Layoffs and lessons

The furore over TCS’ efforts to terminate a large number of its employees in order to cut costs brings to the fore the fact that the era of big growth of the Indian IT industry is over and the need for IT professionals to organise themselves.

TCS employees wear masks bearing the image of chief executive officer Natarajan Chandrasekaran at a protest in Bangalore on January 17.

AS workers, information technology (IT) professionals have always been a class apart. In the two-decade-long boom, which ended after the global economic crisis in 2008, during which the industry was the new shining star, the darling of the media and the deliverer of foreign exchange, the relatively well-paid IT jobs were coveted. So much so that it skewed the priorities in the national education system and caused a tumult in the job market. But the slackening of the boom in recent years, reflected in the shrinking profit margins of most of the industry leaders, has taken the sheen off this go-to place for Indian youth in search of employment.

When Tata Consultancy Services (TCS), the true pioneer of IT services and the largest exporter of software services in India, started issuing letters of “termination” in mid-December to some employees in centres such as Chennai, Bangalore and Hyderabad, it caused a furore. Since the company refused to comment on the scale of the planned job losses, speculation mounted that 25,000 employees were to be sacked, which, according to more sober assessment in industry circles, appeared to be grossly exaggerated.

By the time TCS reacted for the first time, on January 14, it had already attracted the attention of activists who for the last several years had been working hard to organise these workers. Meanwhile, the established trade unions such as the All India Trade Union Congress and the Centre of Indian Trade Unions (CITU) and the New Democratic Labour Front (NDLF) seized the opportunity to extend their presence to this group of workers, numbering more than 25 lakh across the country.

Tapan Sinha, CITU general secretary and Rajya Sabha member, said thousands of middle-level IT jobs had been impacted in different TCS centres and the company’s move was “unethical and unjustifiable”. Trade union activists urged IT professionals to test the law, specifically the notion that such professionals come within the scope of “workman” as defined in the Industrial Disputes Act.

In Chennai, Bangalore, Hyderabad, Kochi and other centres, the newly formed association, the Forum for IT Employees (FITE), became active. In Bangalore, the Information Technology Employees’ Centre (ITEC), which has been trying to organise employees for several years (and had successfully run campaigns against recruitment scams in several companies in the city), also intervened.

TCS employees in Bangalore, joined by employees in other companies, took to the streets on January 22 demanding that the government intervene to stop the layoffs at TCS. The young workers from TCS formed a human chain in the Bangalore suburb of Whitefield, close to their workplace. One employee told Frontline that several of her colleagues had been given “letters of termination” charging them with “under-performance”. She said it was difficult to gauge how many had been served such notices because of the “prevailing atmosphere of fear” among employees. On January 14, TCS defended itself, claiming that only 1 per cent of its total workforce of 3.18 lakh employees were to be laid off during the current year, implying the loss of more than 3,000 jobs by March-end.

An ITEC activist told Frontline that the company was “targeting” those who had been with the company for eight years or more, clearly aiming to trim its wage bill. Referring to TCS’ contention that it had only done what it regularly does—shed “underperformers” —this source pointed out that even those who had been graded as having “met expectations” (typically Grade C in the industry) in their periodic appraisals had been sacked. Referring to those who were sacked because of the company’s assessment of a “skill mismatch”, he asked: “Then how come the company has hired so many more with exactly those same skills?” He said the targeted sacking of mid-level professionals was an exercise in cost-cutting aimed at reducing the overall wage bill.

However, following a petition by an aggrieved employee who had been issued a termination letter by the company, the Madras High Court, on January 15, restrained the management from retrenching the employee. She claimed the termination, which was to take effect from January 21, was a violation of provisions of the Industrial Disputes Act. Later, the company revoked the suspension. It termed the action “exceptional” and said it was done of its own volition. However, the company’s reputation had already been dented by reports that the employee was pregnant at the time she was issued the termination notice. IT industry activists pointed out that such a termination would have been illegal anyway because it would have been a violation of the provisions of the Maternity Benefits Act. Meanwhile, at least one more TCS employee filed a petition in the same court challenging the termination from service.

Cost-cutting

An ITEC activist at TCS, who obviously would prefer to remain unnamed, told Frontline that about 5,000 employees across the country may have been served the termination notice. “However, the company seems to have slowed things down after the recent round of protests,” he said. Within the company there is speculation that the company is now shedding its workforce because its revenues are likely to grow slower over the next two years than estimated earlier. About 5,000 employees across the country have lost their jobs, he said, qualifying the estimate by pointing to the “lack of transparency about the actual number”.

Referring to TCS’ repeated assertions that it would be hiring 55,000 persons (on a gross basis) during the current fiscal year, of whom 35,000 are to be freshers, he said: “It is obvious that the entire exercise is based on the logic of cost reduction by replacing costlier mid-level employees with freshers.” According to him, TCS has about 90,000 employees who have served the company for more than eight years and the company wants to shed one-third of them to cut costs. The business segment facing the axe the most severely is the banking and finance vertical, he said.

He also pointed out that termination notices were only one device by which the company evicted employees. There are “forced” resignations, which are engineered, as was the widespread practice in some of the IT majors in 2008-09 after the advent of the global financial crisis. Another way of ejecting employees from the rolls, he said, was to keep them unassigned to any project for 45 days or more, after which they automatically entered the “exit process”.

The ITEC estimates that “several thousand” IT professionals in Bangalore have lost their jobs in the last couple of years. Among the major companies that have announced layoffs are Yahoo, IBM, HP and, most recently (after TCS), the Luxembourg-based mortgage and financial services software company Altisource. Activists of the ITEC estimate that more than 35,000 jobs in the IT services outsourcing businesses may have been lost in the past two years.

Pyramid structure

Anyone who is familiar with the economics of the Indian IT services industry knows that it has rested critically on the adoption of a pyramid structure of employment and wages. This model is akin to a pyramid in which the bulk of the employees in a company are at the lower level of wages; at the apex are a few relatively highly paid employees. The success of major IT companies such as TCS, Infosys and Wipro lay in their quick scaling up of operations by hiring human resources and deploying capital in order to serve clients across the world.

Analysts of the IT industry say this model, of relatively high wages —compared with those prevailing in the rest of the economy—was viable until 2008-09 when the economies hosting these companies’ clients came crashing down. It is clear that that era of growth is now over, with hardly a hint of sustainable growth coming from these economies. Indian IT companies have, for long, wished away the magnitude and meaning of that collapse, assuming that a pick-up in revenues was just round the corner.

The latest happenings at not only TCS but across the industry indicate that the victims of this wishful thinking have been the employees, the primary generators of value in the business. The impact of the episode at TCS, however, may prove lasting if it turns out to be a turning point in the way IT professionals see themselves—from being aloof from the wider world of working people or hitch themselves to the latter’s struggles.