liquidity crunch with the onset of a “funding winter” for the industry.
In terms of the regulatory position, whilst retrenchments are highly regulated in the blue-collar sector, this is not the case for white collar employees where the termination of employments is governed largely by contractual arrangements. Whilst Indian courts have found certain “white-collar” employees such as IT professionals to fall within the ambit of blue-collar employees, the judicial precedents in this regard are not very well settled and vary on a case to case basis.
As a result, in India, barring cases of gross misconduct, consensual separation is the norm in order to mitigate the possibility of any future claims by disgruntled employees. A consensual separation essentially involves the employer agreeing upon a ‘termination package’ with the employee, whereby the employee is paid a lump sum termination amount (which is typically something more than the employee’s statutory and contractual entitlement) as full and final settlement in return of the employee consenting to the termination, waiving all future claims against the employer, agreeing to be bound by confidentiality etc. For instance, a leading edtech unicorn offered a fast-track full-and-final settlement to its retrenched employees. The employee exit package also included extended medical insurance coverage for employees and their family members and outplacement services led by some of the industry’s finest recruitment specialists. Another edtech start-up offered severance pay equivalent to the employees’ respective notice periods with additional 2 months' salaries, an accelerated one year vesting period for stock options, medical insurance coverage for an additional one year along with dedicated placement and career support. However, it is interesting to note that as per recent newspaper reports, following a complaint from an employee welfare organisation, a notice has been issued by the local labour authority to a multinational tech company, in relation to its voluntary separation program offered to employees in November 2022. It remains to be seen how this will pan out and whether it may have any impact on the consensual separation route typically adopted by employers.
Stunted implementation of the new consolidated regime
In 2019 and 2020, the Indian parliament had passed four new labour codes (which consolidate the existing plethora of laws relating to industrial relations, wages, social security and safety). The expectation was that these codes would be implemented by early 2021. However, the roll-out of these Codes has been delayed for almost two years now on account of delay by the state governments to formulate detailed rules and regulations under the codes and stiff opposition from the trade unions who view these codes as being “anti-workmen”. One of the main contentions of the trade unions has been the ability of employers with up to 300 workers (which was earlier limited to 100 workers) to execute layoffs, retrenchment and closure without government permission. It remains to be seen if the central government will be able to build consensus and bring the codes to fruition soon since there is concern that if the codes are not implemented by the first half of this year, they may be put on the backburner again because of the general elections in India next year.
Touchstone Partners: Gaurav Desai, Yashita Sharma
Kathleen Healy Partner
Stephanie Chiu Counsel
Ada Chan Associate
Fan Li Associate
River He Associate