Employment Laws Primer For Multinational … · Employment Laws Primer For Multinational Companies...

Employment Laws Primer For Multinational Companies In India

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3rd Edition 2016


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This is not a legal advice and is published solely for the interests of industry. This document is for general guidance only and does not constitute definitive advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought through our website www.singhania.in. Copyright © 2016 Singhania & Partners.

http://www.singhania.in/


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INTRODUCTION

ith increasing trade relations between India and the World, cross-border movement of

employees from and out of India has increased quite considerably. In India, employees enjoy

the protection of diverse laws and regulations.

The business model of the companies is increasingly service centric and it is essential for employers to

have the most efficient human resource and to grant them their legal rights and entitlements. However, in a

country like India, the complex legal regime usually leave the employers facing typical issues related to

interpretation of the large number of labour and employment laws governing the industry. These issues

prove even more challenging when one of the parties involved is a foreign national.

Hence, this primer highlights the basic requirements of labour laws both from the perspective of Indian and

foreign nationals employed in India. While throwing light on the appointment/ secondment of foreign

nationals by Indian employers, the primer covers issues like taxation, working conditions, various social

security benefits, issues related to termination of employees, importance and enforceability of non-

solicitation clauses, retrenchment, various statutory registrations etc. With increasing concern for the

security of female employees, employers have also been conferred with the duty to ensure protection

against sexual harassment of women at the workplace.

Further, the primer also addresses the most common concern of all employers while entering into

employment contracts, like the enforceability of clauses related to confidentiality, competition, poaching

employees and soliciting clients. Keeping this in view, the primer would discuss the common controversies

that arise from clauses in employment contracts and the caution that should be kept in mind in drafting an

enforceable employment contract.

The key object is to enable the employers to familiarize themselves with the vast labour law regime of

India.

W


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CONTENT Chapter 1 DEPLOYMENT OF FOREIGN EMPLOYEES 06 Chapter 2 WORKING CONDITIONS 13 Chapter 3 PROVISIONS AS TO WAGES 16 Chapter 4 SOCIAL SECURITY BENEFITS 17 Chapter 5 EMPLOYMENT CONTRACTS 19 Chapter 6 SEXUAL HARASSMENT AT WORKPLACE 22

Article on :

Delhi HC judgement1 upholds termination of Senior 24 Executive for Sexual Harassment at Workplace.

Challenges For Aggrieved Women Employees 25 And Internal Complaints Committee In Proceedings Under Sexual Harassment Act- a test of legal rigor

Chapter 7 RETRENCHMENT AND TERMINATION 29

Article on:

Rising tide of Labour Reforms in India 31

Mandatory Requirements for Retrenchment under 34 Employment Laws in India

Chapter 8 REGISTRATIONS REQUIRED UNDER VARIOUS LABOUR LEGISLATIONS 37


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CHAPTER 1

D E P L O Y M E N T O F F O R E I G N E M P L O Y E E S

1.1 The deputation for expatriates and foreign nationals attracts several issues under the

Indian legal system. Foreign nationals are engaged in India to provide training and

development to local employees, for technology transfer, compliance of joint ventures and

license agreements etc.

1.2 At the time of setting up a business in India, the foreign employer generally prefers to

appoint its own employees for the management and control of the business. This is done in

order to smoothen the transfer and execution of company policies to the Indian business

arm. Further, it is convenient for the foreign employees working in India to co-ordinate with

the parent company in terms of decision making, financial management and other business

matters.

The major tax implications on a foreign and Indian national, working in India, and the

liability of their employer under the Indian Income Tax Act, 1961 (‘IT Act’) are laid out

below:

1.3 Residential Status of an Expat

An individual is taxed in India on the basis of their residential status under the IT Act. The

residential status is determined on the basis of the physical presence of the individual in

India during that particular financial year (1 April to 31 March).


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The categorisation of the individuals on the basis of their residential status in a given

financial year is done as follows:

1. Resident in India –

o Resident and ordinarily resident (ROR)

o Resident but not ordinarily resident (RNOR)

2. Non-Resident in India (NR)

Foreign nationals may be exempt from tax in India if their stay does not exceed 90 days, as

prescribed in the Act, or the number of days prescribed (generally 183 days) under various

double taxation avoidance agreements (DTAA) into which India has entered with other

countries, subject to the satisfaction of all the other conditions.

However, in practise, an expatriate coming to India for the first time may remain RNOR for

first 3 tax years. But the facts and circumstances may vary from case to case in determining

the residential status.

Remuneration for services rendered by a foreign national employed by a foreign enterprise

during his/her stay in India will be exempt from tax in India if:

the total period of the stay in India does not exceed 90 days in a financial year

the foreign enterprise is not engaged in any trade or business in India

the remuneration is not charged to an employer subject to Indian income tax.

It may be noted that to the extent the individual qualifies for relief in terms of the

‘dependent personal services’ article of the applicable DTAA, there will be no tax liability.

However, this exemption will not apply if the Indian entity is the individual’s economic

employer. In addition, any salary or local benefits received in India are also not eligible for

relief.

1.4 Tax liability of an Employee

1.4.1 In respect of Indian employees-

Under Section 192 (1) of the IT Act, employers are required to deduct income tax on the

amount payable as salary to the employees at the rate as may be applicable in the relevant

financial year.

Employers also have an option to pay tax on behalf of an employee without making any

deduction from her/his income, on the income in the nature of perquisites, which are not

provided for by way of monetary payment.

Employers can pay tax on non-monetary perquisites provided to their employees without

making any deduction from his/her salary and the tax so paid by employer on behalf of the

employee on non-monetary perquisites is exempt in the hands of employee under Section

10(10CC) of the IT Act.


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1.4.2 In respect of foreign nationals-

Foreigners are entitled to certain special concessions as follows:

(1) Remuneration received by a foreigner as an employee of a foreign enterprise for

services rendered in India is not subject to Indian income tax, provided:

the total period of the stay in India does not exceed 90 days in a financial year

the foreign enterprise is not engaged in any trade or business in India

the remuneration is not charged to an employer subject to Indian income tax.

(2) Salary received by a non-resident foreigner in connection with employment on a foreign

ship is exempt from tax if the employee’s stay in India during a year does not exceed 90

days.

(3) Special exemptions under specified circumstances are available for remuneration

received by employees of a foreign government during training with the Indian government

or in an Indian government undertaking.

1.4.3 Visa Requirements

Employment visas are issued to foreigners who are working in India, for an Indian entity.

Employment visas are usually granted for one year, or the term of the contract. It can be

extended in India.

Foreign national who wants to visit India for employment in a company/ firm/organization

registered in India or for employment in a foreign company/ firm/organization engaged for

execution of some project in India, can obtain employment visa provided that they are

being sponsored for an Employment Visa by their employer and they draw a salary in

excess of USD 25,000 per annum. The condition of annual floor limit on income will not

apply to:

o Ethnic cooks,

o Language teachers (other than English language teachers) / translators and

o Staff working for the concerned Embassy/High Commission in India.

Employment visa is also granted to foreigners coming to India as a consultant on contract

for whom the Indian company pays a fixed remuneration (this may not be in the form of a

monthly salary), foreign artists engaged to conduct regular performances for the duration

of the employment contract given by Hotels, Clubs, other organizations, coaches of national

/state level teams, or reputed sports clubs, sportsmen who are given contract for a

specified period by the Indian Clubs/organizations, self-employed foreign nationals coming

to India for providing engineering, medical, accounting, legal or such other highly skilled

services in their capacity as independent consultants provided the provision of such

services by foreign nationals is permitted under law, foreign engineers/technicians coming

to India for installation and commissioning of equipment/machines/tools in terms of the

contract for supply of such equipment/machines/tools, providers of technical

support/services, transfer of know-how/services for which the Indian company pays

fees/royalty to the foreign company.


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The Embassy/Consulate may grant employment visa, which is valid for a year irrespective

of the contract. Further extension may be obtained from MHA/FRRO in the concerned state

in India. The visa duration starts from the day of issuance and not from the day of entry in

India. Foreign technician may get visa for period of five years or the bilateral agreement

between Indian and foreign government whichever is less with multiple entries. For highly

skilled IT person being employed in the IT enabled sectors, the visa validity is upto 3 years

or the term of assignment, whichever is less, with multiple entries. Others can be granted

visa with validity of two years or the term of assignment, whichever is less, with multiple

entries.

Indian Missions/ Posts may grant multiple entry project Visa to skilled or highly skilled

foreign nationals coming to India for execution of projects. Project Visa will cover only

professionals related to Power and Steel sector.

Business visa is given strictly to those who make business related trips to India such as

making sales or establishing contact on behalf of the company outside India.

1.4.4 This is not applicable for people who are coming to India for part time or full time

employment. The following activities can be carried out under a business visa: establishing

an industrial/business venture or exploring possibilities to set up industrial/business

venture in India, purchase/sell industrial products or commercial products or consumer

durables, technical meetings/discussions, attending Board meetings or general meetings

for providing business services support, recruitment of manpower, for performing duties as

partners in a business and/or functioning as Directors of the company, consultations

regarding exhibitions or for participation in exhibitions, trade fairs, business fairs etc.,

transacting business with suppliers/ potential suppliers at locations in India as buyer, to

evaluate or monitor quality, give specifications, place orders, negotiate further supplies etc.,

relating to goods or services procured from India, acting as experts/specialists on a visit of

short duration in connection with an ongoing project with the objective of monitoring the

progress of the work, conducting meetings with Indian customers and/or to provide

technical guidance, pre-sales or post-sales activity not amounting to actual execution of any

contract or project, in-house training of trainees of multinational companies/corporate

houses in the regional hubs of the concerned company located in India, internship on

project based work in companies/industries for students sponsored by AIESEC, conducting

tours and functioning as travel agents and/or conducting business tours of foreigners or

business relating to it. Indian Missions/Posts can grant Business Visa valid up to 5 years or

shorter duration to foreign business persons as per their requirement to set up

industrial/business venture or to buy or sell industrial/commercial products. However, the

period of stay in India for each visit is limited to 6 months. A multiple entry visa valid up-to

10 years may be available to foreign nationals who have set up or intend to set up a joint

venture in India. Remuneration received by foreign expatriates working in India generally is

assessable under the head “salaries” and is deemed to be earned in India. Income payable

for a leave period that is preceded and succeeded by services rendered in India and that


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forms part of the service contract is also regarded as income earned in India. Thus,

irrespective of the residence status of an expatriate employee, the salary paid for services

rendered in India is liable to tax in India. There are no special exemptions or deductions

available to foreign nationals working in India.

However, a foreign national who comes to India on short-term business visits can claim an

exemption under the domestic tax law or a relevant tax treaty.

1.4.5 Where salary is payable in foreign currency, the salary income must be converted to Indian

rupees. For this purpose, the rate of conversion to be applied is the telegraphic transfer-

buying rate as adopted by the State Bank of India on the last day of the month immediately

preceding the month in which the salary is due or paid. However, if tax is to be withheld on

such an amount, the tax withheld is calculated after converting the salary payable into

Indian currency at the rate applicable on the date tax was required to be withheld.

1.4.6 The remuneration received by a foreign national is assessable under the head ‘salaries’ and

is deemed to be earned in India if it is payable to him for services rendered in India.

There are certain exceptions to this rule, few of them being the following:

i. Remuneration of an employee of a foreign enterprise is exempt from tax if his stay in

India is less than 90 days in aggregate during the financial year and is not liable to be

deducted from the income of the employer. This is further subject to the provisions

of Double Taxation Avoidance Agreement(s) (‘DTAA(s)’) entered by India with

various countries.

ii. Remuneration received by a foreign expatriate as an official of an embassy or high

commission or consulate or trade representative of a foreign state is exempt on

reciprocal basis.

iii. Remuneration under co-operative technical assistance programme or technical

assistance grants agreements.

iv. Where the income is derived by way of royalty or fees for technical services received

pursuant to an agreement.

In addition to the above, the Central Government has entered into DTAAs with various

countries. As per Section 90(2) of the Act, in relation to an assessee to whom any DTAA

applies, the provisions of the Act shall apply only to the extent they are more beneficial to

the assessee. The provisions of the DTAAs prevail over the statutory provisions.

1.5 Registration with FRRO

Foreign nationals including their family members who intend to stay in India for more than

180 days have to get themselves registered with the Foreign Regional Registration Office


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(FRRO) within two weeks (14 days) of arrival in India. For the purposes of registration, the

individual is required to make an application in the prescribed form and be present in

person at the time of registration. There is no registration fee charged for registration by

FRRO.

1.6 What constitutes a Permanent Establishment?

As per treaty laws, India cannot tax the business income of a foreign entity, unless that

entity has a Permanent Establishment (‘PE’) in India.

Article 7 of the various DTAAs stipulates that only the profits directly or indirectly

attributable to the PE in India would be taxed in India. Therefore, only the PE generating

income with a business connection in India will be taxable in India.

The PE of the foreign enterprise in India may use its assets and resources to earn income

both in India and outside India, but only the segment of Income that relates to the business

connection in India is taxed. In the absence of business connection in India, the PE would

just be a taxable entity and not a tax paying entity.

A foreign company is generally considered to have a PE in India if the foreign company is

regarded as having a fixed place in India through which the said foreign company carries on

business in India.

Under some DTAAs, a foreign company is regarded as having a PE in India, if the company

renders services (Royalties or Fees for Technical Services) to an Indian company through

employees or other personnel deputed to India and such services are rendered by its

employees for more than a specified period of time. Such type of a PE is known as Service

PE. Furnishing of services is the most important check for attraction of Service PE.

1.7 Secondment (employee loan/lease) by Parent Company to Indian subsidiary.

The secondment of employees though may seem to be very simple, can lead to serious tax

implications both for the Indian Subsidiary Company and the Parent Overseas Company.

The tax obligations of the seconded employee working for Indian company depend upon

various factors like the residential status he acquires while working in India, place where

services are being rendered, receipt of salary in India or abroad etc. However the tax

obligations of the Indian and Foreign employer may not end even if seconded employee has

been subject to taxes in India for salary earned as seconded employee.

A case of secondment of employees by a foreign company may constitute a Service PE if:

i. The foreign company retains the direct supervision and control over the seconded

employees.

ii. The work being performed by the employees is on behalf of the foreign company.


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iii. The foreign company is getting any amount over and above the mere re-

imbursement of the salaries of the concerned employees.

In the case of DIT (International Taxation), Mumbai Vs. Morgan Stanley and Co. Inc., the

Service PE was held to be in place for the foreign company due to the reason that the

services were being rendered by the seconded employees on behalf of the foreign company,

the foreign company being responsible for the work performed by the seconded employees

and that the seconded employees continued to have a lien over their employment with the

foreign company.

The Income Tax Appellate Tribunal (ITAT) has laid down certain factors to hold that an

arrangement would not constitute a Service PE on account of following reasons:

i. The services rendered are independent of and not under the control of the foreign

company.

ii. The concerned employees are for all practical purposes, employees of the Indian

company.

iii. The foreign company is providing only the personnel and not furnishing any

services through the personnel.

iv. The reimbursement being made by the Indian company to the foreign company is

only towards the actual cost of the salaries paid to the concerned employees and

without any mark up.

v. The Indian company has the right to terminate the concerned employees from the

services to the Indian company.


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CHAPTER 2

W O R K I N G C O N D I T I O N S

2.1 Provisions for Leave

The Indian Constitution law empowers both the Central and the State governments to make

laws relating to the welfare of labour including conditions of work, provident funds, employers'

liability, workmen's compensation, maternity benefits etc. The State governments have

formulated laws regulating the conditions of work for persons employed in shops, commercial

establishments, establishments for public entertainment or amusement and other

establishments. Therefore, in addition to the provisions under Factories Act, 1948, every State

has enacted its respective Shops and Establishments Act which govern the benefits available to

employees.

The leave benefits while broadly similar invariably incorporates local variations depending

upon the customs and commercial practices in each State.

Types of Leave: In general practices, following types of leave are provided in an establishment

governed by the Shops and Establishment Act.

i. Weekly Holiday: Every establishment shall remain close on at least 1 day of every week. As

per industry standards, weekly holiday is given on every Sunday.

No employee shall be required to work in any establishment for more than 9 hours in a day.

However, no employee in any establishment shall be allowed to work for more than 54

hours in any week.


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ii. National/Public Holiday: Every establishment shall remain close on 3 National Holidays

(January 26, August 15 and October 2) or as may be prescribed by the respective State

government. In addition to these, every employee would be entitled to 5 compulsory

holidays every year which shall be exclusive of the national holiday as given above. The

number of public holidays may also differ in accordance with the direction which the local

authority or the respective State Government, may by publication fix for any establishment,

from time to time.

iii. Annual Leave: The term ‘Annual Leave’ shall be read synonymous to Privilege/Earned

Leave. This leave entitlement is to be mandatorily granted to every employee in an

establishment. Every employee, after a continuous employment of 12 months, shall be

entitled to annual paid leave of 18 days for the subsequent year.

Notwithstanding the above, the number of annual leave would be different in the following

states:

- Maharashtra: 21 days every year

- Rajasthan: 30 days every year

- Madhya Pradesh: 1 month every year

iv. Sickness/Casual Leave: Every employee shall be entitled to leave with wages of 15 days

every year (may vary from state to state) on grounds of sickness, accident or any other

reasonable cause. Any leave availed of by an employee in excess of the limits specified

above shall be without pay.

The States of Andhra Pradesh and Kerala provide for “Special Casual Leave” for the

following purposes:

Andhra Pradesh – Every employee after completion of minimum 6 months of employment,

shall be entitled for a special casual leave not exceeding 6 days available only once during

his entire service, if he has undergone vasectomy or tubectomy operation.

Kerala – Every employee shall be allowed a special casual leave with wages, in case of

sterilization operation, of 6 days in case of a male employee and 14 days in case of a female

employee.

v. Maternity Leave: Female employees shall be entitled to a maternity leave of maximum 12

weeks. Provided that the period of leave before delivery should not exceed 6 weeks. In case

of miscarriage or pregnancy being terminated on medical grounds, leave upto 42 days is

allowed.

The Maternity Benefit Act, 1961 provides for maternity leave and other benefits before and

after childbirth, medical termination of pregnancy or miscarriage. The employer is required

to pay maternity benefits at the rate of the average daily wage for the period of her actual

absence up to a maximum of 12 weeks.


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vi. Carry Forward of Privilege Leave: The unavailed number of privilege leave may be

accumulated upto a period of 45 days.

vii. Where the employment agreement or contract of service of an establishment provides for a

longer leave with wages or weekly holiday than are provided in the Act, the employee shall

be entitled to only such longer period of leave or holidays, as the case may be.

2.2 Working hours

Depending on the nature of establishment or industry, the statutes provide for the

maximum number of hours an individual can be required or allowed to work in a day or

week.

The Factories Act and Shops and Establishments Act provides for maximum working hours

of up to nine hours a day and 48 hours a week.

The Factories Act provides that every employee is entitled to 24 hours of continuous rest in

a week (i.e., a weekly day off). If a weekly day off or compensatory day off falls after a night

shift, the 24 hours from the end of the shift are given to him or her as his or her weekly day

off.

Under the said Acts, women are not allowed to work at night. In some states, however,

exemptions have been provided for certain businesses such as the information technology

industry. However, specific approvals may be required in such cases.

Pursuant to the Factories Act and certain state SEAs, any work done over nine hours a day

or 48 hours a week is considered ‘overtime’. An employee working overtime becomes

entitled to wages at the rate of twice his or her ordinary rate of wages.

There are limits prescribed by the state-specific SEAs and the Factories Act on the amount

of overtime work that can be performed by an employee. These limits vary from state to

state and may be daily, monthly, quarterly or yearly.

2.3 Women safety.

Certain states have laid down guidelines to ensure the safety of women employees such as

they must be provided transport facility from residence to workplace. Further, all the

establishments are required to incorporate anti-sexual harassment policies for women

working in the late night shifts at the workplace in compliance with the Sexual Harassment

of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. This section is

separately dealt with in the Primer.


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CHAPTER 3

P R O V I S I O N S A S T O W A G E S

3.1 Payment of Wages Act, 1936

The Payment of Wages Act regulates the payment of wages to workers employed in certain

specified industries and provides a remedy against illegal deductions and unjustified delays

in the payment of wages. It is applicable to workers employed in a factory, industrial or

other establishment, whether directly or indirectly (i.e. through a subcontractor).

3.2 The Minimum Wages Act, 1948

The Minimum Wages Act safeguards the interests of workers by providing a minimum wage

for certain jobs. It requires employers to pay their workers the minimum wages as fixed

under Minimum Wages Act from time to time by the government.

3.3 Shops and Establishments Acts

The Shops and Establishments Act of various States in India contain provisions as to the

wages payable to the employees and make the employer responsible for the payment of all

wages to the employees. The wage period has to be fixed and cannot exceed one month. The

employer is also entitled to make certain deductions from the wages on grounds of any fine

imposed, deduction for absence of duty, any damage caused to the goods etc.

3.4 Minimum salary requirements for foreign nationals

As per the clarifications given by Ministry of Home Affairs for employment of foreign

nationals in India, it is a prerequisite for them to have a minimum salary of USD 25000 (to

protect low/less skilled Indian labour).


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CHAPTER 4

S O C I A L S E C U R I T Y B E N E F I T S

4.1 Employees State Insurance Policy

The ESI Act, wherever applicable, provides for health care and cash benefit payments in the

case of sickness, maternity and employment injury. It provides for need-based social

insurance schemes that protect the interest of workers in contingencies such as sickness,

maternity, temporary or permanent physical disablement, or death due to employment

injury.

The salary limit for eligible employees has been increased from 10,000 rupees to 15,000

rupees.

4.2 Provident Fund

The EPF Act provides for the institution of provident funds, family pension funds and

deposit-linked insurance funds for the employees, which taken together provide old-age

and survivorship benefits, long-term protection and security to the employee.

The salary limit for employees covered by the EPF Act is 15,000 rupees.

Contributions to the Fund are made by both employer and the employee and are

administered by the Central Board of Trustees.

An individual must be an employee to be a member of the Fund. Casual engagement is not

‘employment’.


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4.3 Provisions for International Workers

Expatriates working in India are obligated to contribute toward the Indian provident fund

systems unless they fall within the category of an “excluded employee.”

In order to facilitate the balance of social contributions made by foreign expatriates

deployed in India and by Indian nationals working in countries outside India, the

Government of India has signed and is in the process of signing Social Security Agreements

(SSAs) with different countries. SSAs have been signed between India and many other

countries; however, only Belgium, Germany, Luxembourg, France, Denmark, Korea,

Netherlands, and Switzerland had ratified the agreements.

The Government of India has imposed a limitation on the withdrawal of provident fund

balances by foreign expatriates. Under this limitation, foreign expatriates will be able to

withdraw the accumulated provident fund balance only at the age of 58 years and not at the

end of their employment in India. In certain circumstances, an earlier withdrawal may be

possible, such as the following:

i. on retirement on account of permanent or total incapacity to work due to bodily or

mental infirmity duly certified by a prescribed medical officer/registered

practitioner;

ii. on suffering from tuberculosis, leprosy, or cancer, even if contracted after leaving the

service on grounds of illness; or

iii. any of the grounds specified in the SSAs.

Further, pursuant to the ratification of SSAs with Belgium, Germany, Luxembourg, France,

Denmark, Korea, Netherlands, and Switzerland foreign expatriates from these countries are

exempt from age 58 limitation.


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CHAPTER 5

E M P L O Y M E N T C O N T R A C T S

In anticipation of having long-term business contribution from the employees, the employers

invest substantial resources in training to impart special skills, talent and knowledge. But, in

general practice, after gaining the requisite skills, talent and knowledge, employees tend to shift

towards more rewarding job opportunities. To restrict the employees from moving jobs,

employers insert typical clauses in the employment agreement which seek to prevent the

employees from leaving the job for a fixed period after the training or taking up similar

employment for a fixed time period even after such employment ceases. Undoubtedly, the

employer and employee have conflicting interests and both view the negative covenant in the

employment agreement from their different stand points and employees usually invoke Section

27 of the Indian Contract Act.

So confronted, all employers seek to incorporate such provisions into the employment contracts

which they wish to enforce at the time of termination of employment. These provisions mainly

focus on protection of confidential information of the company, restrictions on direct or indirect

competition, poaching employees and soliciting clients.

This chapter discusses the common controversies that arise from certain clauses in employment

contracts and the caution that needs to be taken while drafting such contracts.

At the beginning of drafting any contract of service or employment, it is important to determine

the status of the individual concerned. For instance, an independent contractor is not an

employee in the strict sense of the term. However, Indian courts have held various independent

contractors as employee depending on the terms and conditions of service.


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5.1 Enforceability of Employment Agreements

As employment contracts are contracts of personal services, they are not specifically

enforceable unless the suit is filed under the three circumstances which are as follows:

i. In the first case, where relationship of master-servant is governed purely by the

employment contract entered between the employer and employee, the remedy for breach

of contract is to file a suit for wrongful dismissal and claim compensation. The rationale

behind this remedy is that the nature of the agreement is of personal service and the

parties cannot be forced to work with each other. The only sensible remedy for a contract of

such a personal nature is to claim compensation on the grounds that the employment has

been wrongfully terminated or the employer may claim that the employee has not followed

the terms of the contract. The relief in such cases would be monetary compensation.

ii. In the second case, where the master-servant relationship is governed under Industrial

Law, the servant who is wrongfully dismissed may be reinstated as under a special

provision under Industrial Law. This relief is a departure from the relief available under the

Indian Contract Act and the Specific Relief Act which do not provide for reinstatement of a

servant.

iii. In the third case, where the servant is in the employment of the State or of other Public or

Local Authorities or Bodies created under a Statute, the remedy available to the employee

in case of wrong dismissal is to declare the dismissal invalid provided he is able to prove

that the dismissal is contrary to rules of natural justice or is in violation of the provisions of

the Statute.

5.2 Restraint on Trade and Employment Contracts

Any agreement which restricts a person from exercising a lawful profession, trade or

business of any kind is void to that extent. The only exception to this rule is in relation to

the sale of goodwill, where the buyer may restrict the seller from carrying on similar

business within specified local limits. The law does not recognize any other valid restraint

on trade, even if such a restraint is reasonable.

The legal position in this context is very clear and is as follows:

i. after the expiry of the term of employment, the agreements which prevent an employee

from working elsewhere would be restraint of trade, unless there is a proprietary interest

of the employer involved, and

ii. an employee may be restricted from serving any other person or carrying on independent

business during the term of employment.


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5.3 Enforceability of Non-Compete Clause

During the term of employment, an employer can legally restrain an employee from

competing with it or taking any other employment while the employment contract is in

force.

Negative covenants operative during the period of the contract of employment when the

employee is bound to serve his employer exclusively are generally not regarded as restraint

of trade.

The only exception to this would be if the contract and the non-compete covenant thereof is

unconscionable or excessively harsh or unreasonable or one-sided.1

5.4 Enforceability of Non Solicitation Clause

The courts have held that contracts between two employers which prohibiting the other

from enticing or alluring each other’s employees are enforceable as the restriction imposed

is upon the respective employers and not the employees and is therefore, viewed more

liberally than a restraint in an employer-employee contract.

From an employer's perspective, it is absolutely necessary to ensure the inclusion of a non-

solicitation clause in vendor/agency and similar commercial arrangements. The clause

should be in effect during the term of the contract and preferably for up to one year after

termination. It should be carefully worded and a special damages clause should be

included.

It is important to see that such a clause does not directly prohibit employees from taking up

employment with their firm's competitor; it may act as a psychological block.

5.5 Enforceability of Confidentiality Clause

Unlike non-competition clauses, a confidentiality clause subsists the termination of the

agreement and the employer is able to sue for recovery or damages in the event the

employee joins a competitor and uses the confidential information which was available to

him during the earlier employment.

1 High Court of Calcutta in Shree Gopal Paper Mills Ltd. vs. Surendra K. Ganeshdas Malhotra


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CHAPTER 6

S E X U A L H A R A S S M E N T A T W O R K P L A C E

The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal)

Act, 2013 (‘Act’) and The Sexual Harassment of Women at Workplace (Prevention,

Prohibition and Redressal) Rules, 2013 (‘Rules’) have been now notified with the objective

of providing protection against sexual harassment of women at the workplace and for the

prevention and redressal of complaints of sexual harassment. .

The definition of ‘sexual harassment’ includes unwelcome physical contact and advances, a

demand or request for sexual favours, making sexually coloured remarks, showing

pornography or any other unwelcome physical, verbal or non-verbal conduct of sexual

nature.

Any implied or explicit promise of preferential treatment in employment, implied or

explicit threat of detrimental treatment in employment, implied or explicit threat about

present or future employment status or interference with the work or creating an

intimidating or offensive or hostile work environment or humiliating treatment likely to

affect the employee’s health or safety in relation to or connected with any act or behaviour

of sexual harassment may amount to sexual harassment.

The Act is applicable on all regular, temporary, ad hoc employees, individuals engaged on

daily wage basis, either directly or through an agent, contract labour, co-workers,

probationers, trainees, and apprentices, with or without the knowledge of the principal

employer, whether for remuneration or not, working on a voluntary basis or otherwise,

whether the terms of employment are express or implied.


Page 23

6.1 Duties of the Employer

Provide a safe working environment at the workplace which shall include safety from the

persons coming into contact at the workplace;

Display at any conspicuous place in the workplace, the penal consequences of sexual

harassments; and the order constituting the ‘Internal Complaints Committee’ for

prevention of sexual harassment at workplace;

Organize workshops and awareness programmes at regular intervals for sensitizing the

employees with the provisions of the Act and orientation programmes for the members of

the Internal Complaints Committee in the manner prescribed under the Act;

Provide necessary facilities to the Internal Complaints Committee for dealing with the

complaint and conducting an inquiry;

Assist in securing the attendance of respondent and witnesses before the Internal

Complaints Committee;

Make available such information to the Internal Complaints Committee as it may require

having regard to the complaint;

Provide assistance to the employee if he/she chooses to file a complaint in relation to the

offence under the Indian Penal Code or any other law for the time being in force;

Cause to initiate action, under the Indian Penal Code or any other law, against the

perpetrator, or if the aggrieved employee so desires, where the perpetrator is not an

employee, in the workplace at which the incident of sexual harassment took place;

Treat sexual harassment as a misconduct under the service rules and initiate action for

such misconduct;

Monitor the timely submission of reports by the Internal Complaints Committee.

6.2 Offences and Penalty under the Act

The Act prescribes a penalty of up to INR 50,000 (approx. US$1,000) for failure to

constitute the Internal Complaints Committee. Repetition of the same offence could result

in the punishment being doubled and / or de-registration of the entity or revocation of any

statutory business licenses.

6.3 Amendments to the Indian Penal Code

The Indian Penal Code, 1860, by way of a recent amendment, now enlists the acts which

constitute the offence of sexual harassment and further envisages penalty/punishment for

such acts.2 As the amendment criminalizes all acts of sexual harassment, employers are

required to report all offences of sexual harassment to the appropriate authorities. The

offences are punishable under the Indian Penal Code.

2 The Criminal Law (Amendment) Act, 2013


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Delhi HC judgement1 upholds termination

of Senior Executive for Sexual Harassment

at Workplace.

A recent judgement of the Delhi High Court

comes as a major landmark in India in

validating the order of termination of the

employee’s services on the basis of the

Internal Complaints Committee (ICC) of a

company, upholding charges of Sexual

Harassment by a junior female staff

complaining of Sexual Harassment by him. The

High Court rejected the male supervisor’s

Petition challenging the findings and

conclusions of the ICC. Among the various

reasons recorded in the order, the Court ruled

that once it is satisfied that the ICC’s decision

is based on clear evidence, there was no

violation of principles of natural justice, and

there was no perversity in the findings of the

report of the ICC, the Court would not

interfere with the decision in writ

proceedings. The Court’s decision will provide

confidence to employers and ICC members

that it is perfectly reasonable for employers to

even terminate the employment of a male

employee who is found guilty of charges of

Sexual Harassment, and female employees

would draw encouragement from the ruling

that the law against Sexual Harassment shall

be strictly enforced by the judiciary.

The facts as reported in the judgement are

that the senior had forced her to accompany

him on an outstation visit and stay in a hotel

with him and even stay a night with him.

Evidence recorded also proved that he was in

the habit of arranging trips with other female

staff. The Court overruled the objection that

there was delay of two months in filing the

complaint, also held that the complainant

being junior had no option but to comply, and

the employee had abused his position, and

that even compelling her to come to his room

at night and making

offensive remarks, blowing

cigarette smoke, were all

acts of sexual harassment

under the Act. Conduct of the superior would

amount to offence of sexual harassment under

the Sexual Harassment of Women at

Workplace Act, 2013, if evidence proves that

the petitioner pressurised the complainant to

come over to his room at night in the hotel,

used sexually tainted threats to the

complainant, such as “do you know that is

‘Shoshan’(Exploitation), this is ‘shoshan’ “why

did you ask for food from my bloody juniors?”,

forcing option of spending night in his room

etc.

Further, it is noteworthy that sexual

harassment charges were also upheld against

other male colleagues for their gender

insensitive conduct towards a female

colleague during outstation travel by inviting

her to a hotel room at night and drinking &

smoking by 4 male members in front of a

female colleague till the midnight. ICC also

recommended counselling them on gender

insensitivity.

By this ruling the Court has unambiguously

signalled that the ambit of the definition of

sexual harassment in the Indian law is wide

enough to cover all manner of gender

insensitive conduct, and must compel male

colleagues to seriously ponder the limits of

permissible conduct in dealing with their

female colleagues at the workplace. Is the law

compelling puritanical restraint on male

conduct or is such interpretation of

misconduct necessary to bring in reform in

male attitudes.

1 Gaurav Jain Vs Hindustan Latex Family Planning Promotion Trust (HLFPPT) & Others Delhi High

Court, 2015 LLR 1195


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Challenges For Aggrieved Women

Employees And Internal Complaints

Committee In Proceedings Under

Sexual Harassment Act- a test of legal

rigor

By Sunil Kumar

hey say nothing comes easy and there

is a tag to everything. The same holds

true for seeking the protection of the

Sexual Harassment of Women at Workplace

Act, 2013 (SHWA). There can be no two

opinions that the legislations passed by the

Parliament in December, 2013 are a landmark

law in gender protection. Together with the

Criminal Law Amendments to Sections 354A,

354B, 354C & 354D of the Indian Penal Code,

(treating harassment as criminal offences)

SHWA constitute a determined response to

meet the challenge of Sexual Harassment of

women at the workplace.

And yet the task of achieving the object of the

law is a long and winding road on which the

complainant must persevere through

successive legal forums of the legal system

with all its uncertainties and delays. The

experience with this legislation is proving to

be no different. The Internal Complaints

Committees (ICC) of corporates must grapple

with rival claims, and the dictates of legal

processes, for relief the victims of sexual

harassment must meet the formidable

challenge of adducing evidence, for the

accused the right to proclaim his innocence till

proven otherwise, for the management the

dilemma of compliance and the compulsions

of containing the damage to the corporate

brand. These are early days but the new

legislation is already a battle ground rife with

allegations of non-compliance, prejudice of

ICC members, violations of procedure,

evidence not considered, biased conduct of

proceedings, and wrongful reprieve of the

accused by the management.

Contrary to popular impression, the

guidelines for conduct of inquires originated

with the Supreme Court judgement in 1996 in

the Vishaka Vs State of Rajasthan, and

thereafter several decisions of the High Courts

reinforced and clarified the jurisprudence on

which the inquiries were to be conducted

including principles of natural justice and fair

play. By the time the Act was passed and

notified for implementation, the legal world

was acutely conscious of the pitfalls that

would have to be navigated in inquiry

proceedings to deal with complaints of sexual

harassment. Unfortunately though

understandably, the ICC’s constituted by

employers comprise members who are not

trained or qualified to grapple with legal

requirements, which they find both

cumbersome and time consuming. This makes

ICC decisions easy for lawyers on both sides to

pick holes in, leading to appeals in state-level

industrial tribunals or through Writs in High

Courts.

Among the most common and recurrent

issues of challenge are the following though

not the only:-

I. Exact nature of the alleged sexual

harassment - despite a comprehensive list

of categories of acts defined as sexual

harassment, women employees often fail

to distinguish between whether the

unwelcome contact was sexual in nature,

or more in the nature of misbehaviour

bordering on exist remark or rude

behaviour by an uncouth male colleague.

The misbehaviour may be an act of

whispering something offensive in a barely

audible tone, or perhaps in a taunting

T


Page 26

manner. Or the conduct of a male superior

who is inclined to be over-familiar and

tactile, or worse where the over familiarity

extends to a physical touch by the boss in

his room. The male may plead lack of

intent, or a harmless touch, and one female

colleague may equally dismiss it as

harmless, and yet another female colleague

may take serious exception and allege

sexual harassment. People from different

social and cultural backgrounds would

perceive the same act differently and react

differently. Ultimately, the ICC and its

members would have to take into

consideration the perception of the

aggrieved women. There are cases where

even uncouth physical contact or

misbehaviour has been alleged to be

sexual harassment and the accused male

colleague has ended up facing action both

under the SHWA and criminal proceedings

by the police under the newly amended

sections of the IPC.

II. Failure to support the charge-there is

currently a complete lack of understanding

among female employees that any charge

of sexual harassment is based on the

following elements:-

a. In which category of (i) to (v) does the

act or behaviour fall as defined in the

SHWA. The employee must explain in

the complaint how the physical contact

and advance was unwelcome in

category (i); or in category (iii) explain

how the remarks which she found

unwelcome were sexually coloured

remarks with supporting detail as to

what words or language was used by the

accused; in addition it has to be

reported how the complainant

conveyed her displeasure to the

accused so as to convey to the accused

that the said remark or advance was

rejected or not acceptable to the

employee. Complaints have often been

rejected by ICC’s because the aggrieved

women have failed to appreciate that

the onus lies on them to substantiate

the charge with relevant descriptive

details. This could be due to inhibition,

a sense of modesty, or other social

restraints. But the law can only help the

victim who has the courage to speak up

and support the charge.

The last category in sub-clause (v) of

S.3 has a much wider scope and

includes any other unwelcome physical,

verbal or non- verbal conduct of sexual

nature. Quite often complainants do

not think carefully or seek appropriate

advice to bring out the exact nature of

their experience as also of the conduct

which they faced. It is extremely

important to fit it into the language

used in each category of prohibited

conduct. Describing non-verbal

conduct of sexual nature or even of

verbal nature would need some

memory of details so that the

accusation does not sound vague under

cross examination, and the

complainant does not simply wilt

under pressure. The best possible

advice would be to keep some record of

the incident and seek advice at the

earliest. That is why delay in reporting

such incidents in writing to HR can

prove costly to the interest of the

accused.

b. How the act or conduct was

unwelcome to the aggrieved employee

amounted to sexual harassment. The

fact that the act or behaviour was

unwelcome must be signified to the

accused by some words of protest or


Page 27

rejection though in cases where the

circumstances are clear and show

unmistakably the sexual nature of the

act, even rejection or disapproval may

not be necessary to construe that the

conduct was unwelcome. Of course

there will be cases where the accused

will counter the charge by claiming that

the conduct was invited, consensual or

mutual and even reciprocated. The

accused will try every trick in the trade

to rebut the charge that his conduct

was unwelcome. The legal test of

burden of proof would keep shifting,

and to prove his innocence the accused

will refer to direct evidence or

circumstantial evidence to establish his

claim that his conduct was welcome.

III. Quite apart from the above, the

complainant must gather evidence of the

conduct of the accused, and of the incident,

its time and place, whether it was repeated

or frequent. All occasions or situations in

which the acts occurred, which will all lend

credibility to the charge. The victim would

be well advised to speak to their friends or

colleagues immediately after the incident

or unwelcome act even if there is still some

doubt or ambiguity regarding the intention

of the accused. It does not matter that no

clear pattern of behaviour is discernible, or

as to whether it is sexually oriented or

intended. All these bits of information

would come in useful as evidence when

the case demands. However, lack of

evidence does not always render the

complaint impossible to prove. There will

be cases where the complainant’s version

have been regarded as the sole testimony

and acted upon by the courts, and if the

ICC or the court does not doubt the

complainant’s version of the conduct and

is convinced about the truth of the charge

or its probability, then the charge of sexual

harassment may be upheld. Lack of direct

evidence or witnesses must not deter or

discourage the aggrieved employee from

filing a complaint to the ICC or even

reporting the incident orally in the first

instance but as soon as possible after the

occurrence. With the advent of SHWA and

the spurt in complaints, there is a

realisation that the law against sexual

harassment has to be enforced with

judicial sympathy and activism to protect

women at the workplace.

IV. False Accusations by Women Employees

Equally important is the need to caution

the women employees that the SHWA

contains a provision for punishment for

false accusations or frivolous complaints

by women employees. If the ICC arrives at

a conclusion that the allegations were

malicious or the aggrieved woman made

the complaint knowing it to be false, it may

recommend to the employer to take action

against such employee. Further, if the

person making the complaint has

produced any forged or misleading

document, such person may also be

similarly proceeded against by the

employer. Undoubtedly, this makes it

imperative for the complainant to make

out a strong case based on evidence and

under proper professional advice to avoid

inviting the charge of making a malicious

complaint. However, the Act also states

that a mere inability to substantiate a

complaint or provide adequate proof need

not attract action against the complainant

under this section. This is a clear proof that

the law makers wished to secure the

complainant against any adverse

consequences simply due to inability to

substantiate a complaint or adequate

evidence to support the charge. Further, as


Page 28

an additional safeguard to ensure that

complainants are not simply harassed for

frivolous complaints or acted against

lightly, the Act provides that the malicious

intent of the complainant shall be

established after an inquiry in accordance

with the procedure prescribed before any

action is recommended. The procedure for

such an inquiry would always ensure that

the complainant is given fair chance to

defend herself and to take legal recourse

against vindictive proceedings or

prejudicial action against her. The Act

strikes a fine balance between

discouraging malicious complaints by

women so that male employees do not face

false accusations of sexual harassment, but

also recognises the difficulty of collecting

evidence by women facing sexual

misconduct. The Act is still to be seriously

tested on this count but some cases of

action against women under this provision

have emerged.

V. Legal Rigour- Duty to Act Judicially Finally,

corporates have to recognise that

complaints of sexual harassment cannot be

treated as an empty formality. Once a

complaint is filed, the proceedings have to

be conducted by following the guidelines

laid down in the Act and the Vishaka

judgement by the Supreme Court. The

inquiry into the complaint must proceed

from the existence of a prima facie case of

violation of the law and preliminary

determination as to the existence of a case

of sexual harassment, and then a more

detailed investigation of the facts and the

evidence adduced before the ICC. The ICC

must bear in mind that they are vested

with the duty to adjudicate upon the

complaint, to indict the accused and to

grant specific reliefs to the complainant. It

has to decide the rights of the parties and

therefore has a duty to act judicially. A

whole body of case law exists which has

crystalized the judicial principles that have

to be observed by a committee which is

investigating cases of complaints which

may end in removal of the accused from

service. The ICC must anticipate that the

accused may if acquitted of the charge,

could lead to the complainant appealing

against their decision or even filed a

criminal complaint as has happened in

several cases. In either case, the taking and

recording of evidence, giving opportunity

to both sides to examine and cross

examine witnesses, provide documents to

the parties, and arrive at a finding of facts

based on evidence, and eventually

pronounce a reasoned verdict, are all

mandated under the duty to act judicially.

The decision is appealable and could also

be challenged in writ proceedings before

the High Court. A number of cases have

already wound up before the High Courts,

alleging glaring omissions in the ICC

proceedings and consequently been

quashed. Corporates must realise that the

ICC is ultimately vested with the duty to

act like a judicial authority and its

decisions must meet the test of judicial

scrutiny in appellate proceedings.


Page 29

CHAPTER 7

R E T R E N C H M E N T A N D T E R M I N A T I O N

7.1 Employee and Workman

Employees are categorized into following two categories as per the labour law legislations:

i. Employees who are ‘workman’

ii. Employees who are not workman

The Industrial Disputes Act, 1947 (“IDA”) applies to employees who are workman within

the definition prescribed under the Act.

The procedure for termination of non-workman employees is covered under the relevant

State Shops and Commercial Establishment Act. Certain States, however, exclude the

application of Shops and Establishment Acts on managerial and supervisory level

employees and in such cases, the terms and conditions in the employment contracts apply.

7.2 Termination of a ‘Workman’

In order to come under the purview of the IDA and to receive the benefits of IDA there

under, the employee has to be a ‘workman’ which is defined as any person (including an

apprentice) employed in any industry to do any manual, unskilled, skilled, technical,

operational, clerical and supervisory work for hire or reward, but does not include any such

person who is employed mainly in a managerial or administrative capacity; who, being

employed in a supervisory capacity, draws wages exceeding ten thousand rupees (INR

10,000) mensem or exercises, either by nature of the duties attached to the office or by

reason of the powers vested in him, functions mainly of a managerial nature.


Page 30

For the purpose of determining the status of an employee as a ‘workman’, the terms of his

contract, the nature of duties assigned to him and the work performed by him also needs to

be considered.

The conditions to be followed for retrenchment under the IDA differ on the basis of total

number of employees in the Company on a given day and the tenure of employment of the

workman.

For termination for any reason whatsoever, unless on grounds of misconduct, of every

‘workman’ who has been in continuous employment of the Company for 1 year or more, the

employer has to comply with the following requirements:

i. The employer must give one month’s notice to the workman indicating the reasons

for termination, or payment in lieu of wages for the period of notice.

ii. The employer is required to give to retrenchment compensation to the workman.

Such compensation is to be calculated at the rate of 15 days’ average pay for every

completed year of continuous service or part thereof in excess of six months.

iii. A notice of such retrenchment shall also be given to the Central Government in the

prescribed form, within three days of the date on which notice is served to the

workman or date on which he is paid wages in lieu of such notice.

7.3 Benefits on Termination

Provident Fund: The employer is not required to make any additional payment to the

employee at the time of termination. However, the employee has an option to either

withdraw the Provident Fund or transfer his Provident Fund account with the new

employer.

Payment of Gratuity: Gratuity is payable to all employees (who have completed five years

of service) in the event of their superannuation, retirement, resignation, death, discharge

on the ground of total disablement due to an accident or a disease and termination other

than dismissal on account of misconduct.

If the last drawn monthly salary of the employee is taken as ‘x’, then the amount of gratuity

payable to him shall be calculated as follows:

Payment of Gratuity = [(x/26)*15]*(number of years of service)

Leave Encashment: The Shops and Establishments Acts of mostly all States provide that if

an employee is discharged by his employer before he has been allowed the leave, or if,

having applied for and having been refused the leave, he quits his employment before he

has been allowed the leave, the employer shall pay him full wages for the period of leave

due to him.

Over and above the statutory payments, the employee is also entitled to the severance

benefits as may be available to him under the company policy (if any).


Page 31

Rising tide of Labour

Reforms in India

here is in India today a rising tide of

expectancy that government, both

federal and and state, are set to push

through major initiatives for making changes

in labour laws. There is a realisation that

labour reforms have a key role to play in

improving the ease of doing business in India.

The Prime Minister himself has taken the

lead in discussing the Industrial Relations Bill

at a national labour forum, and the Chief

Ministers of the States of Madhya Pradesh,

Gujarat and Maharashtra have come in the

forefront to promote the proposed

amendments. The new government is actively

and aggressively discussing, drafting and

engaging with labour groups to address their

concerns.

Simultaneously, the governments of Madhya

Pradesh, Gujarat and Maharashtra have

moved bills in the Legislative Assemblies of

their states. In Madhya Pradesh the following

key amendments to the law have been

proposed:-

Madhya Pradesh:

The government of Madhya Pradesh has

initiated far reaching reforms in several

labour related legislations principally with a

view to easing the compliance and

operational exemption of manufacturers from

the application of labour laws.

Companies in Madhya Pradesh that

employ up to 300 people will be allowed

to retrench workers or shut shop without

government approval (the current

provision is for those employing up to 100

workers.)

Employers will have to give a higher

compensation package and workers will

get a three months’ notice and at least

three months’ salary in the event of

retrenchment.

In case of dispute, a worker will have to

approach the conciliation officer within

three years of getting retrenched.

Workers will be entitled to benefit of

earned leave after 6 months service

(presently 8 months), which could be

availed of in the same calendar year.

Overtime hours in a quarter will be raised

from 75 hours to 125 hours.

Women can work in night shifts at

factories from 8 pm to 6 am in the

morning; subject to the state government

making necessary provision for their

security.

The process for registration and grant of

licenses has been expedited under several

legislation, eg, under the Contract Labour

Act, Building and Other Construction

Workers Act, and Motor Transport

Workers Act. If an application is not

disposed within 30 days it will be deemed

registered or approved license.

Industrial and Commercial Establishment

will not be required to maintain multiple

registers. They will be allowed to file a

single return and maintain a single

register.

Gujarat:

Similarly, Government of Gujarat has passed a

labour law bill on the following points:-

When an employee has a fatal injury

which occurred at work place the victim

may apply under the Employees

Compensation Act 1923, before the

T


Page 32

Employees Compensation Commission

within 90 days from the date of accident.

Where the employees and his dependent

fails to bring such application within 90

days, the nominated government officer

will apply on his behalf.

Where any Shops and Commercial

Establishment or factory employs 20 or

more employees, it shall make the

payment of minimum wages through

bank account. This amendment will bring

transparency in paying minimum wages.

According to the Building and Other

Construction Workers Act, 1996, the

definition of worker is limited to the

supervisory workers who receive wages

of Rs 1600 per month only. By reason

thereof many of the supervisors are

excluded from the applicability of the Act.

Therefore the bill suggests increasing up

to three times of the minimum wages for

skilled workers.

Under the proposed law, a workman gets

only a year to make an application against

his dismissal, discharge, etc, for raising an

“industrial dispute” to the labour court or

tribunal, which was hitherto three years.

By the amendments, certain offences

where penal provisions attract 3 months

imprisonment, such offences have been

made compoundable, which means

settlement of a violation of the law by

paying a compounding fee instead of

being jailed.

Amending the Industrial Dispute Act, the

government has fixed compounding

amount for an employer up to maximum

of Rs 21,000 and for labourer the amount

ranges from Rs 150 to Rs 3,000.

For workers going on strike without

informing Labour Commissioner, the

compounding amount begins at Rs 150

per day, not exceeding Rs 3,000.

While the option of filing a criminal case

is always open, out-of-court settlement

and compounding scheme come into

picture only if both the parties are

agreeable to the same.

The bill passed by the Gujarat Assembly is

now awaiting the approval of the President of

India before it becomes effective. State

Legislations require the President of India’s

approval as labour law is a subject in the

Concurrent list (both Federal and State

Assemblies can legislate) of the Constitution

and the State amendments must be approved

by the President.

Maharashtra:

The Government of Maharashtra is also in the

process of making changes in the existing

legislations relating to labour, and the

amendments are designed to improve the

operational capability of business and

manufacturing units to provide them with

greater flexibility in compliance with labour

laws. Of course, the changes will go through

the process of legislation in the State

Assembly and obtaining Presidential

approval, as all state amendments are

required to do under the Constitution of India

The government has proposed an

overtime of 115 hours from the present

75 hours for workers in small-scale

industrial units.

After Factories Act is amended, the

units operating without electricity

would be considered a factory if they

employ 40 workers, and units

operating with electricity would be

treated as a factory if they employ 20

workers. The old limits were 20 and


Page 33

10 workers respectively. This will

exempt the smaller units from the

application of the Factories Act.

The amendments aim to exclude more

than 14,300 units from the purview of

the Factories Act, 1948, and pave the

way for women to work in night shifts.

Among the notable changes, factories

employing up to 300 workers can be

closed without government

permission, compared with the earlier

floor of 100 employees.

Federal Legislation

Labour reforms are also on the radar of the Union Government in India and a comprehensive Industrial Relation Bill is currently being debated by the government and has been unveiled to the labour interest groups and unions as part of the democratic process of consultation and transparency. The Union Government is also motivated by the object of easing retrenchment provisions and to tighten the requirements for forming Trade Unions. Some of the key provisions to be amended are as follows:- 1. Factories employing less than 300

workers can be shut down without prior government approval.

2. Retrenched workers should be paid an average salary of 45 days, instead of the 15 days at present.

3. Unions can be formed only if 10 % of the employees or 100 workers, whichever is less, support the proposal. Currently, seven members can form unions.

4. Units employing less than 40 people to be exempted from 14 labour laws as a move

to give smaller units freedom from compliance with the rigors of the law. The definition of a factory is being revised by raising the threshold of minimum workers from 20 to 40 for units operating without power and from 10 to 20 for units operating with power. The micro, small and medium enterprises employing up to 40 workers will be extended the relaxation under the purview of amended law.

5. Restriction on night shifts by women will be removed to allow women to work after 8 pm subject to provision of security by the employer.

6. To dispense with the need to keep documentary records and registers and to replace them with electronic records by employers.

However, sensing the angst among

labour groups, the Prime Minister

recently assured a public forum of

labour unions that the amendments

would be carried through only after

building up a consensus among the

workers groups and Trade Unions.

What is more significant is that the

Union Government is openly engaging

with pressure groups and hopeful of

moving ahead in the chosen direction

in a transparent and determined

manner assuring them that labour

reforms are being fine-tuned for

making doing business in India an

easier experience and not necessarily

directed against labour. The reform

process is slowly but surely moving

ahead and this time with the buy in of

all stake holders.


Page 34

Mandatory Requirements for Retrenchment under Employment

Laws in India

It is common for corporates to carry out termination of employees who do not meet their

performance requirements, or are found wanting in their conduct or are incapable of working in

teams. HR units often act in a rush thinking all they have to do is to invoke the terms of the

employment contract regarding termination. Not surprisingly, terminations are carried out with

little or no idea of the requirements of the governing legislations in India. This is even more typical

in the case of subsidiaries of foreign companies who often overlook that employment laws in India

are based on legislations which override contractual terms of employment. This memo aims to

highlight that the issue of termination simpliciter is a tricky business, and the prevailing

impression that it is a simple case of hire and fire, is flawed and fraught with legal implications.

The governing legislations have mandatory provisions for notice for termination of workmen, or

employees who are non-workmen. Some of the legislations are State specific (e.g. Punjab, or

Maharashtra, or Tamil Nadu, depending on the State) and have different requirements of notice for

employees who are terminated by way of removal simpliciter or by way of dismissal for

misconduct. In the case of large units doing manufacture, there are requirements to obtain

permission from State Governments in certain cases.

Retrenchment, as commonly understood is termination of an employee on the grounds of surplus

labour or incapacity of employees due to some economic grounds. However, the Industrial Dispute

Act, 1947 (the “ID Act”) is the governing legislation for “retrenchment”, which takes the wider view

of termination of employee as against the ordinary meaning of the term retrenchment. Section

2(oo) of the Act states that "retrenchment means the termination by the employer of the service of a

workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary

action, but does not include –

(a) voluntary retirement of the workman or

(b) retirement of the workmen on reaching the age of superannuation if the contract of employment

between the employer and the workman concerned contains a stipulation in that behalf; or


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(bb) termination of the service of the workman as a result of the non- renewal of the contract of

employment between the employer and the workman concerned on its expiry or of such contract

being terminated under a stipulation in that behalf contained therein;

(c) termination of the service of a workman on the ground of continued ill-health.”

It may be noted that the ID Act states that termination by way of retrenchment can be for any

reason whatsoever. The Supreme Court in Delhi Cloth and General Mills Co. Ltd. v. Sambu Nath

Mukerji and others also followed this interpretation of the definition and held that even “striking

off the name of the workman from the rolls" for being absent without leave is "retrenchment".

Hence, the reasons of termination are not limited to any particular class of reasons, and need not

be only on economic grounds such as redundancy, etc.

Apart from the issue of definition, what is critical is that an employer must carry out retrenchment

(other than dismissal on grounds of misconduct), as per the requirements of section 25F of the ID

Act. This provision provides for the employer to fulfill certain conditions before retrenching any

employee. It states that no workman employed in any industry who has been in continuous service

for not less than one year under an employer shall be retrenched by that employer until-

(a) the workman has been given one month' s notice in writing indicating the reasons for

retrenchment and the period of notice has expired, or the workman has been paid in lieu of

such notice, wages for the period of the notice:

(b) the workman has been paid, at the time of retrenchment, compensation which shall be

equivalent to fifteen days' average pay for every completed year of continuous service or any

part thereof in excess of six months; and

(c) notice in the prescribed manner is served on the appropriate Government or such authority as

may be specified by the appropriate Government by notification in the Official Gazette.

The condition given under section 25F(c) states requires the employer to give notice to

appropriate government in addition to the other two conditions. What is important to note is that

the notice must state the reason for retrenchment of the employee and the notice must be issued

as is prescribed in the rules framed under the Act.

Further, in the case of the employers of industrial units, who have employed one hundred

workmen or more on an average per working day for the preceding twelve months are required to

comply with certain different conditions. What is critical to note is that unlike notice requirements

of section 25F, the employer is required under section 25N to make application along with the

reasons of intended retrenchment to the State Government for seeking its prior permission to

retrench the employee. The State Government has the discretion to grant or withhold such

permission after making enquiries. Hence, a simple termination as per the contract of employment

can prove disastrous in the event the termination is challenged.

Every State also has a legislation called The Shops and Establishments Act which contains

provisions for notice for termination of employment either with or without cause. Some States

simply do not allow terminations except on grounds of proven misconduct or indiscipline. The


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notice requirements under these legislations are also mandatory and need to be carefully studied

in each case. Notice requirements and conditions of this legislation must be strictly observed lest

breach of the prescribed procedure leads to the termination being adjudged as invalid. Employee

terminations are the most litigated battle fields for employers.

What is not appreciated by employers is that the whole effort of terminating an employee’s service

by way of retrenchment is a waste if the requirements of notice as prescribed in the law are not

observed. Invariably, employees approach the labour courts and after a long litigation, the

termination is set aside by the labour court on the ground that the termination was not valid in

law, and is therefore treated as ab initio void. Generally, the court insists on reinstatement of the

employee with full payment of back wages.

Finally, retrenchment, particularly when several employees are terminated on grounds of surplus

labour or redundancy must be based on the principle of last-in-first-out. It means that the

employer shall retrench the workman who was the last person to be employed. In such cases,

employers must not be unduly hasty in refilling the vacant position immediately after the last

termination.


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CHAPTER 8

R E G I S T R A T I O N S R E Q U I R E D U N D E R V A R I O U S L A B O U R

L E G I S L A T I O N S

8.1 Shops and Establishments Act

A State-specific legislation to regulate the terms of service and other conditions of work.

Contains provisions for regulating the working hours, payment of wages, leave holidays in

shops, commercial establishments, residential hotels, restaurants, theatres and other places

of public amusement or entertainment.

Every establishment covered by the Statute is required to register itself with the Inspector

of the respective Shops and Establishments Authority within 30 days from the date of

commencing its work.

8.2 Provident Fund

The Employees Provident Funds and Miscellaneous Provisions Act, 1952 (PF Act) applies to

all factories or establishments employing twenty (20) or more persons.

Compulsory registration after the number of employees reaches the prescribed limit.

Voluntary coverage where the number of employees is less than 20.

Employer is required to contribute a certain percentage of the salary, dearness allowance

and retaining allowance of the employee, into the PF account.


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Employer’s responsibility to deduct employee's contribution and deposit it the PF account

along with his own contribution. Failure to collect the employee's contribution would make

the employer responsible.

The employees drawing wages up to INR 15000 (INR Fifteen thousand only) per month are

statutorily entitled to the provident fund benefit under the PF Act.

8.3 Employee State Insurance

The Employee State Insurance Act, 1948 (ESI Act) applies to all factories and

establishments employing twenty (20) or more persons.

Every factory or establishment to which this ESI Act applies shall be registered with the

Regional Office within 15 days of the Act becoming so applicable.

8.4 Factories Act, 1948

The Act is applicable where 10 or more persons are employed at a place in which a

manufacturing process is carried on with the aid of power, or a place where 20 or more

persons are employed at a place in which manufacturing process is carried on without the

aid of power.

Registration is required to be done as per the rules laid by the respective State governments

in this regard.

8.5 Professional Tax

Professional Tax is levied by various States in India on the income earned by way of

profession, trade, calling or employment.

In case of salaried and wage earners, the liability to deduct Professional Tax is on the

Employer and deposit the same with the respective State government. In case of other class

of individuals, this tax is liable to be paid by the person himself.

Every person liable to pay Professional Tax under the respective State legislation shall

apply for Registration Certificate to the respective State’s tax department in the manner

prescribed.

In case of more than one place of work, registration has to be done separately with the

respective jurisdictional authority.

The Indian states which have enacted provisions for Professional Tax are Karnataka, West

Bengal, Andhra Pradesh, Maharashtra, Tamil Nadu, Gujarat, Assam, Chhattisgarh, Kerala,

Meghalaya, Orissa, Tripura and Madhya Pradesh.


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