The Employment Law Review: India
Labour falls under the concurrent list of the Constitution of India, whereby both the central and state governments have power to legislate on matters relating to labour and employment.
Most of the central and state labour statutes govern the working conditions of blue-collar employees (i.e., workers), whereas the employment terms of white-collar employees (i.e., non-workers) are largely governed by private contracts.
The key sources of Indian employment laws are:
- the Constitution of India;
- central and state statutes;
- judicial precedents; and
- collective or individual contracts.
Adjudication of industrial disputes in India must pass through various stages and forums. At the root level, a dispute is brought before the conciliation officer to seek resolution. If the conciliation is successful, it is recorded in a written memorandum of settlement, which is binding on the parties. Otherwise, the dispute is referred by the appropriate government body to the labour court or the industrial tribunal or the national industrial tribunal, as the case may be. An award passed by the appropriate industrial court can be challenged before the concerned high court under its writ jurisdiction. The judgment of the concerned high court may later be challenged before the Supreme Court by filing a petition for special leave.
The relevant labour statutes in India are broadly categorised into two types, namely employer–employee relationships and working conditions of employees.
Statutes such as the Industrial Disputes Act 1947 (IDA) and the Industrial Employment (Standing Orders) Act 1946 (IESOA) primarily deal with employer–employee relationships. Further, enactments, such as state-specific Shops and Commercial Establishments Acts (SEAs), the Factories Act 1948 (FA) and the Payment of Wages Act 1936, focus primarily on the working conditions of employees. Statutes such as the Employees' State Insurance Act 1948, the Employees' Provident Fund and Miscellaneous Provisions Act 1952, the Payment of Gratuity Act 1972, among others, govern the social security benefits paid to employees.
The primary judicial bodies and government agencies responsible for enforcement of Indian employment laws are as follows:
- labour courts, industrial tribunals and the National Tribunal are responsible for adjudicating labour disputes;
- the Regional or Chief Labour Commissioner undertake enforcement relating to the payment of salaries, gratuities, contract labour, employee compensation and working conditions, among other things;
- the Directorate of Factories enforces provisions relating to health and safety in factories;
- the Provident Fund Commissioner is responsible for enforcement relating to the provident fund; and
- the chairperson of the Employees' State Insurance Corporation is responsible for enforcement relating to employees' state insurance, among others things.
Year in review
The key trends in employment law trends during 2021 were:
- the implementation of health and safety procedures for employees at their workplace, particularly in relation to covid-19 and its new variants;
- rolling out schemes and financial aid plans to support employees who have been affected by the covid-19 pandemic, such as providing group medical insurance, and long-term financial aid to employees and their families who have suffered during the pandemic, among others;
- the introduction of hybrid working policies and other forms of flexible working models, and related issues emerging therefrom, namely the health and safety of employees, leaks of confidential information, off-boarding outgoing employees and the notional extension of workplace, among others;
- the implementation of return to work guidelines, focusing on preventive measures to contain the spread of covid-19 in workplace settings;
- organising covid-19 vaccination camps for employees, family members and dependants;
- issues relating to data protection, discrimination based on vaccination status, forced vaccination and the right to refuse vaccination, among other things;
- the emergence of a new category of workers (i.e., gig and platform workers);
- delays in the implementation of proposed labour codes (namely the Code on Wages 2019, the Code on Social Security 2020, the Industrial Relations Code 2020 and the Occupational Safety, Health and Working Condition Code 2020); state rules on these codes are in preparation; and
- the digitalisation of labour law compliance and filings, as required under prevailing laws.
In two landmark rulings,2 the Supreme Court has put an end to gender discrimination and promoted equality by directing that women in the Short Service Commission are eligible for permanent commission (PC) in the Indian Army and Navy. Subsequently, while hearing a batch of petitions filed by women officers for PC in the Indian Army and Navy, the Supreme Court held that barring women from PC is unjustified and in violation of Article 14 of the Constitution of India. The Court further held: 'These adjustments and amendments, however, are not concessions being granted to a set of persons, but instead are the wrongs being remedied to obliterate years of suppression of opportunities which should have been granted to women.'
In Pradip Raghunath Daud v. The State of Maharashtra & Anr,3 a plea was filed by the applicant to quash the first information report (FIR) registered against him under Sections 354 and 309 of the Indian Penal Code, 1860, as the complainant had entered into a compromise and filed an affidavit in this regard. The High Court of Bombay noted that there exists no ground for quashing the FIR, and it would be unconscionable to accept a compromise from a victim of sexual harassment in the workplace as it would be against the interests of justice. Accordingly, the application was rejected.
In Union Bank of India v. Mujahid Qasim and Ors,4 the High Court of Delhi held that the demand from drivers who were serving various executives of the Union Bank for regularisation of their service was both legal and valid. The Court further held that selective regularisation of similarly placed employees and depriving other such workers of the same benefit would amount to discrimination and unfair labour practice.
The High Court of Calcutta in Dr Malabika Bhattacharjee v. Internal Complaints Committee, Vivekananda College & Ors5 widened the scope of complaints to be received under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (the POSH Act) and decided that same gender complaints under the POSH Act are maintainable.
Basics of entering an employment relationship
i Employment relationship
Some state-specific SEAs, such as those in Delhi, Karnataka and Andhra Pradesh, require an employer to issue an employment letter. Moreover, it has been held by the Indian courts under various judicial precedents that failure to issue an appointment letter would amount to an 'unfair labour practice'. Although, in most cases, written employment contracts are executed between the employer and employee, oral employment contracts are prevalent in the unorganised sector.6
Fixed-term employment contracts are permissible in India and are governed by the IESOA.7 The IESOA provides that a 'fixed-term employment workman'8 will be eligible for all statutory benefits that are available to a permanent workman proportionately, according to the period of service rendered. The IESOA restricts permanent posts in an industrial establishment from being converted into posts for fixed-term employment.
Employment contracts in India generally include the following terms:
- the names and addresses of the employer and the employee;
- the title of the job, the nature of the work or a job description;
- the place of work and options for transfers;
- probationary period;
- salary and other benefits;
- notice period for dismissal;
- leave, working hours and holidays;
- the term and termination of the contract;
- restrictive covenants;
- applicability of company policies and code of conduct; and
- the governing law, jurisdiction and dispute resolution.
To avoid any dispute or ambiguity with respect to the terms of employment, it is advisable to execute an employment contract prior to or on the date of commencement of employment.
Any changes in the employment terms of a workman are covered under the IDA, which protects the concerned workman from the employer making unilateral changes to the workman's service conditions. The IDA requires an employer to give the workman likely to be affected by any change and the appropriate government body 21 days' notice, in the prescribed manner, of the nature of the change proposed. The IDA also lists the circumstances that require a notice of change, such as wages, other allowances, hours of work, classification by grades, the introduction of new rules of discipline or alteration of existing rules except insofar as they are provided in standing orders, among other things.
For any amendment in the employment contract of white-collar employees (i.e., non-workers), there is no requirement to provide notice. Amendments would be governed by their respective employment contracts and the general service conditions of the employer. However, to avoid any dispute at a later stage, it is advisable to inform the concerned employees before effecting an amendment and, to the extent possible, obtain written acknowledgment.
ii Probationary periods
There are no specific laws in India that deal with the terms of probation. However, the IESOA provides that a workman may be employed on probation for up to three months to fill a permanent vacancy and that the probationer is not entitled to any notice period or salary in lieu thereof during the agreed period.
Further, the SEAs of various states provide that the notice period for the termination of contracts of employees who have worked for a certain period, ranging from three to six months, should be given notice of one month or salary in lieu thereof.
It is a settled law that the service of a probationer can be terminated after making an overall assessment of his or her performance during the probationary period and no notice is required to be given before dismissal. However, to avoid any dispute, it is advisable that the employer should observe the provisions of the SEAs regarding notice periods, if applicable, irrespective of the employee's status as a probationer.
iii Establishing a presence
A foreign company cannot hire employees unless it is constituted in the form of either a company, branch office, liaison office, representative office or limited liability partnership in India. Likewise, a foreign company cannot hire employees through an agency or any third party unless it has a legal entity in India.
However, it has been seen that prior to setting up a legal entity to do business in India, foreign companies do hire personnel through recruitment agencies in India for a short period. In such an arrangement, all obligations in respect of the personnel are borne by the recruitment agency. This stop-gap arrangement carries with it the risk of being considered as a 'contract of service', thereby creating a relationship of master and servant and a permanent establishment (PE) of the foreign company in India.
A foreign company may engage an independent contractor without being officially registered in India. It is important to note that the contract or other arrangement between the foreign company and the independent contractor should be structured as a 'contract for service'. This contract must clearly establish, inter alia, that the contractor is legally and economically independent, that the contractor's activities are not devoted wholly or almost wholly to the foreign company, and that there is no supervision or control by the foreign company.
An independent contractor may create a PE of the company, under certain situations. The courts have devised primary tests and laid down several factors, namely control test, integration test, intricate factor, fixed place test, agency test, service test, among others, to determine whether personnel can be classified as independent contractors. All the relevant facts and circumstances are considered, including the terms and conditions of the agreement between the parties, when deciding the foregoing. In this regard, the double taxation avoidance agreement between India and the foreign country is also significant.
Once it is established that a foreign company has a PE in India, the profits that are attributed to its activities in India through the PE will be taxed as business income in accordance with the rules laid down in Article 7 of India's tax treaties.
The Contract Act 1872 (CA) declares all the contracts that impose any 'restraint of trade' as void. Further, India's Constitution guarantees that all citizens have a right 'to practise any profession, or to carry on any occupation, trade or business'.
It is a settled position of law that negative covenants in effect during the period of employment, when the employee is bound to serve his or her employer exclusively, are not to be regarded as a restraint of trade. However, post-employment conditions or restrictions are rendered void by the CA.
In practice, it is common for employment contracts to have restrictive covenants, which serve as a deterrent to the employees from engaging in competing activities during and after employment.
Employers can contractually restrict their employees from misusing or disclosing their trade secrets or confidential business information and practices. These covenants survive termination of employment and are enforceable before the courts.
i Working time
The labour laws specify the maximum number of hours that a worker can be made to work. Legislation, including the FA and the SEAs, prescribes nine hours per day or 48 hours per week as the maximum number of hours that an employee can be made to work. No individual or agreement can override these statutory conditions, which are typically followed in letter and spirit.
The maximum working hour limits as provided under labour law does not differentiate between day or night work. However, the FA provides that night shifts must be on a rotational basis, and the employer is required to inform employees in advance of being required to work a night shift. Further, under the FA and certain state-specific SEAs, no woman worker is supposed to work between 10pm and 5am, unless the prescribed requirements, including obtaining consent from the woman concerned, are met.
Any work done in addition to the prescribed maximum working hours (i.e., nine hours a day or 48 hours a week) entitles employees to receive payment for overtime. Most of the state-specific SEAs and the FA provide for twice the rate of the ordinary rate of wages for the work done beyond the standard maximum hourly limits.
The FA and some state-specific SEAs do restrict the number of overtime hours that may be worked. For instance, the FA provides that the total number of hours of overtime must not exceed 50 in a period of three consecutive months. Similarly, the SEA of Delhi provides that an employer can only require an employee to work, with overtime, up to 54 hours a week, and a maximum of 150 hours of overtime in a year.
Various labour laws (both central and state) require an employer to maintain registers and records of attendance, wages and other matters relating to its employees and to keep them at the employer's premises. However, these laws do not differentiate between employees on the basis of their nationality. Hence, the employer is required to maintain the requisite details of foreign workers in its registers and records, as per the applicable provisions of labour laws.
Although there is no restriction on the number of foreign workers who can be brought to India to work for an Indian employer, they would require valid employment visas, which are issued to foreigners who are skilled professionals and technicians, technical experts, senior executives and the like. An employment visa will generally not be granted for jobs for which qualified Indians are available and which are routine, ordinary, secretarial or clerical in nature.
In general, there is no restriction on the length of a foreign worker's assignment. However, the presence of the worker in India is dependent on the length of the employment visa issued by the government. Depending on the nature of the project or job to be undertaken by a foreign worker in India, the employment visa may be valid for up to five years.
As per the immigration laws, the government has unrestricted powers to regulate the movement and presence of foreigners in India. An employment visa is issued from the country of origin, or from the country of domicile of the foreigner where he or she has resided for more than two years. However, an employment visa can be extended subsequently beyond its initial term in India, once a year, for up to 10 years.
The immigration laws prescribe that a foreign worker should receive an annual gross salary threshold of 1,625,000 rupees from an Indian employer to be eligible to apply for an employment visa. However, certain categories of foreign workers are exempt from this limit, such as ethnic cooks, language teachers (other than English language teachers) and translators, among others.
The income received by a foreign worker from an Indian employer, irrespective of the place of receipt of the money, will be considered as income earned in India and will be taxable in the hands of the foreign worker. As per Indian income tax laws, the Indian employer is obliged to pay withholding tax to the income tax authority. In addition, the employer is required to pay the requisite social security contribution (provident fund), if applicable, and any other contractual benefits, as agreed between the parties in the employment contract.
Under various laws, including the Constitution, a foreign worker is protected from inequalities and discrimination by an employer to the same extent as an Indian worker.
Formulation of internal discipline rules is per se not a requirement under Indian labour laws. However, industrial establishments at which the IESOA is applicable are required to formulate and certify their standing orders, which would govern the terms and conditions of their workers. As per the provisions of the IESOA, it is mandatory to incorporate disciplinary rules in the standing orders. A draft of the standing orders must be filed for approval and certification by the concerned certifying officer appointed by the government. The draft standing orders are subject to the agreement of the representatives of the workers concerned or the trade union, as the case may be. A copy of the draft is therefore sent to the workers' representatives or trade union along with a notice calling for objections. On receipt of any such objections, the employer and the workers are given the opportunity to be heard, after which the certifying officer will either modify or certify the draft standing orders.
Indian laws prescribe for formulating mandatory rules on certain subjects. Under the Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act 2013, employers are required to formulate an anti-sexual harassment policy for their employees. The Companies Act 2013 and rules made thereunder provide that certain companies9 should establish a 'vigilance mechanism' to report genuine concerns raised by whistle-blowers.
Except for the foregoing, the framing of policies is not a mandatory requirement under Indian law.
There is no specific legal requirement to formulate the rules in the local language, and notification of the rules to the employees is sufficient for them to apply. The rules may be handed over to the employees and an acknowledgement can be obtained from them. They may also be circulated to the employees via electronic means. Posting the rules on the company's intranet would be sufficient, subject to the employees being informed that the rules are available on the intranet, and advising them to access and read the rules regularly.
Typically, disciplinary rules are provided in the employees' handbook or manual or code of conduct and are incorporated by reference in the employment contract.
Except for the maternity leave as prescribed under the Maternity Benefit Act 1961 (MBA), it is not mandatory for an employer to provide either paternity or parental leave to its employees. An employer, at its sole discretion, may formulate paternity and parental leave policies.
The MBA entitles an eligible woman to paid maternity leave of a maximum of 26 weeks, of which the woman employee can take up to eight weeks before the date of her expected delivery. Remuneration during maternity leave is paid by the respective employer and not by the government.
As per the MBA, an eligible employee is a woman who has worked with the employer for at least 80 days during the 12 months immediately preceding the date of her expected delivery.
The woman employee may be entitled to other benefits, such as a medical bonus, nursing breaks, working from home and a crèche facility, among other things, as per the provisions of the MBA. On 1 June 2021, the Ministry of Labour and Employment issued an advisory to encourage employers to allow nursing mothers to work from home, wherever the nature of work so permits.
Finally, the MBA prohibits an employer from terminating the employment of a woman during her absence or pregnancy, or from giving notice of termination of her services during or on account of such absence.
There is no specific law that requires the translation of employment documents into the local language. However, if the employment document is in an unfamiliar language or a language that the employee cannot understand, it may make the agreement invalid. To overcome this risk, it is advisable to explain the terms of the documents in a language understood by the employee and have the signed document notarised by a local notary public, whereby it is attested that the document has been read and understood by the concerned employee.
It is therefore recommended to have employment documents translated into a language understood by the employees as it reduces the risk of allegations, such as coercion, against the employer. However, the translation need not be by a certified translator or notarised.
The IDA mandates an industrial establishment to constitute a works committee if it employs 100 or more workers. The aim of a works committee is to promote measures to maintain industrial peace, and to mediate any difference of opinion between management and workers to maintain industrial peace.
Further, as per the Constitution, all citizens have the right to form associations, unions and the like. The Trade Unions Act 1926 (TUA) defines a trade union as any combination, whether temporary or permanent, formed primarily for the purpose of regulating the relations between workers and employers, or between workers and workers, or between employers and employers. However, there is no legal obligation on employers to recognise a union or engage in collective bargaining.
The number of representatives of workers in the works committee should at least be equal to the number of management representatives. Further, the TUA provides that if a trade union wishes to register itself under the TUA, it must consist of a minimum of 10 per cent of the workforce or 100 workers, whichever is the smaller, subject to a minimum of seven members.
As per the IDA, the workers' representatives must be chosen in the prescribed manner from among the workers engaged in the establishment and in consultation with their trade union, if any, registered under the TUA.
As per the provisions of the TUA, the trade union will formulate its rules regarding the manner in which the members of the executive and the other officers of the trade union will be appointed and removed. These rules must be submitted to the concerned authority at the time of registration.
The term of office of representatives on the works committee, other than a member chosen to fill a casual vacancy, shall be two years. A member chosen to fill a casual vacancy will hold office for the unexpired term of the predecessor. There is no explicit provision in the law dealing with the length of the term of representatives of a trade union.
A works committee is required to promote measures for securing and preserving amity and good relations between the employer and the workers, comment on matters of common interest or concern, and endeavour to resolve any material difference of opinion in respect of such matters. The works committee has the power to co-opt members who have special knowledge of a matter that is referred to it in a consultative capacity. The co-opted member or members can be present at meetings only for the period during which the particular question relating to their sphere of knowledge is before the works committee.
Traditionally, the function of trade unions in India was limited largely to collective bargaining for economic considerations. However, over time, trade unions have become involved in various other matters, such as employee welfare activities, settlement of grievances and legal assistance to workers.
Employers should ensure that, where necessary, work cover or workload reductions are provided to representatives. This can include the allocation of duties to other employees, rearranging work to a different time, or a reduction in workload. Employers, trade unions, works councils, union representatives and line managers should work together to ensure that provisions for time off, including for training, operate effectively and for mutual benefit. Representatives need to be able to communicate with the management, each other, their trade union, works council and employees.
As per the IDA, the representatives of a works committee should meet at least once every three months.
i Requirements for registration
India is not a party to any convention on personal data protection such as the EU General Data Protection Regulation or the Data Protection Directive (Directive 95/46/EC). However, India has adopted or is a party to other international declarations and conventions that recognise the right to privacy.
India has not yet enacted specific legislation on data protection. However, the provisions of the Information Technology Act 2000 (the IT Act) and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 (the IT Rules) deal with the protection of personal information and sensitive personal data or information (SPDI) of individuals.
The Personal Data Protection Bill 2019 (the PDP Bill), introduced by the government, envisages constitution of a Data Protection Authority of India (DPAI) for enforcement of its provisions. The PDP Bill is at an early stage and will have to pass various legislative stages to become a law. On 11 December 2019, the Lok Sabha (lower house of Parliament) referred the PDP Bill to a standing committee formulated for review. On 22 November 2021, the committee finalised and adopted the draft PDP Bill, which was tabled before both houses of Parliament on 16 December 2021. However, the Bill received dissent notes from some opposition leaders. In light of this, further discussions are likely to take place in the next session of Parliament, which typically takes place in February.
Under the IT Act and the IT Rules made thereunder, at present there is no requirement for a company to register itself with any data protection agency. However, under the PDP Bill, the DPAI may notify any data fiduciary (similar to a data controller), class of data fiduciary or certain media intermediaries, as a 'significant data fiduciary' based on certain factors provided in the PDP Bill. This significant data fiduciary would be required to register itself with the DPAI in the manner that may be specified by the applicable regulations.
As per the IT Rules, the written consent of the information provider (the data subject) is required to be obtained prior to collecting and processing SPDI. The employer is obliged to ensure that SPDI collected from an employee is kept secure and confidential, and access to the same must be limited to only those third parties for which specific consent from the employee has been obtained, or if the disclosure is necessary for compliance with a legal obligation. Further, the employee can access the information on request to the collecting entities under the IT Rules.
The IT Rules provide for reasonable security practices and procedures that are required to be maintained by corporate bodies. These include implementing international standards such as ISO/IEC 2700110 or codes of best practices for data protection, prior to processing any SPDI.
ii Cross-border data transfers
In respect of registration and consent, see Section XII.i.
Further, according to the IT Rules, SPDI may be transferred by the collecting entity to an entity in another jurisdiction, provided that the transferee entity ensures the same level of data protection that is adhered to by the transferring employer under the IT Rules. It is important to note that the transfer is permitted only if it is necessary for the performance of a lawful contract or where the data subject has consented to the transfer.
As per the PDP Bill, SPDI may be transferred outside India if explicit consent is provided by the data subject and the transfer is pursuant to an approved intra-group scheme or has been approved by central government or a data protection impact assessment.
The IT Act and the IT Rules are silent in respect of joint-user agreements.
iii Sensitive data
The IT Rules define personal information to mean information relating to a natural person by which he or she can be identified, and consisting of passwords, financial information, sexual orientation and biometric information, among other things. SPDI includes information relating to physical, physiological and mental health condition, and medical records and history.
India has introduced a biometric-based unique identification number for its residents, known as Aadhar. Aadhar is regulated by the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act 2016 and the rules made thereunder. The Act safeguards the information about individuals collected by the authority assigned under the this law.
The aforementioned laws provide respective restrictions in processing SPDI, such as the requirement for obtaining specific prior written consent from the data subject, and that collection should be for lawful purposes only, the information should not be retained for any longer than is required, the data subject should have the power to amend the information provided or the power to withdraw the given consent to collect information, among other things.
iv Background checks
Indian companies generally conduct background checks on prospective employees during the recruitment process. However, the scope of background checks varies across different sectors and industries. In the absence of a specific law governing background checks of employees, guidance is taken from general laws and judicial precedents. Typically, employers take the prior consent of employees and also reserve their right to conduct background checks in the interview documents or employment contracts.
Credit checks would require the processing of financial information about an individual. As per the IT Rules, financial information falls within the meaning of SPDI. Hence, a company or employer would require the consent of the individual prior to collecting any such information. It has been observed as a rising trend that some employers, especially in the finance and software industries, do ask candidates during interviews to show their credit reports to establish their financial stability.
Criminal records of individuals are primarily available from the Indian courts and the police. In the absence of comprehensive digitisation of these records, this information may not be freely available. Thus, to undertake a physical check and verification of such records, due authorisation of the concerned individual is essential. Authorisation of the individual is also required to obtain a police clearance certificate from the concerned police department.
Indian laws do not specifically provide for any areas that cannot be reviewed during a background check. However, these checks generally do not seek information about the employee's caste, religion and similar details.
Dismissal under Indian laws is termination of services by way of punishment for misconduct. It implies not merely termination without notice or payment, but essentially indicates a measure of punishment. The employer is bound to give an opportunity to the employee to explain his or her conduct and to show cause why he or she should not be dismissed. The general rule is that, in this process, there should be no violation of the principles of natural justice.
There is no requirement for a company to notify a government authority, works council or trade union of any dismissal. However, if any memorandum of settlement has been signed with a recognised trade union or works committee, then the company may need to notify the relevant body, per the terms of the memorandum.
There is no specific provision for a procedure for dismissing an employee. However, the IESOA and some SEAs (such as those of Andhra Pradesh and Telangana) provide for a procedure for holding a domestic inquiry in respect of alleged misconduct. This procedure has further evolved by various judicial precedents and includes issuing a charge sheet, appointing an inquiry officer, holding hearings, examining and cross-examining witnesses, and evidence, among other things. The employee accused of misconduct may be suspended pending the enquiry. During this process, the principles of natural order must be followed.
An employee who is dismissed for misconduct is typically not considered for rehiring or suitable alternative employment. Further, as per some SEAs (such as those of Delhi and Uttar Pradesh), if an employee is dismissed as a result of established misconduct, the employer is not required to provide notice or pay in lieu thereof.
As per the provisions of the IDA, no employer is permitted, during the pendency of any proceeding in respect of an industrial dispute, to discharge or dismiss or otherwise terminate the services of a 'protected' worker without the express permission in writing of the concerned authority before which the proceeding is pending.
There is no specific requirement for severance and dismissal indemnities. However, if such indemnities are incorporated in the employment contract or policies of the company, they can be enforced at the time of dismissal.
As dismissal is a unilateral decision of dispensing with the services of an employee on account of misconduct, there is typically no scope for the parties concerned to enter into a settlement agreement to this effect.
Redundancy connotes that the business is being continued but some of the workers are discharged as surplus or for other reasons. Redundancy does not carry any stigma for the workers affected.
Lay-offs mean a temporary refusal by the employer to employ workers on account of a shortage of some resources or raw-materials, accumulation of stocks, breakdown of machinery or natural calamity, whereas redundancy is a permanent cessation of employment.
The IDA and the IESOA govern the procedure for redundancies, which is more commonly known as retrenchment of workers.
Redundancy in respect of non-workers is governed as per the terms of their employment contract or company policy, or as mutually agreed by the parties under the settlement agreement.
As per the IDA, industrial units employing fewer than 100 workers are required to notify the appropriate government body about the retrenchment in a prescribed manner. This notice must be sent within three days of the notice being given to the workers or payment made in lieu thereof. If the retrenchment is pursuant to an agreement, a notice must be sent out at least one month before the retrenchment date.
Industrial units employing more than 100 workers (300 workers in some states) are required to make an application providing the reasons for the intended retrenchment to the appropriate government body, seeking its prior permission.
The IDA requires an employer to fulfil the following conditions, among others, prior to retrenching workers:
- issuance of prior written notice of one or three months (depending on the number of workers to be retrenched), or pay in lieu thereof, indicating the reasons for the retrenchment;
- payment of compensation equivalent to 15 days' average pay for every completed year of continuous service or any part thereof in excess of six months;
- intimation to the appropriate government body, if the number of workers employed is fewer than 100;
- prior permission from the appropriate government body, if the number of workers employed is fewer than 100 (or 300 in certain states); and
- application of the principle of last-in-first-out (i.e., the last worker to be employed would be the first to be retrenched).
Furthermore, employers are required to offer retrenched workers the opportunity to be re-employed. However, there is no specific requirement for suitable alternative employment to be offered.
The parties may enter into a settlement agreement. However, entering into a settlement agreement does not affect the employees' entitlement to termination benefits, including retrenchment benefits, as provided under the IDA, their employment contract or the company's policies. The settlement agreement entered into with the workers is required to be filed before the officer authorised by the appropriate government body and is binding on the parties under the provisions of the IDA.
Transfer of business
India does not have any specific legislation for the protection of employees affected by a merger, acquisition or outsourcing transaction along the lines of the Transfer of Undertakings Regulations 2006 in the United Kingdom. However, the IDA extends protection to the rights of workers in the event of the transfer of management or business of an undertaking.
As per the provisions of the IDA, whether a transfer of business or management of an undertaking is by way of agreement or by operation of law, workers who have been in continuous service for more than one year are entitled to receive notice and compensation from their old employer, in the same way as retrenched workers. However, this compliance would not be applicable if the following conditions are met:
- the service of the worker has not been interrupted by the transfer;
- terms and conditions of service applicable to the worker after the transfer are not in any way less favourable than those applicable to the worker immediately before the transfer; and
- the new employer would be liable to pay retrenchment compensation to the transferred worker on the basis that service has been continuous and has not been interrupted because of the transfer.
Based on various judicial precedents, the old employer needs to obtain the consent of the worker prior to a transfer to the new employer. If a worker does not consent to being transferred, he or she is entitled to compensation, which is to be determined as if the worker had been retrenched. However, the worker is only entitled to compensation or continuity of employment, but not more.
As hybrid working is now going to be common practice, employers should focus on implementing policies relating to working from home, flexible working hours, data privacy, protection of confidential information and employees' health, among other things.
The Labour Codes that were passed during 2020 (namely the Code on Wages 2019, the Code on Social Security 2020, the Industrial Relations Code 2020 and the Occupational Safety, Health and Working Condition Code 2020) have not come into effect to date. These reforms are focused on the simplification of employers' requirements, the introduction of new categories of workers, expanded forms of protection for workers and industries, among other things. For these reforms to be implemented effectively, central rules have been introduced and state-specific rules are in preparation. Although small organisations (with fewer than 10 employees) are exempt from major compliance obligations, others would have to keep themselves abreast of the new compliance requirements. Furthermore, clarification by the appropriate government body is expected on various matters, including the revised definition of wages, and the effect of the new Labour Codes on state-specific labour laws, namely the SEAs.
Finally, we expect the much-awaited PDP Bill to see the light of day in 2022. The Bill seeks to provide for the protection of personal data of individuals, to create a framework for processing personal data and to establish a data protection authority. The PDP Bill was introduced in Parliament and subsequently referred to a joint parliamentary committee for detailed examination. The committee report, along with the draft PDP Bill 2021, was tabled before both houses of Parliament by the joint parliamentary committee on 16 December 2021. Further discussions on the PDP Bill in Parliament are likely to take place in the Budget Session in February 2022.
1 Rahul Chadha is the managing partner, Savita Sarna is a partner, Manila Sarkaria is a principal associate and Natasha Sahni is a senior associate at Chadha & Co.
2 The Secretary, Ministry of Defence v. Babita Puniya & Ors. (Civil Appeal Nos. 9367–69 of 2011); and Union of India & Ors. v. Lt Cdr Annie Nagaraja & Ors. (Civil Appeal Nos. 2182–87 of 2020.
3 Criminal Application No. 304 of 2021.
4 2021 LLR 366.
5 W.P.A. 9141 of 2020.
6 'Consisting of all unincorporated private enterprises owned by individuals or households engaged in the sale or production of goods and services operated on a proprietary or partnership basis and with fewer than 10 workers.' 'Report on Conditions of Work and Promotion of Livelihoods in the Unorganised Sector', Academic Foundation (1 January 2008), p. 1774.
7 The Industrial Employment (Standing Orders) Act 1946 (IESOA) is generally applicable to certain specified industrial establishments having 100 or more workers. However, as discussed above, certain states have extended the provisions of the IESOA to establishments as if they were industrial establishments in that state having a smaller number of employees.
8 The Industrial Disputes Act 1947 (IDA) defines a 'workman' as any person employed in an industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward. The term workman is interchangeably used with the term 'worker' under certain Indian statutes, such as the the Factories Act 1948. Thus, the terms 'worker' and 'workman' have the same meaning and can be used interchangeably. Further, 'employees' acting in a managerial, administrative or supervisory capacity are not considered as workers. However, the term 'employee', as defined under various statutes, is wide enough to include both workmen and non-workmen in its ambit.
9 The Securities Exchange Board of India requires every listed company to formulate a whistle-blower policy to enable employees to report genuine concerns. However, there is no specific law on whistle-blowing applicable to private employers in India.
10 ISO/IEC 27001:2013 – Information technology – Security techniques – Information security management systems – Requirements, issued by the International Organization for Standardization.