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The IT service industry in India, despite all tall claims, is still stuck in the primitive wage arbitrage mode

This seemingly inane question is loaded with great implications for the six million-strong IT industry workforce in terms of their access to labour law rights. Hitherto, Information Technology companies have held a vocal public position that the employees in the industry are highly qualified, highly paid personnel and therefore by implication are not covered by the labour laws, especially the Industrial Disputes Act which provides a legal mechanism for resolving disputes over employment, non-employment and service conditions of workmen.

The IT service industry in India, despite all the tall claims of pushing the frontiers of technology, is unfortunately still stuck in the primitive wage arbitrage model. The bedrock of Indian IT services is the significant wage between the wages of a white-collar Indian worker and that of a similar worker in western countries. There is a direct co-relation between revenue growth and the addition of manpower in the outsourcing industry.

Furthermore, IT services in India is very much a labour-intensive industry, with employee costs accounting for over 50% of revenues, with very little capital investment. It is a rather crude and constant conflict between wages for employees and profit margins for the companies. The average work experience of IT employees has remained constant at around five years despite the rapid growth in revenues and manpower. Employees with lower experience levels command lower wages and therefore help in maintaining the abnormally high margins of profit (around 18-25%) of the IT services companies.

In times of a global demand crunch, it makes eminent sense for the companies to fire the more experienced and “costlier” worker in order to maintain their super profit margins. It is under these circumstances that terms like “involuntary attrition” are used liberally to fire thousands of workers, and companies have long held that these employees are not ‘workmen’ as defined under the Industrial Disputes Act.

Doublespeak exposed

However, a recent decision of the Division Bench of the Karnataka High Court in the Commissioner of Income Tax vs Texas Instruments India Pvt Ltd ( I.T.A No 141 of 2020 c/w I.T.A No 151 of 2020), rendered in April this year, has held that “The software engineer per se would be a workman; a software engineer rendering supervisory work would not be a workman.” This is a welcome verdict for the millions of workers engaged in the IT services industry. The irony behind the verdict is a story worth recounting. The above dispute between an Information Technology company and the Income Tax Department arose on the question of tax concession sought by the company under Section 80JJ-AA of the Income Tax wherein companies seek concession on income tax to the extent of 30% of emoluments paid to newly employed workers.

The catch in seeking such a concession is the fact that the newly recruited workers have to satisfy the definition of ‘workmen’ as per Section 2(s) of the Industrial Disputes Act. A number of major IT companies have sought income tax concessions on the same grounds. Hence, we witness a farcical situation wherein, on the one hand, IT companies are gleefully and opportunistically claiming concessions from the Income Tax Department for having created fresh employment of ‘workmen’, and on the other hand, they are busy denying labour rights to the very same ‘workmen’ in their workplaces, contending that they do not fall under the definition of ‘workman’ under the Industrial Disputes Act!


The verdict unambiguously confers the status of ‘workman’ for software engineers who do not have any supervisory function. The status is accompanied by several rights at the workplace, including the right to freedom of association and the right of access to the conflict resolution mechanism laid down under the Industrial Disputes Act. The industry is notorious for long hours of work and ever-changing shift timings. Workers in the industry are eligible for the payment of overtime wages at the rate of double the usual wage rate under the provisions of the Shops and Commercial Establishments Act.

Most importantly, the contention of the IT industry in these dispute resolution forums, including the Labour Department and Industrial Courts, that the employees are not workmen must be laid to rest permanently in the light of the recent verdict. Thousands of workers fired from their jobs without any opportunity to be heard and the victims of “involuntary attrition” have been frustrated for too long by the hypocrisy of this argument in their quest for justice.

The regular practice of the industry to fire thousands of people during a crisis of demand is only aimed at trimming the wage cost to augment or to retain their hefty profit margins. The narratives of underperformance are nothing but delayed excuses for such practices. The principles of natural justice are flouted with impunity in the case of disciplinary action against employees. It is imperative that certain corrective measures are initiated to regulate flawed and unfair employment practices of the IT industry. One such measure would be to extend the application of the Industrial Employment (Standing Orders) Act to the IT Industry. This verdict rendered by the High Court of Karnataka offers a significant measure of relief and a ray of hope to the workers in the industry.

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