Work at a Startup? Your Job is Far More Prone to Layoffs Than You Think

India’s decision to raise the headcount threshold for layoffs from 100 to 300 workers is set to reshape the operating environment for thousands of startups and MSMEs across the country, particularly in tech-heavy ecosystems like Bengaluru.

Under the Industrial Disputes Act of 1947, companies employing 100 or more workers were required to seek prior government approval before retrenching employees or shutting operations. But with the Industrial Relations Code, which came into force on November 21, 2025, that threshold was raised to 300 employees.

The change effectively makes it easier for a large section of India’s startup and MSME ecosystem to lay off employees. The reform is part of the government’s broader effort to consolidate 29 central labour laws into four labour codes, aimed at simplifying compliance and increasing labour market flexibility.

For India’s startup ecosystem, the impact could be immediate. Bengaluru alone houses over 16,000 startups and contributes nearly 42% of India’s software exports. A large number of growth-stage startups—particularly Series B and Series C firms employing between 100 and 299 workers—previously fell within the ambit of the older law.

India’s MSME sector, too, sits at the centre of this transition. The country has over 63 million MSMEs. Many operate within the 50–300 employee range, making the threshold revision particularly consequential for hiring strategies, workforce planning, and expansion decisions.

Greater Operational Freedom

For founders, the reform removes what many viewed as a structural hurdle to scaling.

“The increase in the layoff threshold from 100 to 300 employees is a significant shift for startups and MSMEs,” says Kunal Khanna, Founder, CTO, and CEO of business connect platform Match It Up. “Many growing businesses in India operate in uncertain and fast-changing markets, and higher flexibility around hiring and restructuring can reduce operational pressure and help companies scale with more confidence.”

The relief comes at a time when AI and automation are rapidly changing how companies operate. “Startups today need the ability to adapt teams, skills, and operations much faster than traditional industries did,” he tells AIM.

Munab Ali Beik, VP and Head of Compliance Advisory at HR practices firm Core Integra, believes the new Industrial Relations Code gives smaller establishments greater operational freedom. It can help startups and MSMEs navigate business downturns and workforce rationalisation requirements while continuing to comply with procedural safeguards and compensation rules.

“While these provisions may raise concerns regarding job security for workers, they also provide employers with greater operational flexibility to align workforce requirements with business needs,” he notes.

The Missing Support System

At the same time, labour advocates warn that the reform significantly weakens employee protections, especially in sectors already grappling with layoffs and restructuring.

Suhas Adiga of the Karnataka State IT/ITeS Employees Union asserts that the reform would “push a large section of employees outside protections related to layoffs and retrenchment.”

The timing of the reform is particularly sensitive. India’s technology sector has witnessed tens of thousands of layoffs since 2023 amid funding slowdowns, profitability pressures, and AI-led restructuring. In FY26, TCS cut nearly 12,000 jobs overnight. Data from layoffs tracker Trueup.io shows that global tech companies laid off an average of 1,000 tech employees per day in 2026 alone. 

Critics argue that raising the threshold without strengthening social security systems could leave workers vulnerable. Under the new framework, retrenched employees in firms employing fewer than 300 workers are entitled to a one-time reskilling fund contribution equivalent to 15 days’ wages. Unlike several developed economies, India does not currently have a federal unemployment insurance system.

Countries such as Germany provide unemployment support covering nearly 60% of salary for up to a year, while Singapore offers retrenched workers support payments of up to $6,000 over six months. Many states in the US provide unemployment assistance for up to 26 weeks. India’s freshly implemented worker reskilling fund, in contrast, remains a one-time employer contribution with limited implementation infrastructure.

Even supporters of the reform acknowledge the need for balance between flexibility and worker welfare.

“Labour reforms should not come at the cost of employee trust and job security,” Khanna asserts. “Strong companies are built by strong teams, and long-term growth depends on workers feeling valued, protected, and fairly treated.”

“The ideal outcome is a balanced ecosystem where businesses can scale efficiently while employees still have dignity, stability, and opportunity,” he reflects.

The Industrial Relations Code also gives the government the power to further raise the layoff threshold through an executive notification, without requiring parliamentary approval. No timeline has been announced for any such move.