November 16, 2015

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10 Things In-House Lawyers Should Know About Indian Employment Laws

- Preetha S, [ ]
- Veena Gopalakrishnan, [ ]

Preetha S & Veena Gopalakrishnan

With legislations governing almost every aspect of employment in the country, knowledge of labour and employment laws is critical from an organizational perspective

India has over 44 central (federal) and 150 state I specific legislations governing labour and employment laws. Indian laws on the subject are perhaps one of the most complex in the world. There are legislations governing almost every aspect of employment and hence, knowledge of labour laws is very critical from an organizational perspective. A sound understanding of employment laws not only helps in-house counsel to keep expensive and cumbersome litigation at bay, but also helps protect the reputation of the organization. Below is a list of 10 critical aspects of Indian employment laws that we believe every in-house counsel needs to know.

1. Applicability Of Labour Laws

Applicability of Indian employment laws depend on a variety of factors including (i) the work performed; (ii) the nature of establishment; (iii) wages/ remuneration drawn by the employee; (iv) number of employees; and (v) duration of employment. For example, the Industrial Disputes Act, 1947 ("ID Act"), one of the most important laws governing industrial relations in India, applies only to individuals falling within the category of 'workmen' and specifically excludes persons who are employed in a managerial or administrative capacity, or a supervisor who draws a monthly salary exceeding INR 10,000. There are also specific legislations governing terms and conditions of employment of individuals working in factories (Factories Act, 1948), commercial establishments (state specific shops and establishment laws), mines (Mines Act, 1952), plantation workers (Plantations Labour Act, 1951), etc.

2. Classification Of Workforce

Based on business requirements, individuals are ordinarily engaged as (i) employees, for a fixed term or for an indefinite period, (ii) contract workers, through a third party contractor, and (iii) independent contractors, also referred to as consultants or freelancers. Applicability of employment laws also depends on the nature of engagement.

For example, the obligation to provide severance dues is not triggered upon cessation of employment on account of expiry of a fixed term contract. The company will however need to have a valid justification for engaging individuals for a fixed term so that the arrangement is not considered a sham. Fixed term employees are however entitled to all other employment benefits such as leave, social security, overtime, bonus, gratuity, etc in accordance with applicable laws. If individuals are engaged through a third party contractor (staffing services company/manpower supplier), the provisions of the Contract Labour (Regulation and Abolition) Act ("CLRA Act") may be triggered. That said the CLRA Act is applicable only when the principal employer engages 20 or more individuals as contract labour. Since independent contractors are engaged on a principal to principal basis, there is no employment relationship and such individuals are not entitled to benefits and protections under Indian employment laws.

3. At-Will Employment And Termination Of Employment

Termination of employment in India is essentially governed by the ID Act, state specific legislations including the statutes applicable to shops and commercial establishments and the employment contract executed between an employer and an employee. The concept of 'at-will employment' is not recognized in India and employers can terminate employment only on reasonable grounds or for misconduct. Therefore, employers need to ensure that the processes prescribed under law are adhered to prior to terminating employment.

4. IP Assignment

The concept of 'work for hire', while not expressly stated, is envisaged under the Copyright Act, 1957, which provides that in case of a work made during the course of employment, the employer shall, in the absence of a contract to the contrary, be the first owner of the copyright. Therefore, while the copyright in any work created by an employee automatically vests with the employer, any other form of intellectual property, such as a trademark or patent, will need to be specifically assigned by the employee to the employer. With respect to independent contractors, all forms of intellectual property will need to be specifically assigned.

5. Employment Documentation

While there is no specific requirement under Indian laws to execute employment agreements or issue employment letters to employees, it is important for an employer to have consistent documentation to ensure that rights of both the parties are adequately protected. Documents that are typically executed with an employee at the time of commencement of employment include: (a) offer letter; (b) the employment agreement; (c) non-disclosure agreement; (d) intellectual property and inventions assignment agreement, training bonds, etc. The Industrial Employment (Standing Orders) Act, 1946 also requires employers to define and publish uniform conditions of employment in the form of 'standing orders'. Certain legislations applicable to shops and establishments also require employers to issue an appointment order containing information such as the name of the employee, date of birth, father's/husband's name, date of joining and nature of work to be performed.

6. Social Security And Benefits

The key social security legislations in India are the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 ("PF Act"), the Employees State Insurance Act, 1948 ("ESI Act"), the Payment of Gratuity Act ("Gratuity Act") and the Maternity Benefit Act, 1961. The PF Act envisages a contributory scheme requiring both the employer and the employee to each contribute 12 percent of the prescribed portion of the employee's wages to the Employees' Provident Fund Organisation. The Gratuity Act provides for payment of gratuity upon cessation of employment to employees who have rendered continuous service of 5 years. Gratuity is computed as 15 days' wages based on the last drawn wages of the employee for every completed year of service or part thereof in excess of six months, subject to a maximum limit of INR 10,00,000. The ESI Act provides for certain benefits to employees in case of sickness, maternity and employment injury. The Maternity Benefit Act, 1961 entitles women employees who have worked for at least 80 days in the 12 months immediately preceding their date of delivery to maternity leave of 12 weeks

7. Work Hours, Holidays And Overtime

The provisions relating to opening and closing hours, work hours, overtime, spread over, intervals for rest, leaves, holidays, etc., are governed by the state specific legislations applicable to shops and establishments, the Factories Act, 1948 in the case of factories and other industry specific legislations. It is important to note that most legislations allow an employer to require employees to work upto 9 hours a day and 48 hours a week and employees are entitled to wages at twice the rate of normal wages for work done over and above the normal work hours.

8. Women In Night Shifts

Provisions relating to employment of women at night are contained under the state specific shops and establishments acts. While certain states prohibit engaging women employees at night, some other states such as Karnataka, Maharashtra, Andhra Pradesh, Kerala and Tamil Nadu have granted industry specific exemptions (eg. IT/ ITeS) and allowed companies to employ women at night, provided that the necessary arrangements for their protection/security and transport are fulfilled.

9. Workplace Sexual Harassment

The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 requires an employer having 10 or more employees to set up an internal complaints committee in accordance with the manner prescribed under the statute for redressal of complaints of sexual harassment of women at the workplace. In addition to the setting up of the ICC, the law also casts an obligation on the employer inter alia to formulate and disseminate an internal policy or charter, organize workshops and awareness programmes at regular intervals, prepare and submit an annual report to the prescribed authority.

10.Restrictive Covenants

Employers ordinarily enter into non-competition, non-solicitation and non-disclosure agreements with their employees or, these obligations are built into the employment agreement. While non-compete clauses during the term of employment are generally enforceable in India, a post-termination non-compete clause is not enforceable as they are viewed to be in 'restraint of trade or business' under Section 27 of the Indian Contract Act, 1872 and is therefore not enforceable. A non-solicit clause is essentially a restriction on the employees from directly/ indirectly soliciting or enticing an employee, customer or client to terminate his contract or relationship with the company or to accept any contract or other arrangement with any other person or organization. With respect to a non-solicit clause, the courts have generally taken the view that such clauses shall be enforceable, unless it appears on the face of it to be unconscionable, excessively harsh or one-sided.

Taking into consideration the technological advancement, changing business needs and the fact that some employment legislations are archaic, the government is working on a major revamp of the existing laws. The government is planning on tackling the issue of multiplicity of labour laws by consolidating about 44 laws into 4 different labour codes. The government is also working on easing the cumbersome compliance requirements by minimising filing requirements, allowing self-certification and creating portals for making filings online.


Disclaimer - The views expressed in this article are the personal views of the authors and are purely informative in nature.

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