The Employment Law Review: Pakistan

Introduction

The employment law framework in Pakistan consists of the following:

  1. the Constitution of Islamic Republic of Pakistan, 1973 (Constitution);
  2. the federal and provincial employment laws;
  3. the law of contract; and
  4. common law and judicial precedents.

The Constitution contains several provisions concerning employment rights and protections. Article 11 of the Constitution prohibits slavery, forced labour, human trafficking and child labour. Article 17 entitles every citizen to form and join associations and unions. Article 25 prohibits discrimination based on sex.

Pakistan is a federal parliamentary republic, with powers shared between the federation and the provinces as provided in the Constitution. Previously, the federal legislature was entitled to enact laws concerning employment matters. The federal legislature enacted several laws governing various aspects of employment matters that had uniform application throughout Pakistan.

Pursuant to a constitutional amendment made in 2010, employment is now within the exclusive legislative competence of the provincial legislatures.2 However, the employment laws previously enacted by the federal legislature continue to remain in force either under a constitutional provision or because these employment laws were specifically adopted by the provincial legislatures. In some instances, while adopting these employment laws, the provincial legislatures made certain changes in them that would apply in their respective provinces. Thus, in certain aspects, the provincial employment laws on the same subject differ from each other.

The employment laws mainly govern the terms and conditions of employment and work conditions of blue-collar employees called workers or workmen. The employment of white-collar employees is largely governed by their employment contracts, the law of contract and the common law principle of 'master and servant'.

The labour courts have exclusive jurisdiction over disputes relating to the terms and conditions of employment of blue-collar employees and industrial disputes, and try offences under the provincial employment laws.

Each labour court consists of a presiding officer appointed by the provincial government. The provincial government also sets the territorial limits of the jurisdiction of each labour court.

The final decision of a labour court can be challenged through an appeal before the labour appellate tribunal. Each labour appellate tribunal consists of one member to be appointed by the provincial government and exercises jurisdiction within the territorial limits assigned to it by the provincial government.

Certain decisions of labour appellate tribunals may be challenged through an appeal before the High Court.

In respect of employment disputes in the Islamabad Capital Territory, trans-provincial industrial disputes and industrial disputes of national importance, the jurisdiction vests exclusively in the National Industrial Relations Commission (NIRC) having not less than 10 members appointed by the federal government. The matters before NIRC are heard and decided by the benches, each consisting of one member. A person aggrieved by a decision made by a bench of NIRC may prefer an appeal to the full bench of NIRC consisting of three members.

In certain cases, the decision of the labour appellate tribunal or a full bench of NIRC can be challenged before the High Court by invoking its extraordinary jurisdiction under Article 199 of the Constitution.

The decision of the High Court may be challenged through an intra-court appeal before the same High Court or before the Supreme Court of Pakistan. No appeal lies against a decision passed by the Supreme Court. However, the Supreme Court can be requested to review its decision on certain very limited grounds.

The jurisdiction in respect of employment disputes concerning white-collar employees is exercised by the civil court of appropriate pecuniary jurisdiction, and in some cases, by the High Court. A decision of the civil court may be challenged before the district court or the High Court. Similarly, the decision of the High Court may be challenged through an intra-court appeal before the same High Court or before the Supreme Court.

There are several statutes in each province and the Islamabad Capital Territory that regulate various aspects of employment. Some of these statutes are of universal application while others apply to specific categories of employees or workplaces.

The following are the main statutes that govern the terms and conditions of employment and working conditions of employees:

  1. The Industrial and Commercial Employment (Standing Orders) Ordinances/Acts (ICESOs) and the Shops and Establishments Acts (SEAs) prescribe minimum terms and conditions governing the employment blue-collar employees in certain industrial and commercial establishments.
  2. The Industrial Relations Acts (IRAs) entitle blue-collar employees working in specified establishments to form trade unions, regulate the formation of trade unions, and prescribe the forums and procedures for raising and resolution of industrial disputes and individual grievances of such employees.
  3. The Factories Acts (FAs) regulate certain terms and conditions of employment and working conditions of blue-collar employees working in factories. FAs also prescribe certain health and safety standards for factories.
  4. The Minimum Wages Acts empower the respective provincial governments to declare certain minimum wages payable to blue-collar employees. The Payment of Wages Acts regulate the manner of payment of wages and prescribe the forum for redressal of grievances related to payment of wages.
  5. The Provincial Employees' Social Security Ordinances and the Employees' Old-age Benefits Act, 1976 (EOBA) entitle employees within their respective ambit to certain social security and retirement benefits, respectively, and require employers to make periodical contributions to the relevant government institutions. Likewise, the Workmen's Compensation Acts provide for payment by certain employers of compensation to certain categories of employees for injuries arising out of or during employment.
  6. The Occupational Safety and Health Acts (OSHAs) provide for occupational safety and health of persons at workplaces, and lay down the procedures and prescribe requirements for the promotion of a safe and healthy working environment, and for the protection of persons against risks arising out of occupational hazards.
  7. The Protection Against Harassment of Women at the Workplace Acts (PAHWWAs) prescribe the penalties and lay down the procedure for lodging complaints related to workplace harassment. The PAHWWAs also call for psycho-social counselling, and medical treatment of the victim or the accused.

The provincial labour departments are primarily responsible for the enforcement of employment laws. Each provincial labour department performs its functions through various subordinate departments and offices including the directorate of labour welfare, the employees' social security institution and the workers' welfare board. The designated officers of each provincial directorate of labour welfare perform various statutory functions assigned to them under the relevant employment laws including chief inspectors of factories, chief inspectors of shops and registrars of trade unions.

The labour department of the Islamabad Capital Territory Administration is responsible for the enforcement of employment laws in the Islamabad Capital Territory.

The Employees Old-age Benefits Institute is responsible for the collection of contributions and payment of retirement benefits to employees under the EOBA. Likewise, the ombudspersons appointed by the federal and provincial governments under the PAHWWAs are empowered to take cognisance of complaints relating to harassment at workplaces.

Year in review

The covid-19 pandemic led to a slowdown in business activity and resulted in business closures and job loss. However, the post-pandemic recovery was rapid, except in sectors where women are more likely to be employed.

The government took several measures last year to encourage women's inclusion and participation in economic activities. Several directives were issued by the local SEC to encourage companies to formulate gender diversity policies for recruitment, promotion and development of skills of women employees, and for providing them with a conducive work environment, such as through day-care facilities, better maternity leave, and effective anti-harassment and speak-up policies.

Another significant development was the broadening of the scope of federal law protecting employees against harassment at workplaces, inter alia, by expanding the definitions of employee, harassment and workplace. Employees now include artists, gig workers, freelancers and home-based workers. Non-sexual gender-based discrimination can constitute harassment and is actionable under the anti-harassment law. These amendments were prompted because of certain recent judgments issued by the superior Pakistani courts (discussed below).

The emergence of freelancers, platform workers and the gig workforce saw tremendous growth post-pandemic. However, the legal consequences arising under local employment laws from these contractual relationships are not yet fully established.

Remote work and hybrid workplaces were also among the hot topics last year. Large and sophisticated employers responded to these trends ignited by the pandemic situation by accommodating their employees and allowing remote work, where possible. However, there was no statutory recognition and legislative response to these relatively new trends.

Significant cases

In Meera Shafi v. Office of the Governor Punjab and others,3 the Lahore High Court interpreted the provisions of the PAHWWA, as applicable in Punjab, and held that the protection thereunder was not available to independent contractors. The Court held that the complainant, a singer, who was engaged for a specific task – to perform at a concert – was not a part of the respondent organisation, and was not under the supervision and control of the respondent organisation. Thus, her status was not that of an employee, but an independent contractor, and she was not entitled to protection under the PAHWWA.

In Nadia Naz v. The President of Islamic Republic of Pakistan and others,4 the Supreme Court of Pakistan ruled that misdemeanour, behaviour or conduct unbecoming of an employee or employer at the workplace, may it be generically classifiable as harassment, is not actionable under the PAHWWA unless it is of a sexual nature. The Supreme Court severely criticised the PAHWWA, terming it cosmetic and a myopic piece of legislation that focused only on a minute fraction of harassment. These adverse remarks prompted the federal government to amend the PAHWWA, as applicable to Islamabad Capital Territory.

In Malik Ubaidullah v. Government of Punjab and others,5 the Supreme Court acknowledged the right to work of persons with disabilities as recognised in Article 27 of the UN Convention on the Rights of Persons with Disabilities. The Supreme Court held that all establishments regulated by the Disabled Persons (Employment and Rehabilitation) Ordinance, 1981, in addition to ensuring that a 2 per cent employment quota is reserved for persons with disabilities, must also provide them with infrastructure, access, support and facilities so that they can do their work without feeling physically or emotionally incapacitated.

Basics of entering an employment relationship

i Employment relationship

In cases where the ICESOs apply, an employer is required to issue a written appointment letter stating the terms and conditions of employment. An employee does not need to sign the appointment letter.

A written employment contract is not mandatory. However, it is generally recommended to execute a written employment contract. In practice, written employment contracts are executed between the parties except in cases of small businesses and domestic workers where oral employment contracts are the prevalent practice.

Fixed-term employment contracts are permissible in the case of white-collar employees.

Fixed-term employment contracts are also permissible in the case of blue-collar employees protected under the ICESOs, but certain limitations apply in some provinces. For instance, in Punjab, fixed-term employment contracts with such employees are permitted only where the remuneration is calculated on a piece-rate basis. Likewise, in Kyber Pakhtunkhwa, fixed-term employment contracts with employees protected under the ICESO require a no-objection certificate from the relevant governmental department. Furthermore, such contracts can be executed only for jobs of peripheral nature.

Fixed-term employment contracts in the case of blue-collar employees protected under the SEAs are not permitted. If such an employee has completed nine months of continuous employment and a probationary period of three months, he or she shall be deemed a permanent employee and the termination of his or her employment will require one month's advance written notice or salary in lieu thereof.

The employment contract should include all essential terms including job description, work hours, salary and benefits, details of applicable employer policies and codes, restrictive covenants, duration and termination, and notice period.

The ICESOs and the SEAs prohibit contracting out of the benefits allowed thereunder. Thus, in the case of employees protected under the ICESOs or the SEAs, the employment contracts and company policies must not be inconsistent with the applicable statute.

Pakistani law requires that every written instrument pertaining to financial or future obligations shall be attested by witnesses. In practice, however, this mandatory legal requirement is not strictly complied with in respect of employment contracts.

For employees protected under the ICESOs, appointment letters (or the employment contracts) must be issued to them at the time of their appointment. It is generally recommended to execute the employment contract in all cases before the commencement of the employment to avoid uncertainty.

Any amendment in the terms of employment should be made with the express written consent of the relevant employee and supported by valid consideration.

Where the relevant employee is protected under any of the ICESOs or the SEAs, the amendment should not violate the applicable statute. Any modification to the standing orders contained in the ICESOs can be made only through a collective agreement, that is, a written agreement between the employer and trade union or unions.

ii Probationary periods

Probationary periods are allowed and frequently used for all employees. The probation period for employees covered by the ICESOs or the SEAs should be three months. During the probationary period, either party may terminate the employment agreement without giving advance notice to the other party.

In the case of an employee protected under any of the ICESOs, although advance notice is not required for termination of employment during the probationary period, still the employer must issue a written termination order to the employee explicitly stating the reason for the action taken.

iii Establishing a presence

A foreign company can hire employees, either directly or through an agency or another third party, without being officially registered to carry on business in Pakistan. However, depending on the provisions of the relevant double taxation treaty, if any, the direct hiring of employees by a foreign company can constitute a permanent establishment of such foreign company in Pakistan.

A foreign company that is not officially registered in Pakistan can also engage independent contractors. However, subject to the relevant double taxation treaty, the engagement of independent contractors by a foreign company in some cases may constitute a permanent establishment of such foreign company in Pakistan.6

In the case of a company having a permanent establishment in Pakistan, the business income of such foreign company directly or indirectly attributable to its permanent establishment in Pakistan shall be deemed as its Pakistan-source income and shall be taxed accordingly.

If a foreign company hires employees in Pakistan, it must pay the statutory benefits as per the local employment laws. Likewise, where a foreign company directly hires the employees or pays their salaries, it will be subjected to withholding and reporting requirements under the local income tax law in respect of the salaries paid to such employees.

Restrictive covenants

Restrictive covenants are permissible and are frequently used in employment contracts.

An employment contract may validly require the employee to exclusively serve the employer throughout its term. Such a non-compete clause will be enforced by the court by issuing an injunction to perform a negative covenant.7

Post-employment restrictive covenants preventing an ex-employee from accepting employment with a competitor, from operating a competing business or from dealing with the ex-employer's customers or suppliers can also be enforced. However, such restrictive covenants must be reasonable and aimed to protect the ex-employer's confidential information and trade secrets to which the ex-employee had access during his or her employment. Where a restrictive covenant is sought to be enforced merely to penalise an ex-employee, the court may refuse to enforce the same and declare it void being in restrict of trade or profession.8

Wages

i Working time

Maximum working hours

The SEAs and the FAs contain provisions regarding maximum working hours. Generally, an adult employee can work for nine hours a day and 48 hours a week.

An adult worker must be allowed an uninterrupted break of one hour where he or she is required to continuously work for more than six hours in a day.

Night work

The normal closing hour prescribed for the businesses regulated by the SEAs is 8pm. However, this can be changed by the respective government.

The FAs do not place a limit on the amount of night work. However, where the work in a factory is carried out in shifts, the FAs regulate certain aspects of shift work.

The SEAs and the FAs generally prohibit night work for female employees. However, female employees can opt out of this prohibition in some cases.

ii Overtime

The employees protected under the SEAs and the FAs must be paid overtime compensation for any work done beyond the normal working hours (i.e., nine hours a day and 48 hours a week). The overtime compensation is paid in the form of higher wages and is calculated at double the ordinary rate of wages payable to the relevant employee.

The SEAs set different limits on the amount of overtime work, which are 624 hours per year in Islamabad Capital Territory, Punjab and Balochistan; 150 hours per year in the Sindh; and 24 hours per week in Kyber Pakhtunkhwa.

The FAs also set certain limits to the amount of overtime work for employees. Where an employee is engaged in a continuous process, the limit is eight hours per week. For employees engaged in preparatory or maintenance work, the limit is 12 hours per week. These limits can be relaxed.

Foreign workers

While employers are required to maintain certain employment records, there are no special provisions for foreign workers.

At present, there is no limit on the number of foreign workers a company may have. However, the percentage of foreign workers in the total workforce must be disclosed by the company to the governmental authorities.

There are no restrictions on the length of a foreign worker's assignment. However, the foreign worker must hold a valid visa throughout his or her stay in Pakistan. A prolonged stay of a foreign worker who is temporarily present in Pakistan to execute contractual work on behalf of a foreign employer may constitute a permanent establishment under the income tax law.

To undertake employment in Pakistan, a foreign worker must have a valid work visa. There are different categories of work visas depending, mainly, on the nature of work to be performed by the foreign worker. In most cases, visa applications can be submitted online. A work visa is issued initially for a period of three months based on an employment agreement concluded with an employer in Pakistan. It can be further extended from time to time up to two years. A letter of recommendation from the Board of Investment is mandatory for an extension of a work visa.

The company must withhold income tax from the salary of a foreign worker. Likewise, the company must pay all local benefits for a foreign worker provided he or she qualifies for those local benefits.

The local employment laws do not distinguish employees based on nationality. A foreign worker is equally protected under local employment laws. However, like a local worker, a foreign worker must satisfy the eligibility criteria laid down in the relevant employment law.

Global policies

An employer is not required by law to formulate internal discipline rules. However, it is generally recommended to do so.

The ICESOs prescribe mandatory discipline rules for blue-collar employees of certain establishments. These discipline rules can be modified only through a collective agreement.

Likewise, the IRAs require that the employers in certain designated establishments and factories shall not take decisions on certain matters including discipline rules without the advice of the designated employee representatives.

The internal discipline rules are not required to be filed with or approved by government authorities.

The ICESOs applicable in Sindh and Khyber Pakhtunkhwa expressly prohibit discrimination based on the gender, religion, political affiliation or ethnic background of employees. Similarly, the PAHWWAs lay down mandatory rules for the protection of women against sexual harassment in workplaces. The PAHWWAs also obligate employers, inter alia, to incorporate a prescribed code of conduct as a part of their management policies. The OSHAs also obligate the designated employers to formulate policies concerning safety and health at workplaces.

All mandatory rules should be written in English, Urdu and a local language.

The mandatory rules are not required to be signed by the employee. The notification of the rules in the manner laid down in the applicable employment law is sufficient.

Typically, the mandatory rules are required to be posted on a notice board at a prominent place in the workplace. Additionally, these may also be posted on the company intranet.

Disciplinary rules are not required to be incorporated into the employment contract. Likewise, an employee is not required to sign them. It will be sufficient that the employment contract makes an express reference to the applicable rules and policies and provide for consequences in the case of non-compliance. An employee must be duly notified in writing of all internal rules and policies of the employer and provided with copies of or access to the same (such as through the company's intranet). The employer should expressly reserve the right to modify the internal rules and policies without the employees' consent.

Parental leave

Only female employees are entitled to maternity leave under the Maternity Benefits Acts (MBAs). Paternity and other parental leaves are not allowed.9 The maternity leave is paid by the employer.

To be entitled to maternity leave, the female employee must be employed with the same employer for at least four months before the date of expected delivery. However, under the MBA applicable in Sindh, the benefits are available to female employees who have worked with the same employer for a continuous period of at least one year preceding the date of expected delivery.

Female employees in Islamabad Capital Territory, Punjab, Khyber Pakhtunkhwa and Balochistan are entitled to 12 weeks of maternity leave, out of which six weeks shall be postnatal leave.

In Sindh, female employees are entitled to 16 weeks of maternity leave out of which 12 weeks shall be postnatal leave. Furthermore, certain employers in Sindh are obligated to set up daycare facilities within the premises and female employees must be allowed to visit the daycare facility four times during the day to nurse, wean and feed their child.

Female employees on maternity leave are protected from dismissal.

Translation

English and Urdu are the official languages in Pakistan. The prevalent practice is to prepare employment documents in the English language. If the employment documents are prepared in a foreign language, they must be translated into an official language.

Except for certain mandatory rules and policies that must be prepared in English, Urdu and a local language, there is as such no legal requirement for translation of employment documents prepared in an official language into a local, or the employee's native language.

In the case of blue-collar employees, it is generally recommended that the employment documents are prepared in or translated into Urdu, or a local language understood by the employees.

Translation of the documents by a certified translator or notarisation of the translation is not required except where such documents are prepared in a foreign language and are required to be produced as evidence in legal proceedings before a local court.

Where any employment documents are required to be translated into a local language, a failure to do so may subject the employer to the imposition of a fine. Likewise, if the employment documents prepared in a foreign language are not translated into a language understood by the employee, a local court may refuse to enforce them based on a lack of informed consent by the employee.

Employee representation

The IRAs entitle employees of certain establishments to form or join trade unions. The IRAs regulate the formation of trade unions and the election of office bearers of trade unions. The

IRAs prescribe the procedure for the designation of collective bargaining agents. The IRAs also prescribe different modes and forums for settlement of industrial disputes and redressal of individual grievances of employees.

The IRAs also entitle employees' participation in management. The IRAs require that the regulated establishments having employed 50 or more persons must form work councils, management committees or joint management boards (representative bodies). Employees are entitled to a representation in the relevant representative body.

The ratio of representation of employees in a representative body can be between 30 to 50 per cent.

Employees' representatives on the representative bodies are elected from among the employees of the relevant establishment through a secret ballot. However, if such an establishment has a collective bargain agent, the representatives are nominated by such a collective bargain agent.

The office bearers of a trade union are elected in the manner laid down in its constitutional document. Likewise, the collective bargaining agent for an establishment having more than one registered trade union is determined through a secret ballot. Where there is only one registered trade union, such trade union can be designated as the collective bargaining agent if it has as its members no less than one-third of the total number of employees of the relevant establishment.

The length of a representative's term on the representative body is two years from the date of his or her election or nomination. Likewise, the maximum term of an office bearer of a trade union can also be two years. A collective bargaining agent is also designated for two years.

The representatives are entitled to participate in meetings of the relevant representative body, and on all matters relating to the management of the establishment except commercial and financial transactions. The representatives may also give advice, on their initiative, concerning matters relating to the management of the establishment.

The employer must provide all reasonable information requested by a representative body. The employer must not decide on certain matters including service rules, discipline policy, the conduct of employees, etc. without the written advice of the employees' representatives. Likewise, where the employees' representatives have advised the employer on a matter, the employer must consider such advice at the highest management level and send its response thereon within six weeks.

The IRAs prescribe several duties of an employer concerning trade union members, including refraining from discriminating in matters related to employment, promotion, work conditions, transfer or termination based on participation in trade union activities. Such practices are considered unfair labour practices on the part of employers.

The meeting of the joint management board should be held at least once in three months. The work council should meet at least once a month.

Data protection

i Requirements for registration

At present, Pakistan does not have comprehensive personal data protection legislation. However, the government has recently approved the draft Personal Data Protection Bill, 2022 (PDP Bill), which is likely to be enacted soon. The PDP Bill requires the registration of data controllers and data processors with the National Commission for Personal Data Protection (NCPDP). However, the registration requirement will not apply where a data controller or a data processor is already registered with another local regulator.

At present, an employer is not specifically required to identify with particularity the information being processed. However, the employer must obtain the written consent of the employee for such processing. It is generally recommended to inform the employee about the information being processed.

The PDP Bill obligates data controllers to inform data subjects by written notice, among other things, about the processing of their data, and also provide a description of the data being processed.

Access to information must be limited to such individuals and third parties, and for such purposes for which the written consent of the employee has been obtained or where the employer is required to provide access to such information under the law. The company should ensure adequate technical protection of information.

The PDP Bill states that the data of a data subject shall not be disclosed without his or her consent for a purpose or to a person not already disclosed at the time of collection of such data. The data controllers must take practical measures for the protection of data by having regard to the nature of data and the harm that would result from unauthorised or accidental access or disclosure of data. A data controller must comply with such international standards as may be notified by NCPDP after the enactment of the PDP Bill.

ii Cross-border data transfers

At present, there is no restriction on the cross-border transfer of an employee's data. However, consent of the relevant employee to such transfer should be obtained.

The PDP Bill permits the cross-border transfer of personal data if the destination country offers adequate protection. In the absence of adequate protection, the cross-border transfer of personal data will be allowed where such transfer is under:

  1. a binding contract;
  2. explicit consent of the data subject;
  3. international judicial cooperation; or
  4. any other ground to be specified by NCPDP.

iii Sensitive data

At present, sensitive data is not defined.

Sensitive data under the PDP Bill includes data relating to access control, financial information, citizenship number, biometric data, physical, behavioural, psychological and mental health conditions, medical records, details about an individual's ethnicity, religious beliefs, political affiliation, physical identifiable location, travel history and online identifiers.

The PDP Bill requires that a data controller shall not process any sensitive personal data without explicit consent of the relevant data subject except on certain limited grounds including where such processing is necessary for exercising or performing any right or obligation that is conferred or imposed by law on the data controller in connection with employment.

iv Background checks

There is no specific statutory prohibition on background checks. Background checks are generally allowed if they are necessary to determine the suitability of a candidate for a particular role or other justifiable reasons. For instance, credit checks, criminal records checks or checks regarding the integrity and honesty of a candidate are usually employed for jobs of a financial nature.

Background checks should not be conducted to discriminate among candidates. It is recommended to obtain the written consent of the candidate for background checks.

Discontinuing employment

i Dismissal

The employment of an employee, other than an employee protected under any of the ICESOs, may be validly terminated without cause if so provided in his or her employment contract.

In the case of an employee protected under any of the ICESOs, the employer must issue a written termination order, which shall explicitly state the reason for the action taken.

Likewise, in the case of termination of employment of an employee protected under any of the ICESOs on the ground of misconduct, the employer must follow a prescribed statutory procedure that involves inquiry into alleged misconduct, and provision of an adequate opportunity to the employee to explain the circumstances alleged against him or her.

Except in the case of a mass retrenchment or redundancy (discussed below), an employer is not required to notify a government authority of the dismissal.

An employer is not required to notify the works council or trade union about the dismissal except where the employer is contractually required to do so under a collective agreement.

An employee does not have a statutory rehire right except, as discussed below, in the case of a retrenchment or redundancy. Likewise, an offer of suitable alternative employment is not mandatory. However, where an employee is protected under any of the ICESOs, the court may order reinstatement of such employee in the case of wrongful termination.

Except in the case of certain employees protected under the ICESOs or the SEAs, prior notice or pay in lieu thereof is not required unless so provided in the employment contract. For termination of employment of an employee designated as a permanent worker or employee under any of the ICESOs or the SEAs, an advance written notice of 30 days or salary in lieu of notice is required.

A female employee cannot be terminated while on maternity leave.

Except for employees designated as permanent workers under the ICESOs, severance payments and other dismissal indemnities are not required unless contractually agreed.

Permanent workers under the ICESOs are entitled to a gratuity payment upon termination of their employment on any ground other than misconduct. However, a gratuity payment will not be required in cases where an employer has set up a provident fund to which the employer's contribution is not less than the contribution made by the employee.

The parties can enter into a settlement agreement concerning a dismissal. However, such an agreement must be supported by valid consideration and must be properly structured, as the ICESOs and the SEAs prohibit contracting out of the statutory benefits provided to the employees protected thereunder.

ii Redundancies

The decision to make an employee protected under any of the ICESOs redundant must be supported by a valid reason such as the reorganisation or shutting down of business.

In certain establishments to which any of the ICESOs apply, the employer must not terminate the employment of more than 50 per cent of protected employees, or close down the establishment without prior permission of the provincial government or, as applicable, the labour court. Furthermore, in the case of multiple redundancies, the employer shall retrench the most-junior employees in the relevant category.

However, there is no specific obligation to notify the work council or trade union.

Where any number of employees protected under the ICESOs are retrenched and the employer proposes to rehire within one year of such retrenchment, the employer must notify the retrenched employees belonging to the relevant category and allow them to offer themselves for re-employment, and must give them priority according to the length of their respective past employment.

The same notice and severance requirements apply in the case of redundancy as are applicable in the case of dismissal. Likewise, the parties can also enter a settlement agreement.

Transfer of business

There is no specific business transfer law in Pakistan that protects the employees affected by a merger, acquisition or outsourcing transaction. Employment contracts do not automatically transfer from the old employer to the new employer upon transfer of business. Likewise, an employee's period of service with the old employer and the corresponding employment benefits do not automatically transfer to and count towards his or her service with the new employer. The best practice is to conclude a tripartite agreement between the employee, old employer and new employer governing these matters. In certain cases, such as mergers and amalgamation of companies, the scheme of amalgamation approved by the court may also include matters related to the transfer of employment and connected issues.

Outlook

Hybrid workplaces and remote work are now a reality. Employers must prepare themselves for new challenges posed by these modern trends and must implement robust policies governing various aspects of employment in hybrid workplaces to ensure proper compliance with employment laws and to mitigate the associated risks including cybersecurity, confidentiality breaches and data privacy. This is especially important because the existing employment laws do not address these issues.

It is expected that personal data protection legislation will soon be enacted in Pakistan. Employers must evaluate beforehand whether their current practices and policies concerning processing, protection and privacy of employee data will be complying with the upcoming local data protection law.

Female inclusion in economic activity is also expected to remain a priority. The employer will be expected to take practical measures for providing a conducive work environment for female employees.

Footnotes

1 Saqib Majeed is the managing partner at Majeed & Partners, Advocates & Counsellors at Law. The author thanks Mr Usman Zia, of counsel, for his valuable contribution.

2 However, in certain circumstances, the federal legislature can still enact laws for regulating certain employment-related matters, for instance, where it is required pursuant to an international treaty signed by Pakistan or in the case of laws applicable to trans-provincial businesses.

3 PLD 2020 Lahore 54.

4 PLD 2021 Supreme Court 784.

5 2021 PLC (C.S.) 65.

6 Under Pakistani income tax law, the furnishing of services, including consultancy services, by a foreign company through employees or other personnel engaged for such purpose may constitute a permanent establishment of such foreign company in Pakistan.

7 Colgate Palmolive (Pakistan) Ltd through Authorized Representative v. Rai Tahir Iqbal and another (2018 PLC Note 42).

8 Exide Pakistan Limited through Finance Director and Company Secretary v. Malik Abdul Wadood (PLD 2008 Karachi 583).

9 A bill to allow paternity leave to certain employees is pending before the federal legislature.

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