Mass AI downsizings in Kerala spark legal row over new labour codes; state govt intervenes

The layoffs at CorroHealth and the collapse of Talrop's start-up ecosystem in Kerala have put the spotlight on two critical issues: the growing impact of Artificial Intelligence (AI) on white-collar jobs and the legal protections that are now available for companies under India's new labour codes.

Within days of each other, nearly 800 employees of US-based healthcare technology company CorroHealth lost their jobs, while Kochi-based startup Talrop announced the closure of 21 companies within its ecosystem, leaving more than 300 employees struggling to recover months of unpaid salaries.

Although the circumstances differ, both companies have directly or indirectly pointed to AI-driven disruption as a key factor behind their decisions.

AI disruption

Talrop has openly acknowledged that AI has fundamentally transformed the technology landscape. According to the company, its decade-old ecosystem model had become financially unsustainable, requiring annual expenditure of nearly Rs 100 crore.

As part of its restructuring strategy, Talrop shut down 21 companies and announced a complete overhaul under what it calls "Talrop 7.0", shifting away from its community-driven startup model towards institution-led projects.

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CorroHealth's case is different. The company operates in medical coding and healthcare analytics, sectors where AI-powered coding tools are rapidly automating work that has traditionally been done manually.

The company has reportedly cited business restructuring as the immediate reason for the layoffs.

What workers claim

Employees, however, present a different version of events.

Several workers allege that the retrenchment was not merely driven by AI or restructuring. They claim the layoffs were retaliatory after some employees approached the labour department and labour courts over workplace-related grievances. CorroHealth has not publicly responded to these allegations.

The controversy has also triggered a wider legal debate over India's new labour codes.

Labour code row

CorroHealth has reportedly relied on provisions of the Industrial Relations Code to justify the retrenchment, arguing that establishments employing fewer than 300 workers can retrench employees without prior government approval. However, both employees and the Kerala government strongly dispute this interpretation.

First, Kerala has not yet implemented the new labour codes and continues to be governed by the Kerala Shops and Commercial Establishments Act and other existing labour laws.

Workers further argue that CorroHealth's Kerala operations collectively employ well over 300 people. They allege that the company has treated its Kochi and Kozhikode facilities as separate establishments to bring the workforce below the statutory threshold.

If that argument is accepted, employees contend that the company cannot claim the exemption available under the Industrial Relations Code.

In effect, workers allege that CorroHealth is relying on labour code provisions that are not yet operational in Kerala and simultaneously claiming a legal exemption that may not apply.

Government steps in

The Kerala government has now intervened.

Kerala Labour Minister Bindu Krishna said the company failed to follow mandatory legal safeguards, including advance notice and the "last in, first out" principle governing retrenchment.

The government has directed CorroHealth to retain as many employees as possible and accommodate others through transfers wherever feasible. The company has also been asked to appear before the labour department on July 20 and submit documents supporting its legal position.

The minister warned that legal proceedings could follow if the company fails to cooperate, and Kerala is also expected to raise the matter with the Union government.

Political fallout

The dispute has also taken on political significance.

Left-affiliated organisations, particularly the Democratic Youth Federation of India, have launched protests and campaigns, portraying the dispute as the first major test of the Centre's labour reforms in Kerala.

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Meanwhile, Talrop employees have approached labour authorities in Ernakulam, Thiruvananthapuram and Kannur, alleging that salaries have remained unpaid for periods ranging from four to eleven months. Labour officials say the company initially cooperated but later stopped responding as complaints increased, prompting many employees to approach labour courts.

Bigger picture

Together, the CorroHealth and Talrop episodes highlight two major realities confronting India's technology workforce.

The first is technological disruption. AI is rapidly transforming industries such as medical coding, software services and digital products, forcing companies to rethink workforce requirements.

The second is legal uncertainty. As new labour codes gradually replace older labour protections, disputes over retrenchment, employee rights and corporate obligations are likely to become increasingly common.

The outcome of the CorroHealth dispute will therefore be closely watched beyond Kerala.

It could become one of the first major tests of how multinational companies interpret India's labour reforms, how state governments respond, and whether workers retain meaningful protections in an economy increasingly shaped by automation and AI.