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Business Strategy – Funding Frenzy & Startup Layoffs – Know Your Rights

Current Business Strategy of eCommerce Online Startups in India

Business strategy, Funding Startups, Patents

Snapdeal is about to layoff 1500+ employees. The practice of mass firing by tech startups is not new. Previously, HelpChat (now Tapzo)FlipkartCraftsvillaInMobiPropTiger (after merger with housing.com) etc. have laid off hundreds of employees, with or without any notice periods. 

Recently, it was reported that hiring has been put on fold due to funding crunch. This has led to immense increase in talent pool and competition among skilled manpower has grown multifold.

Rights of Employees

During layoff, parties involved should reassure that rights of employees are respected and actions of employers are not in breach of contract and labor laws. In India, employment with technology companies and startups is primarily regulated by contract law and termination of employment should strictly be in accordance with termination provisions of the employment contract.

Notice period and Severance Pay

Employees should get sufficient notice period and severance pay as per company’s policies and corresponding provisions agreed upon during the execution of the employment contract. In case employment agreement is silent on these aspects, one needs to check if provisions of labor laws (state and central) are applicable to the employer. If yes, such rights can be enforced to ensure employer is not in breach of laws.

Labor Unions

In case employers have engagement with labor unions and employee associations, such layoffs can be handled amicably. One such association is F.I.T.E. (Forum for IT Employees)

Business Strategy: Preventive Approach

Indian companies and startups are notoriously famous for following a reactive approach instead of a preventive one. If proper strategies are in place, certain business measures can help in avoiding mass layoffs situations, including:

(a) Structural Complexity

During growth phase, corporate structure tends to become complicated due to addition of multiple layers and hierarchies. Maintaining simplicity across various teams and departments can keep things in check to avoid layoffs.

(b) Revenues vs Opportunities

Balancing present revenues in light of future opportunities is a healthy way of ensuring funds are utilised appropriately. Avoiding highly unjustified salaries and marketing spends can result in a lean approach to reduce cash burn rates. Focusing too much on short-term revenues instead of long term sustenance is one of the core reasons of layoffs.

(c) Outdated Products and Services

Startups following proactive approach to phase out non-productive features and offerings experience higher success while navigating tough environments. Cost and infrastructure are benefitted when outdated products and services are phased out in timely manner.

(d) Intellectual Capital

Investing in creation of intellectual capital during initial stages results in valuable intellectual property (IP). Such IP can be monetised by way of B2B licensing and technology transfer, thereby creating additional revenue streams. IP portfolio usually comprises patentstrademarks, copyrights, designs and trade secrets, collectively contributing towards intellectual capital of the business.

Have you ever been laid off without any notice period? Do share your experience!

Hope you found this useful. Thank you.

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Rahul Dev is a Patent Attorney & International Business Lawyer practicing Technology, Intellectual Property & Corporate Laws. He is reachable at info (at) techcorplegal (dot) com & @rdpatentlawyer on Twitter

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