RESHAPING LABOUR LAWS IN THE AGE OF AUTOMATION

AUTHOR: ESHAN KHERA, INDIAN INSTITUTE OF MANAGEMENT ROHTAK

The quick evolution of artificial intelligence (AI) and automation is revolutionizing industries, causing greater efficiency but also widespread job displacement. AI-based systems are displacing conventional employment jobs, creating issues regarding job security, wage protection and ethical employment practices. India’s legal regime, such as the Industrial Disputes Act, 1947 and the Social Security Code, 2020, does not have complete measures to tackle AI-driven retrenchment, algorithmic bias and gig worker exposure. This article looks into the legal and ethical issues presented by AI in the workplace, reviewing international labour law trends and their implications for India. It looks into the possibility of treating AI-driven terminations as retrenchment and noting regulatory loopholes in AI-based recruitment and workplace monitoring. The piece recommends changes to India’s labour laws to provide equitable employment practices, transparency in AI decision-making and protection for workers hurt by automation. An equitable strategy for AI regulation is necessary to reduce unemployment threats while encouraging technological advancement.

KEYWORDS

Artificial Intelligence, Automation, Labour Laws, Job Displacement, Gig Economy, AI Bias, Workplace Surveillance, Retrenchment, Algorithmic Decision-Making, Employment Rights, Legal Framework, India

AI is transforming industries by boosting productivity, reducing prices and enhancing precision globally and in India. AI and robots can operate round the clock without any breaks and are therefore ideal in manufacturing, government departments and the private sector. AI also has an essential role to play in social media, e-commerce and customer service as virtual assistants substitute actual labour. But the large-scale use of artificial intelligence is creating fears of mass unemployment and economic inequality. The work burden of workers is diminishing with the advent of artificial intelligence and robots, but the demand for the workers is diminishing at a higher rate. These technologies are being created in such an advanced way that they are now able to do the jobs which previously only humans were able to do. From composing research papers to creating excel sheets to forecasting stock prices to even operating cars, all these tasks are now possible to be carried out without any human intervention. In a report by the Organization of Economic Co-operation and Development (OECD), they have estimated that due to automation and AI, there can be a 30% job loss by 2030. This indicates that the conventional employment paradigm is giving way and workers and employees face a danger of Job Displacement. Our existing Indian Legal Framework has no provision for any job security or protection against job displacement due to automation and robotics. Although AI displaces conventional employment jobs, it also fosters technical advancements, making obsolete methods redundant. AI is rapidly growing in India’s healthcare, education, and technology industries, attracting foreign investment and enhancing the nation’s position in the international IT market. In spite of this growth, India does not yet have clear legal frameworks for the regulation of artificial intelligence. The government has provided guidelines, but full AI regulations have not yet been implemented to effectively control its risks and benefits.

Artificial intelligence and automation are reshaping various sectors such as transport, law enforcement, education and farming. Nonetheless, their take-up has also generated fears over employment losses in conventional sectors. In India, the right to work, under the guarantee of Article 21 of the Constitution as an aspect of the right to life and liberty, is being confronted with rising threats from job replacement through automation. The current legal framework does not have overarching safeguards for workers hit by technological change. Ethically speaking, the question revolves around whether the state should guarantee work or money with automation. This then induces concerns regarding balancing technological advancement with social accountability and workers’ rights. The Industrial Relations Code does not have a particular provision that deals with the termination of employees on the basis of displacement by robots, machines, or AI systems.

Recruitment software that relies on AI is becoming more popular for making hiring decisions, yet it can still be biased. Various researches have revealed that AI algorithms, when trained using biased data sets, can discriminate against particular demographics. Amazon has increasingly been relying on AI to track the productivity of warehouse employees. The corporation implemented an automatic tracking system called Time Off Task (TOT), which tracks workers in real-time. The system identifies employees who are taking too much time off or who are not delivering high productivity, resulting in automatic warnings or firing. In 2021, it was reported that Amazon had let go of hundreds of employees on the basis of AI-created performance metrics, sometimes without human review. Employees complained en masse of excessive stress, overwork and hazardous working conditions caused by monitoring via AI. Amazon’s AI scheduling system often created unrealistic goals, and employees were compelled to forego breaks to be free from penalty. Also, Amazon’s AI recruitment tool was found to favour male candidates over female applicants because it was trained on historical hiring data that reflected gender bias in tech roles. Since AI decisions lack human empathy, they often fail to account for external factors affecting performance, raising questions about whether AI-based terminations should be legally reviewable. Countries like the European Union have introduced regulations requiring human oversight in AI-driven employment decisions, but India’s labour laws still lack similar protections.

AI has also revolutionized work arrangements, particularly in the gig economy. Uber, Swiggy and Zomato are some of the platforms that depend on AI algorithms to distribute work, set pay and even suspend workers without the status of employer-employee relationships. This has created more job insecurity since gig workers are labelled as “independent contractors”, thus barring them from minimum wage protections, social security, and legal safeguards. In 2021, the UK Supreme Court decided in favour of Uber drivers, who were declared to be employees instead of independent contractors and were thus entitled to minimum wages and benefits. This judgment created a global precedent for AI-based gig work regulation. India’s Social Security Code, 2020 mentions gig workers but does not make comprehensive protections compulsory, leaving them exposed to AI-based employment decisions.

AI in the work environment has created efficiency but along with significant issues of privacy, bias and employment security. Most businesses utilize AI-powered monitoring tools to monitor employees’ productivity, attendance, and keystrokes, which often gives rise to stress and discontent. The right of privacy, established in K.S. Puttaswamy v. Union of India, applies to workplaces as well, and according to the Digital Personal Data Protection Act, 2023, employers need to safeguard employee information and get consent for processing beyond a legitimate use. AI hiring has also been found to perpetuate bias. Amazon’s AI-based recruitment tool, for instance, was biased against women applicants as it was trained on historical resumes which showed a male-dominated industry. This reflects the necessity of periodical audits and checks to avoid discrimination. Displacement from work is another significant issue, as automation through AI has resulted in job losses, with IBM halting recruitment for 7,800 employees. While AI will generate new jobs, a considerable number of displaced workers do not possess the required skills, and current labour laws such as the Industrial Disputes Act of 1947 fail to counter such issues effectively. Another concern is transparency in AI-based workplace decisions. Workers are not informed as to how their performance is measured by AI or why some decisions are taken, and as a result, they develop distrust. Uber drivers have been protesting against AI-driven deactivations without reasons or appeal. Without effective rules and human intervention, AI may exacerbate workplace disparities rather than eliminating them. Businesses need to make sure AI is employed responsibly through enhanced transparency, offering opportunities for reskilling, and imposing policies to safeguard workers’ rights.

Section 2(oo) of the Industrial Disputes Act, 1947 defines retrenchment: 

 ““retrenchment” means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action” 

Section 25F of the Act provides that prior to retrenchment of an employee:

1. The employer shall serve a one month’s notice together with reasons for termination.

2. The employee should be paid an amount equal to 15 days’ wages for each year of service completed.

3. The employer should report the retrenchment to the government.

Automation in the workplace replaces traditional workers, rendering their jobs obsolete and giving employers a cost-saving reason to lay them off. According to the Industrial Disputes Act, 1947, such terminations are considered retrenchment, since they are not due to any misconduct on the part of the employees. This consistent trend in the labor market renders it challenging for workers to maintain family income. For low-skilled and unskilled employees, regular spending surpasses salaries, resulting in a chronic cash deficit. Where job losses due to automation are extensive, families will be subjected to long-term debt or will be forced to engage in drastic activities like self-mutilation or committing crimes.

Arguments in Favor of Classifying AI Layoffs as Retrenchment

Many companies adopt AI-driven solutions primarily to cut costs, often at the expense of human jobs. Tata Consultancy Services, Wipro and IBM have all faced scrutiny for mass layoffs due to AI adoption. TCS reportedly cut over 20,000 jobs in recent years due to automation-driven restructuring. Wipro announced AI-led workforce reductions in certain departments in 2023, citing efficiency improvements. If such terminations are not classified as retrenchment, companies could exploit automation as a loophole to bypass legal protections for workers. By including AI-induced job losses under Section 25, employees would receive financial protection and legal safeguards. When an employee is laid off due to financial distress, labour laws mandate compensation and reskilling. AI-induced layoffs similarly affect workers’ livelihoods, making compensation just as necessary. Affected workers face loss of income with minimal re-employment opportunities in their industry, lack of retraining initiatives, as companies often invest in AI tools instead of workforce reskilling, psychological and financial stress caused by sudden unemployment without social security benefits.

Arguments Against Classifying AI Layoffs as Retrenchment

Opponents argue that retrenchment laws were designed for financial downturns, not technological progress. Companies investing in AI are not necessarily downsizing due to financial distress but are adapting to market innovations. Section 25F of the Industrial Disputes Act was meant to prevent arbitrary firings in struggling businesses, not hinder progress through automation. Courts have ruled that retrenchment applies to cases where companies shut down departments due to financial constraints. If AI adoption is classified similarly, it may discourage technological advancements and hurt economic growth. Requiring companies to compensate all AI-displaced workers could discourage investment in automation and slow India’s digital transformation. Critics argue that AI boosts productivity, allowing businesses to reinvest savings into new job roles. Forcing retrenchment compensation for every automation-induced job loss may increase legal disputes and compliance burdens. Unlike traditional layoffs, AI-led job changes often lead to job transformation, not just terminations. Amazon’s “Just Walk Out” AI system in cashier-less stores led to job losses but also created roles in AI system maintenance and logistics. Hence, job evolution should be considered before labelling AI-led terminations as retrenchment.

Governments everywhere are acting to control the effects of AI on jobs. The first comprehensive AI law in the world, the European Union’s AI Act (2023), establishes stringent rules for high-risk AI uses, such as hiring and workplace surveillance. Companies that use AI to make hiring and firing decisions are required by this Act to maintain fairness and openness. Pre-emptive effect assessments might be necessary for AI-driven layoffs in order to reduce discrimination. If AI developers’ algorithms result in discriminatory employment practices or wrongful termination, they are strictly liable. AI-related work rules in the US are still disjointed. The Automated Employment Decision Tool (AEDT) Law (2023) of New York City requires AI hiring technologies to undergo a bias audit prior to usage. Similarly, in cases of large layoffs caused by AI, the Worker Adjustment and Retraining Notification (WARN) Act has been invoked, compelling employers to offer severance pay and advance warning. The UK court established a precedent for accountability in automated work terminations when it decided that AI-based employment decisions must permit human review in the Goldman v. Uber (2022) case, in which an Uber driver was wrongly fired by an AI-driven algorithm.

One of the biggest concerns surrounding AI-driven job losses is the lack of financial security for displaced workers. A potential amendment to the Industrial Disputes Act, 1947 could mandate that companies pay severance to employees replaced by AI. India could follow the precedent of UK Supreme Court’s Uber BV v. Aslam, which established that gig workers deserved basic employment rights, including severance pay. The European AI Act is pushing for severance provisions in AI-induced layoffs, ensuring displaced workers receive adequate compensation. If implemented, such policies would prevent companies from exploiting AI to cut costs at workers’ expense. Several countries, including Germany and Singapore, require companies implementing AI to reskill affected workers. In India, policymakers should consider mandatory retraining programs funded by companies adopting AI-driven automation, tax incentives for businesses investing in employee upskilling rather than layoffs, and Public-Private Partnerships for AI workforce training initiatives. Amazon launched its $700 million “Upskilling 2025” program to train its employees for AI-related roles instead of outright dismissing them. If India mandates such policies, it could prevent mass unemployment caused by AI adoption. AI-driven hiring and firing decisions have already led to discrimination lawsuits worldwide. In the Loomis v. Wisconsin (2016) case, the US Supreme Court ruled that AI-based risk assessments must be transparent and non-discriminatory. India could introduce legislation requiring companies to audit AI-driven employment tools for bias and mandate human oversight in AI-based hiring and termination decisions, impose penalties on companies using biased AI systems in recruitment and encourage AI transparency through algorithmic audits. Such laws would protect workers from wrongful AI-driven job losses while ensuring fair hiring practices.

Current literature points to a wide gap between the present labour legislation and the fast-changing environment of automation and AI, indicating that most jurisdictions have no specific provisions to deal with the special challenges arising from these technologies. Research indicates the necessity of legal frameworks capable of responding to the changing nature of work. There is a lack of conventional employment categories in the context of algorithmic management and AI-based decision-making. In particular, with respect to automation-related dismissals and their characterization as retrenchment, an argument has been made to redefine traditional definitions to encompass technologically caused displacement of jobs and to expand the “industrial” nature of the Industrial Disputes Act 1947 to “algorithmic” or “automated” re-structuring. Reform of current labour legislation to safeguard workers’ rights in the burgeoning automated economy is urgently required.

The research adopts a doctrinal method of research, combining with secondary data to gain a comprehensive understanding of the issue. Doctrinal research is done to analyse the existing legal provisions and case laws related to the issue. Legal material such as the Industrial Disputes Act, 1947 and other recognized sources have been considered for obtaining and analyzing data. Secondary data is gathered from published sources including articles, data and case studies. 

The fast-paced deployment of AI across industries is remoulding work, and thus the work environments, and therefore, are raising relevant legal and ethical concerns. Though automation increases efficiency and productivity levels, it displaces human labour, changing the traditional paradigm of job protection. Although they offer some protection, India’s current labour laws such as the Industrial Relations Code and the Social Security Code, 2020, are ill-equipped to address algorithmic bias, AI-driven layoffs and the vulnerabilities faced by gig workers. Unchecked AI can result in exploitative working circumstances, as demonstrated by global examples such as the algorithmic spying practiced by Amazon and the UK Supreme Court’s decision in the Uber driver case.   Absence of human oversight over AI-driven hiring and termination decisions also aggravates these problems. India must update its labour laws to include AI-specific safeguards including equitable algorithmic decision-making, retraining initiatives, and legal recourse for impacted employees in order to avoid these risks. An appropriately balanced regulatory environment will guarantee that worker rights and technology advancement coexist, bringing about a more sustainable and equitable workplace of the future.

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