BREAKING: India's New Labour Code: Startups Can Now Lay Off 300 Workers Without Approval

2026-05-19 · Source: AIM Network · Field: Legal & Regulatory — Regulatory Affairs & Government Relations, Corporate Law & Business Legal Services, Compliance & Risk Management · Depth: Fundamental Awareness, extended

Summary

India has significantly reformed its labor laws, consolidating 29 central laws into four and raising the employee threshold for requiring government approval for layoffs from 100 to 300. This change, considered the most significant in a generation, aims to attract more businesses and stimulate economic growth, particularly in response to the changing economy and the rise of AI-driven restructuring. While startup founders view this as pro-growth, critics, including the Karnataka state IT/ITES employee union, argue it pushes a large section of workers outside retrenchment protections. The reform also includes changes to gratuity eligibility, reducing the required service period from five years to one, and partially covers gig workers under labor laws for the first time. However, unlike countries such as the UK, Germany, and the USA, India lacks a robust social security net or unemployment insurance, leaving a substantial portion of its 63 million MSME workforce vulnerable to job insecurity and financial distress, especially given that average Indian households have less than three months' savings.

Key takeaway

For HR professionals and business leaders in India, understanding the implications of the new labor code is critical. While the increased layoff threshold to 300 employees offers greater operational flexibility, it also heightens employee anxiety and mental stress due to the absence of a robust social security net. You should consider implementing internal support systems or enhanced severance packages to mitigate the impact of potential layoffs and maintain employee trust, especially given the rise of AI-driven restructuring and the financial vulnerability of many Indian households.

Key insights

India's new labor code raises layoff thresholds and includes gig workers, but lacks a social security net.

Principles

• Economic reforms can create conflicting outcomes for employers and employees.
• Social security systems are crucial alongside labor flexibility.
• AI adoption influences business restructuring and employment policies.

In practice

• Companies with fewer than 300 employees can now lay off staff without prior government approval.
• Employees can now avail gratuity after one year of service, down from five.
• Gig workers are partially covered under India's labor laws.

Topics

• India Labor Code
• Layoff Regulations
• Industrial Relations Code
• Gig Worker Rights
• MSME Impact

Best for: Entrepreneur, HR Professional, Legal Professional

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Editorial summary, takeaway, and curation by AIssential. Original article published by AIM Network.