I INTRODUCTION

The principal sources of law and regulations relating to employment relationships in India are the Constitution of India 1950, labour statutes, judicial precedents, and collective and individual agreements. The applicability of employment law in India is based on several factors, most of which relate to the function of the employee, the activity being performed by the employer and the number of persons employed in the organisation. Briefly, India's employment laws can be categorised as below:

  1. certain laws (such as the Factories Act 1948) apply only to a factory that is engaged in manufacturing;
  2. certain laws apply to an individual who is a 'workman',2 regardless of the organisation in which he or she is working; and
  3. certain laws apply to all employees working in an establishment, without distinguishing between categories of employees.

Indian employment laws are highly protective of workmen and it can be a challenge for employers to comply with all applicable laws, some of which date from the 1940s. The labour laws require an employer to act in accordance with multiple regulations, which include obtaining registrations, filing periodic returns, maintaining various registers and displaying extracts of specific laws. Compliance with these regulations can be tedious and problematic, as the information is usually voluminous and an employer may have specific internal methods of maintaining it.

i Legal framework

India is a federation of states. The Constitution demarcates the areas where central (federal) and state governments can legislate. Most employment laws are federal. These include laws relating to employment disputes and social welfare benefits. States are generally empowered to pass amendments to these laws, with specific local applicability.

The Industrial Disputes Act 1947 (the ID Act) is the main central legislation dealing with workmen. A workman would generally be any employee engaged, inter alia, to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, but would not include an employee engaged in a managerial or administrative capacity, or in a supervisory capacity and receiving wages of more than 10,000 rupees per month. Typically, all employees who are not in a managerial or supervisory role would be considered workmen.

The main piece of legislation that is usually enacted by a state is the Shops and Establishments Act (SEA), which deals with issues such as working hours, leave and overtime.

ii Court procedure in labour disputes

Complaints involving industrial disputes fall under the ID Act, which provides for various adjudicatory bodies, including jurisdictional conciliation officers, labour courts and industrial tribunals, to resolve disputes between workmen and management. An employer and workmen may also agree to refer an industrial dispute to arbitration under the ID Act. Further, the high courts of the states3 and the Supreme Court of India4 (the country's apex court) also have jurisdiction to hear certain labour disputes under constitutional law.

Litigation in India is often drawn out and the duration of an industrial dispute is difficult to predict with certainty – it may range from six months to more than two years.

The dispute process varies for employees who are non-workmen. In this case, the remedy would be mainly for breach of the employment agreement, where the parties have the option to approach the jurisdictional civil court (which includes the state high court) for relief or the appropriate authority under the SEA.

Ii YEAR IN REVIEW

After being in the pipeline for several years, as part of its objective to make it easier to do business in India, the government has begun the process of implementation of an amalgamation of key labour laws into comprehensive single codes. In July and August 2019, the Code on Wages 2019 was notified as a law, with the effective date of operation yet to be notified. This Code merges four federal Indian laws relating to wages, minimum wage rates, bonus payments and pay parity for employees. Three other labour codes are expected to be introduced by the government in relation to (1) employee health, safety and social security, (2) industrial relations and (3) social security.

One of India's main social security laws, the Employees State Insurance Act, also underwent amendment in relation to employer and employee contributions. This law provides for subsidised health insurance for employees who earn a monthly salary up to 21,000 rupees. With effect from 1 July 2019, the employee contribution rate as required by the Employees' State Insurance Corporation has been reduced to 0.75 per cent (from 1.75 per cent) and the employer contribution has been reduced to 3.25 per cent (from 4.75 per cent).

III SIGNIFICANT CASES

One of the key cases in Indian employment law in 2019 was a Supreme Court judgment under the Employees' Provident Fund and Miscellaneous Provision Act 1952. The case (The Regional Provident Fund Commissioner (II) and Ors v. Vivekananda Vidyamandir and Ors) was in relation to the computation of provident fund contributions under the Act. As per industry practice, employers frequently used a 'special allowance' carve-out to reduce the amount of an employee's compensation that would be held as basic wages and subject to statutory contributions payable by the employer (and employee). The Supreme Court held that special allowances paid by an employer to its employees will fall under the definition of 'basic wages' and would be subject to provident fund contributions. This has a huge financial impact on companies in India, where an employee's basic wages and special allowances have historically been treated as separate components for the purpose of provident fund contributions.

The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 is one of India's newest laws and there have been several interesting cases in this area, especially with the second wave of the #MeToo movement continuing its momentum. Incidents of non-compliance by an employer are being treated stringently by courts and regulatory authorities. In a 2019 judgment of the High Court of Madhya Pradesh,5 the Court directed the employer to pay the petitioner significant compensation – 2.5 million rupees – for having faced sexual harassment in the workplace. The Court also imposed a statutory penalty of 50,000 rupees on the employer for its failure to set up an internal committee to handle sexual harassment complaints for its employees.

In April 2017, the government introduced amendments to the Maternity Benefit Act 1961. One of the key amendments was the recognition of surrogacy, whereby a woman employee providing her egg for surrogacy is entitled to paid leave of 12 weeks from the date the child is handed over to her. In the case of Dr Mrs Pooja Jignesh Doshi v. State of Maharashtra and Another, the High Court of Bombay held that even with the birth of a child by surrogacy, the parents who have lent the ova and sperm would be entitled to maternity leave and paternity leave, respectively. Interestingly, though the case related to matters prior to the 2017 amendments, the Court adopted the same principle of law in relation to maternity leave to be provided to a commissioning mother. The Court also held that a commissioning father is entitled to paternity leave, which is not yet legally required to be provided by private sector companies in India.

IV BASICS OF ENTERING INTO AN EMPLOYMENT RELATIONSHIP

i Employment relationship

Under the Employment Exchanges (Compulsory Notification of Vacancies) Act 1959, if notified by the concerned state government, a private sector employer with 25 or more employees is typically required to notify any vacancy to a local government employment exchange 15 days before the date on which applicants will be interviewed. In practice, this is often observed in the breach.

There is no central statute dealing with the issue of an appointment letter or employment contract. Certain state-specific statutes may require the employer to issue an appointment order in a specified format. In practice, most companies provide an appointment letter or an employment contract indicating the join date, position, compensation and general terms of employment. Typically, the compensation break-up is mentioned in an annexure, which can be modified as required. The compensation break-up is largely based on the taxation aspects of the different compensation components.

Companies would also have an employee handbook or manual that includes details of company policies relating to discipline, leave, and the like. In addition, it is quite common for companies (especially in the information technology, and research and development sectors) to enter into confidentiality and non-disclosure agreements separately.

If an employer wishes to amend employment terms, he or she would need to check whether the employee is a workman. For workmen, the ID Act prescribes a specific process to be followed when changing specified working conditions (e.g., wages, working hours), including giving 21 days' notice. For a non-workman, it is recommended that the employer obtain the consent of the affected employee to effect the change, as any unilateral change to the employment agreement may be held as arbitrary and void.

ii Probation

There are no direct laws in India dealing with probation in general terms; however, this is a common practice. The (federal) Industrial Employment (Standing Orders) Act 1946 (the IESO Act) regulates working conditions for workmen and generally applies to industrial establishments employing 100 or more workmen.6 Under the IESO Act, a workman can be employed on a probationary basis to provisionally fill a permanent vacancy for up to a maximum of three months. Any such probationer is not entitled to notice of dismissal or payment in lieu during the probation period.

Certain states (such as Maharashtra) have built the concept indirectly into the SEA, by requiring an employer to provide notice of termination if an employee has worked for a specific duration (in Maharashtra, three months). No notice is required if the employee has worked for a shorter period.

Typically, a probation period lasts between three and six months, and should ideally not exceed 240 days, as several statutory social welfare laws apply to employees who have worked for this period and a probation period exceeding this limit may be construed as a way to avoid complying with the law. It is generally accepted that the services of probationary employees can be terminated at any time by either the employer or the employee as per the terms of the employment contract.

iii Establishing a presence

The hiring of employees requires the establishment of a legal entity to do business in India. There are various means of setting up a legal entity, such as establishing a company, a branch office, a liaison or representative office, or a limited liability partnership.

Until the legal hiring entity is set up, if a foreign company wishes to get people on board, it can examine options such as entering into an independent contractor agreement or using a manpower agency as a temporary measure. The use of an independent contractor, especially in relation to the duration of the contract term, would need to factor in possible adverse tax implications on the foreign company by way of having a permanent establishment in India.

iv Contract labour

Multinational companies in India often do not hire direct or regular employees for ancillary services, such as security, housekeeping and catering. A company would usually hire a contractor to provide these types of support services and the provision of labour by such a contractor would be regulated by the Contract Labour (Regulation and Abolition) Act 1970 (CLRAA). The CLRAA envisages registration of the principal employer and licensing of a contractor. A principal employer is any person responsible for supervision and control of an establishment, namely the company hiring the contractor. It is the responsibility of the contractor to make timely payment of salaries and other emoluments to the contract personnel. A key aspect of the CLRAA relates to defaults in the statutory obligations of the contractor – in such a case, the principle employer may need to make good the defaults (which can include payments) to the contract personnel and subsequently recover the same from the contractor. A principle employer should ensure that the contractor undertakes and is liable to comply with all statutory obligations for its personnel.

V RESTRICTIVE COVENANTS

Restrictive covenants in the form of non-compete and non-solicitation clauses are frequently included in an employment agreement. Strictly speaking, a blanket non-compete clause following termination of employment would not be enforceable under Indian laws as it would be held as a 'restraint of trade', but is usually included for deterrent value.

Non-solicitation agreements following termination of an employment relationship may have limited enforcement between two employers but not against the employees per se. The law on non-solicitation agreements is not very well developed. It is possible to have employees sign an employee bond – if the employee is provided with substantial training at significant cost, the employer can require him or her to remain with the organisation for a reasonable period. If the employee leaves prior to the expiry of this period, he or she may be required to repay the actual or reasonable costs incurred by the employer for this training.

VI WAGES

The Minimum Wages Act 1948, the Payment of Wages Act 1936 and the SEA generally govern the payment of wages to employees.

The Minimum Wages Act stipulates the minimum rates of pay in certain employment. These rates differ from state to state and are periodically revised.

The Payment of Wages Act regulates the payment of wages, including method and period for disbursement to employees earning up to 24,000 rupees per month.

i Working hours, overtime and leave

The SEA usually provides for working hours, which average between eight and nine hours per day. The SEA in most states provides for a break of 30 to 60 minutes after four to five hours of work. Any work beyond this limit would warrant overtime payment, which is usually twice the average wage. The SEA may also provide for overtime caps, usually on a daily, weekly, monthly or annual basis. There are no exemptions from paying overtime. However, overtime provisions are often observed in the breach, as companies may not pay overtime when employees stay late of their own volition to complete work.

Ordinarily, companies need to adhere to government norms on opening and closing hours, and need to be closed for one day a week; as per standard business practice, this is usually Sunday. Exceptions have been made under the SEA for certain sectors, such as the information technology (IT) and IT enabled services (ITES) sector, for which specific permission is required from state labour authorities.

Female employees are generally not permitted to work at night (between 8pm and 6am) for safety reasons. Some state governments provide exceptions for sectors such as IT and ITES, for which specific approval has to be obtained from the labour authorities. Any such approval is subject to stringent security conditions.

The Factories Act is the main central law dealing with factories, distinct from 'regular' commercial establishments. The Factories Act provides for working hours for factory workers (a maximum of 48 hours a week or nine hours a day, or both), overtime (usually at twice the ordinary rate of pay), leave, and so on. Other relevant features of the Factories Act are detailed safeguards for the health of factory workers, safety, improvement of physical conditions of the workplace and welfare amenities.

Typically, the SEA provides for between 15 and 20 days of regular leave and about 10 national or public holidays. Some national holidays are compulsory, while others may be chosen from a longer list of holidays notified by the state government.

ii Employee benefits

An employer may be required to provide statutory social welfare benefits to its employees according to various pieces of central legislation. The main legislation includes the Employees' Provident Funds and Miscellaneous Provisions Act 1952 (the EPF Act), the Employees' State Insurance Act 1948 (the ESI Act), the Payment of Gratuity Act 1972 (the PG Act) and the Bonus Act.

The EPF Act automatically applies to establishments that, inter alia, employ more than 20 people and to employees who earn up to 15,000 rupees per month. The employer and employee are required to make contributions to various funds (provident, pension and deposit-linked insurance) for the benefit of the employee. As a matter of practice, companies often provide this benefit to all employees regardless of their monthly remuneration. If a company chooses to follow the EPF Act voluntarily, it would need to comply with all requirements thereunder, including in relation to contribution caps and filings.

Companies with foreign employees and companies sending Indian employees to work overseas would need to factor in the concept of international workers under the EPF Act, where a higher amount of the employer's contribution typically needs to be deposited in the provident and pension funds as compared with 'regular' Indian employees.

The ESI Act applies to factories, which are defined as establishments engaged in manufacture with the aid of power with 10 or more employees. In establishments engaged in manufacture without the aid of power, 20 or more employees are required for the ESI Act to apply. The central government may also notify other establishments to fall under the ambit of the ESI Act. According to the labour authorities, the ESI Act is applicable to all establishments. However, there is some ambiguity about this. As discussed in Section II, the ESI Act aims to provide proper medical facilities and insurance to a workman and to his or her immediate family through a contributory fund. All employees, whether employed directly, through a contractor or part-time, who receive a salary of up to 21,000 rupees per month are entitled to be insured under the ESI Act. The employer and the employee are required to contribute a specified percentage of the salary, which is deposited by the employer in the Employees' State Insurance account.

Gratuity under the PG Act is a lump sum payment made to an employee on retirement, death or termination of employment because of disablement. Other than in the case of death or disablement, it is required to be paid to employees who have completed five years of continuous service. The requirement to pay gratuity applies, inter alia, only to an establishment in which 10 or more people are employed and applies to all employees regardless of monthly remuneration. Gratuity is determined at a rate of 15 days' salary for every year worked or part thereof in excess of six months, capped at 2 million rupees.

The Bonus Act applies to every establishment with 20 or more employees during an accounting year. An employee receiving a salary of 21,000 rupees per month or less is entitled to a bonus for every accounting year if he or she has worked for at least 30 working days in that year, inter alia, on the basis of profits, or on the basis of production or productivity. The minimum bonus is 8.33 per cent of the salary earned by an employee during an accounting year, or a sum of 100 rupees, whichever is higher. The Bonus Act also provides that the maximum bonus payable to an employee should not exceed 1,400 rupees (or minimum wages, whichever is higher).

VIi FOREIGN WORKERS

As mentioned in Section VI, a significant difference between Indian and foreign employees is highlighted in the EPF Act. The threshold to qualify, the manner of deduction and the benefits differ for a foreign employee, and differ further depending on whether the country of origin has a social service agreement with India.

There are no other substantive distinctions between local and foreign employees.

Immigration issues in India are regulated broadly by federal laws, with input from the Ministry of Home Affairs and Ministry of External Affairs. While the tourist visa-on-arrival provision has been introduced for a limited number of countries (such as Singapore and Finland), applications for work-related visas typically need to be made well in advance.

To stay in India and work long-term with an Indian company, a foreign national requires an employment visa, unless he or she already holds a valid Overseas Citizen of India card, which is granted to certain foreign nationals of Indian origin. To be eligible for an employment visa, a foreign worker must earn a salary of more than US$25,000 per year and should not be appointed to a job for which qualified Indians are available. A separate category of business visa exists that is issued only for short-term purposes, such as a visit to India to explore possible business ventures.

Foreign nationals are generally required to register with a jurisdictional Foreigners' Registration Officer or Foreigners' Regional Registration Officer, within 14 days of their arrival in India if they hold a visa for more than 180 days.

Given the fluidity of international relationships, it is recommended that before any foreign national travels to India, he or she should seek specific advice on the type of visa he or she needs to obtain.

VIII GLOBAL POLICIES

The IESO Act provides for the formation of standing orders defining the working conditions for workmen in applicable establishments. The orders need to be certified by the labour authorities and made available to all workmen. The types of matters covered in standing orders include:

  1. classification of workmen (permanent, temporary, probationer, etc.);
  2. working hours, holidays and wages;
  3. shift work;
  4. termination of employment and related matters, including suspension or dismissal for misconduct;
  5. sexual harassment matters; and
  6. retirement.

While most companies would have an employee handbook or manual dealing with issues under the IESO Act, it is advisable to check whether there are any state laws that require the company to actually adopt the format of the standing orders under the IESO Act.

IX PARENTAL LEAVE

The Maternity Benefit Act (the MB Act) provides for employer-provided maternity leave and other benefits (such as a maternity bonus) for female employees in relation to childbirth, medical termination of pregnancy, miscarriage, etc. This becomes applicable once a female employee has completed at least 80 days of work in the 12 months immediately preceding her expected delivery date.

A female employee is generally entitled to 26 weeks of paid maternity leave for up to two children and 12 weeks of paid leave for a third or more children. Paid maternity leave of 12 weeks is also provided for cases of adoption of a child up to three months old, which begins from the date the child is handed over to the adoptive mother. The law also recognises surrogacy: 12 weeks of paid maternity leave is provided to a 'commissioning mother', that is to say a biological mother who uses her egg to create an embryo implanted in any other woman. Any female employee who is a commissioning mother can avail of paid maternity leave, which is calculated from the date on which the child is handed over to her.

The MB Act provides for other types of leave, including (1) six weeks for miscarriage or medical termination of pregnancy, (2) two weeks for a tubectomy, and (3) up to one month for illness arising out of pregnancy, delivery, premature birth, medical termination of pregnancy, miscarriage or a tubectomy.

The MB Act prevents a female employee from having her employment terminated or her working conditions changed to her detriment while she is on statutory maternity leave.

Indian law does not provide for statutory paternity leave within the private sector; however, increasingly this is being provided by employers as a discretionary benefit for employees. Leave is usually granted for up to two weeks and would apply also in the case of adoption or surrogacy.

X TRANSLATION

State laws may require statutory employment-related documents to be maintained or displayed in the local language or the language understood by the majority of employees. An employment agreement would not need to be framed in this manner and is usually in English. What is important is that the employee should be able to understand all employment-related documents.

XI EMPLOYEE REPRESENTATION

i Works committee

Under the ID Act, if an industrial establishment employs 100 or more workmen, the government (state or central) may require the establishment to constitute a works committee with a maximum of 20 members. The aim of a works committee is to promote measures for security and good relations between the employer and workmen, and to mediate or facilitate any material difference of opinion between the parties. The committee would consist of an equal number of representatives nominated by the employer and the workmen.

ii Trade union

The legal right for collective bargaining exists in India through the means of a trade union. A trade union may be formed in accordance with the Trade Unions Act 1926 for regulating relations between an employer and employees. For the purpose of registration, seven or more members of a trade union can subscribe their names to the charter of the trade union and apply for registration of the trade union. A trade union is entitled to enter into binding contracts and settlements with an employer. In practice, white-collar employees are usually not represented by a trade union or any other collective bargaining unit. Further, trade unions are largely absent in services businesses, including, in particular, India's large IT and ITES sector, though there is some movement towards forming trade unions in the IT sector.

Certain states in India have laws dealing with trade unions, such as the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act 1971 and the Kerala Recognition of Trade Unions Act 2010.

iii Trade union of IT employees

In November 2017, the Labour Commissioner of Karnataka granted certification for the creation of the first trade union (Karnataka State IT/ITES Employees Union (KITU)) of IT employees under the Trade Unions Act 1926, and the Karnataka Trade Unions Regulations 1958. The main purposes of the formation of KITU were to organise employees working in the IT sector in Karnataka, to act as a platform for those employees to voice their grievances and to provide a medium for interaction with the employers. There has been considerable backlash from employers to this, mainly on the grounds that unionisation in the IT sector will hamper business operations and create an uncompetitive environment. The authorisation for the creation of KITU had a ripple effect across India. In January 2018, Maharashtra registered its first trade union for IT employees – the Forum for IT Employees – with chapters being opened in Karnataka, Tamil Nadu, Delhi NCR, Kerala, Hyderabad, West Bengal and Bhubhaneshwar.

XIi DATA PROTECTION

i Requirements for registration

There is no requirement for an employer to register with a data protection agency or other government body.

ii Sensitive personal data or information

An employer has an obligation to ensure that any sensitive personal data or information (SPI) that it collects from an employee is kept secure and confidential. From an employer's perspective, employee SPI would include personal details such as financial information (bank account or credit card details), medical records and biometric information. The employer may either contractually provide for safety norms dealing with SPI or would need to follow the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 in relation to the same. Thus, companies are increasingly contracting out the safety and security measures applicable to an employee's SPI, which is held by the company in accordance with its data protection and privacy policy.

iii Background checks

Background checks are a common feature that employers in India generally follow before hiring anyone, and successful completion of these checks is a precondition to employment (and continuing employment) with the company. Often, employers retain the right to conduct background checks on existing employees in case it is required for business purposes.

There is no prohibition on conducting background checks on employees, including candidates, provided their consent for this has been obtained. Background checks could include verifications on education, criminal history, credit rating, etc. The most common background check is of academic credentials, which is typically outsourced by an employer.

Criminal verifications are becoming quite common in India, though it is not an easy process as criminal records are not digitised or consolidated centrally.

Under current Indian credit rating structures, an individual can obtain information on his or her credit rating. An employer can also access this information with the employee's permission and on providing necessary proof of identity. Access to credit rating information is more common in banks and financial institutions.

XIII DISCONTINUING EMPLOYMENT

The termination of employment, whether on a large scale or for a single employee for convenience (and not for cause, such as termination on disciplinary grounds), would be held to be either retrenchment or termination of services, depending on the category of the employee under applicable Indian law.

i Retrenchment of workmen

As mentioned in Section I.i, the ID Act applies to an employee who qualifies as a workman. Under the ID Act, retrenchment would mean termination of a workman's contract for any reason other than as a punishment by way of disciplinary action.

In an establishment (other than a factory, mine or plantation with a minimum of 100 workmen), an employer must follow certain conditions for retrenchment of workmen who have been in continuous service7 for a minimum of one year, namely:

  1. to provide the workman with one month's written notice indicating the reasons for the retrenchment or make payment in lieu thereof;
  2. to provide the workman with 15 days' pay for every year or part thereof in excess of six months of continuous service; and
  3. to serve notice to the appropriate government.

From a practical perspective, many companies do not provide this notice (especially if only a few employees are being retrenched) because they fear that this may lead to enquiries by the labour authorities. However, not providing the notice would be a violation of law.

For establishments employing at least 100 workmen, prior approval would need to be obtained by the employer from the appropriate government before effecting retrenchment. The notice period required to be given to the workmen would increase to three months. The government may enquire into the reason for the proposed retrenchment and give the involved parties an opportunity to be heard. Approval for the retrenchment would be given only after such a hearing.

Under the ID Act, the employer needs to follow the principle of 'last come, first go' in the event of retrenchment. An employer is statutorily required to retrench the workman who is the last to have been hired in the particular employment category in the establishment, unless:

  1. the requirement is contracted out by both parties; or
  2. the employer can provide valid reasons for deviating from the requirement.

An employer should have reliable and sufficient evidence to justify the deviation from the rule, preferably in the recorded employment history of the employees.

An employer is not required to provide any alternative employment to retrenched workmen. However, a retrenched workman has a right to priority in the event of any rehiring – an employer is required to offer employment first to those workmen who were retrenched by it and are citizens of India.

Notification of employee representatives is not required in cases of retrenchment unless there are recognised employee representatives or a trade union and the agreement with that body or union requires notification, especially for large-scale retrenchments. From a practical perspective, an employer would hold a meeting with the affected employees or workmen and explain the termination requirement to them, and thereafter commence the formal retrenchment process.

Notwithstanding the provisions of the ID Act in relation to retrenchment, if a workman's employment agreement has better termination provisions (such as a longer notice period or severance pay), the employer would be bound by the same.

ii Termination of non-workmen

The SEA may specify a notice period to be provided to all employees, including non-workmen. For example, under the SEA in Karnataka, an employer is required to provide one month's written notice or wages in lieu thereof for any employee who has been in continuous employment for six months. Further, the employment contract would need to be examined for termination of non-workmen and related severance conditions.

In practice, an employer may ask for the resignation of the employee rather than terminate his or her contract. Most employees are willing to resign as it is a face-saving way for them to leave the company. If this method is used, it should not be a reason to deny the employee any due compensation under the law or contract.

iii Termination for misconduct

The aforementioned rules may not apply to the termination of an employment agreement as a result of misconduct. For example, the SEA in certain states (including in Karnataka) mentions that the notice period requirement need not be followed if the employee is being dismissed for misconduct. Dismissal because of misconduct would occur in the event of a breach of the rules of the employer or objectionable conduct. An employer can provide detailed rules in the employee manual or appointment letter of what an employee can and cannot do in the workplace.

If the dismissal of an employee (in particular, a workman) is by way of disciplinary action, the employer would need to follow the principles of natural justice and the guidelines that have evolved from various court decisions, including proving the misconduct of the employee. Additionally, if there were any standing orders or service rules applicable to the dismissal, the same would need to be followed. Broadly, to prevent the possibility of an employee challenging his or her dismissal before a court of law on the grounds of mala fide intentions, victimisation, etc., it is recommended that an employer follow this procedure:

  1. issue a charge sheet or a show-cause notice on the employee;
  2. hold a domestic inquiry (a single individual may be appointed as an officer to conduct the inquiry). The inquiry officer should not be directly involved in the conduct in question and, preferably, should not be the immediate superior of the employee;
  3. peruse the report of the inquiry officer; and
  4. issue an order of dismissal.

An order of dismissal may be challenged in a labour court and, if it is found to be flawed, the court has the power to order reinstatement with continuity of service, back wages and consequential benefits.

iv Termination under employment contract

An employment contract would normally mention a notice period or payment in lieu thereof for termination of employment other than for misconduct. In the case of senior management this is likely to be three months, and in the case of other employees this would be one month. In practice, at the time of the termination, the employer would check whether the compensation payable under law is more than that prescribed under the contract.

XIV TRANSFER OF BUSINESS

Under the ID Act, where the ownership or management of an undertaking is transferred, whether by agreement or by law, from one employer to another, the new employer is required to ensure that:

  1. the service of the workmen is not interrupted by the transfer (i.e., continuity of service must be maintained, since this is relevant for the provision of certain statutory welfare benefits);
  2. the terms and conditions of service applicable to the workmen after the transfer cannot be less favourable than those applicable immediately before the transfer; and
  3. under the transfer terms or otherwise, in the event of future retrenchment, the new employer is legally liable to pay the workmen compensation on the basis that the service has been continuous and not interrupted by the transfer.

If the new employer does not comply with the above conditions, the workmen who have been in continuous service for one year immediately before the transfer are entitled to notice and compensation as if they were being retrenched.

Though not specifically provided under the ID Act, case law provides that the transfer of workmen is not automatic and the employer should obtain the consent of the workmen. If a workman refuses to be transferred, then the current employer has the option to terminate the contract by way of retrenchment.

XV OUTLOOK

Several of India's federal employment laws date back to the early 1900s, albeit with amendments from time to time to address current issues. Moves by the government to codify the major federal employment laws relating to wages, worker safety and employee relationships is a positive step towards streamlining the employer-employee relationship. Compliance with multiple laws continues to be an issue for employers, as it is practically impossible for any employer ever to be completely compliant. The codification should again assist with better compliance while ensuring that there are no arbitrary or ad hoc inspections of companies' day-to-day operations. Workplaces and the traditional employer-employee relationship are evolving rapidly in India, with increased digitisation, and the approach by the government to simplifying laws is a step in the right direction. The overall outlook is positive, with increased digitisation of processes, and transparency in compliance and government interventions.


Footnotes

1 Debjani Aich is a partner at Kochhar & Co.

2 The term 'workman' is not gender-specific.

3 Each state has a high court with superintendence over all courts and tribunals in the state.

4 The Supreme Court of India exercises original and appellate jurisdiction in relation to employment laws.

5 Global Health Private Limited and Ors v. Local Complaints Committee, District Indore and Ors.

6 There are state-specific modifications, such as those seen in Karnataka, where the IESO Act will apply to industrial establishments with 50 or more workmen. Further, states can exempt the applicability of the IESO Act to certain sectors. For example, in Karnataka, the information technology [IT] and IT enabled services sector is exempt from the IESO Act.

7 'Continuous service' generally means working in an establishment for 240 days in the immediately preceding 12 months.