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Employment law overview India

Introduction

The Constitution of India (“Constitution”) is the cornerstone of individual rights and liberties, and provides the basic framework within which all laws in India, including laws relating to labour and employment, must operate. The Constitution guarantees certain fundamental rights to individuals such as the right to life, privacy, equality before the law and prohibition of discrimination in public education and employment on the basis of religion, sect, gender and caste. The Constitution recognises the ‘right to livelihood’ as an integral part of the fundamental right to life.

In addition to fundamental rights, the Constitution also envisages certain ‘directive principles’ which serve as a guide to the legislature towards fulfilling social and economic goals. Given India’s history, social justice has always been at the forefront of a number of Indian regulations, specifically labour and employment laws. It is important to note that several labour laws in India have been designed from a worker emancipation perspective – including those relating to factories, mines, plantations, shops and commercial establishments, as well as those relating to payment of wages, regulation of trade unions, provision of social security, industrial safety and hygiene.

However, given changing economic requirements in recent times, especially in light of the ongoing COVID-19 pandemic, the Indian Government has been increasingly conscious of the needs of businesses as well. In the last 6 months, the Indian Government has already brought in certain significant changes in labour laws with the aim of improving the ease of doing business in India. Further, there are several other big-ticket reforms in the pipeline, which we hope will see the light of day in the near future.

Key Points

  • Labour and employment laws are listed under the Concurrent List in the Constitution, which means that the Union Parliament (federal legislature) and State Legislatures have co-equal powers to enact laws relating to all labour and employment matters in India. Typically, the Union Parliament enacts a Central law, while the States formulate rules thereunder. Additionally, States often enact standalone legislation as well.
  • One of the central principles of Indian labour and employment law is that they distinguish between employees who are defined as ‘workmen’ and those who are in management / supervisory / administrative roles (‘non-workmen’). Most of the legislation regulates the service conditions of workmen, which are subject to far greater statutory protections. The service conditions of non-workmen are typically governed by the terms of the relevant employment contracts and the internal policies of the organisation. Determining whether a particular employee is a workman or not, has to be undertaken on a case-by-case basis.
  • India does not generally recognise employment-at-will. Further, in terms of the Indian Contract Act, 1872 (“Contract Act”), which is the principal legislation governing contracts in India, agreements that restrain trade, business or one’s profession are void – this could have an impact on employment bonds, and on non-compete and non-solicit covenants in employment contracts.
  • Trade unions are typically restricted to the more traditional forms of business, such as the manufacturing sector; however, in recent times there has been some unionisation in the Information Technology (“IT”) sector as well. The Trade Unions Act, 1926 (“Trade Unions Act”) provides for registration of a trade union and the rights and liabilities of a registered trade union. It is also proposed to recognise certain trade unions both at the Central and State Government levels, which would then participate in policy-making.
  • The Industrial Disputes Act, 1947 (“ID Act”) is the key legislation that governs industrial relations in India. The ID Act aims at securing industrial peace and harmony by providing the process for settlement of industrial disputes arising between two or more employers; between employers and workmen; and disputes among workmen.
  • The Equal Remuneration Act, 1976 (“ERA”), mandates the payment of equal remuneration to male and female workers who undertake similar tasks. The Contract Labour (Regulation and Abolition) Act, 1970 (“CLRA”) is another major legislation that pertains to regulating contract labour in India.

Given that both the Union Parliament (federal legislature) and State Legislatures have co-equal powers regarding labour and employment laws, there are currently hundreds of laws relating to labour and employment in India, including around 50 statutes enacted by the Union Parliament. Most of these laws concern blue-collar employees or workmen, owing to the historical emphasis on improving working conditions for these employees. On the other hand, the legal structure relating to non-workmen (i.e., employees having managerial duties or white-collar employees) is not as comprehensive and has evolved in recent decades mainly through judicial pronouncements.

Difference Between Workmen and Non-Workmen

Section 2(s) of the ID Act defines a workman as a person who is employed to do any manual, unskilled, skilled, technical, operational, clerical, or supervisory work for hire or reward. The definition however excludes the following persons: (i) those who are employed mainly in a managerial or administrative capacity; (ii) those who, being employed in a supervisory capacity, draw a salary exceeding INR 10,000 (~USD 136) per month or (iii) those who exercise, either by the nature of the duties attached to the office or by reason of the powers vested in them, functions mainly of a managerial nature.

That said, it is important to note that the wage ceiling of INR 10,000 (~USD 136) mentioned above is not the definitive criterion in respect of ascertaining whether or not a particular employee will be categorised as a workman. There have been multiple occasions when Indian Courts have held that whether an employee is a workman or not depends on the exact nature of the job responsibilities and duties and the context of his/her role in the organisation, rather than merely the compensation package. Determining whether a particular employee is a workman or not, has to be undertaken on a case-by-case basis. It does not depend on the level of education or the designation. Various judicial precedents have laid down that in order to determine an employee’s status as a ‘workman’, the actual, substantial and predominant work being performed by her is decisive, rather than the employee’s remuneration/designation. The other factors that are useful to determine whether an employee is a workman or a non-workman, is by taking into account whether the employee had any managerial responsibilities and whether he had authority to take any decision on behalf of the organisation.

Employees considered to be workmen under the ID Act have several additional rights – for instance,  changes to their conditions of service and any termination of their employment can only be undertaken as per the specified process guaranteed under the ID Act. Further, they can approach labour commissioners and/or the industrial tribunals/labour courts in case of any unjustified termination and/or unfair labour practice, on part of the employer.

The terms of service of non-workmen (i.e., those who mainly work in a managerial or administrative capacity) are ordinarily governed by the State-specific shops and establishments legislation (“S&E Act”), the terms and conditions of their contracts of employment and the internal policies of an organisation. Persons occupying managerial and confidential positions in an organisation are exempt from the S&E Act of certain States such as Karnataka, Andhra Pradesh, Kerala, Madhya Pradesh, Tamil Nadu and Maharashtra, among others. These employees will typically fall outside the scope of the ID Act; there are various judicial pronouncements which have held that non-workmen are not entitled to claim protection under the ID Act.

Other Factors

Apart from the classification of employees into workmen and non-workmen, the applicability of labour legislation also depends on the nature of activity that the employees are engaged in as well as the place of work – for instance, different laws apply depending on whether the place of work is a factory, plantation, mine, shop, or commercial establishment. Certain labour laws also take into account the number of employees engaged at a particular place of work; for instance, the scope and applicability of certain social security benefits varies, depending on the number of employees engaged in an establishment, the wages earned, and the position of the employee at the workplace.

Overview of Key Labour Laws

The various labour and employment laws in India can be broadly categorised into two important themes, namely (i) employer-employee relations; and (ii) service or working conditions, such as wages, social security and working hours. Enactments such as the ID Act, the Trade Unions Act, the Industrial Employment (Standing Orders) Act, 1946 (“IESO Act”) and CLRA are focused primarily on employer employee relations, whereas enactments such as the Factories Act, 1948 (“FA Act”), the various S&E Acts, the Payment of Wages Act, 1936 (“Wages Act”), the Minimum Wages Act, 1948 (“MW Act”) and the Payment of Bonus Act, 1965 (“Bonus Act”) are focused primarily on service conditions of employees. There are both Central and State rules framed under each of the aforementioned enactments. In addition, there are enactments such as the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (“EPF Act”), the Employees State Insurance Act, 1948 (“ESI Act”) and the Payment of Gratuity Act, 1972, (“PG Act”) which provide for certain social security benefits to employees.

Industrial Disputes Act, 1947: The scope of this legislation is primarily restricted to workmen alone. However, the principles and processes laid down in this legislation have been replicated in other statutes with wider application. The ID Act inter alia covers industrial disputes, industrial action (i.e., strikes and lockouts), regulation of retrenchment, layoffs, closure, transfer of undertakings, envisages the constitution of works committees and grievance redressal committees, and also regulates changes in certain service conditions of workmen.

Shops and Commercial Establishments Act: The S&E Act is State specific – almost all States in India have enacted their own S&E Act. The S&E Act regulates service conditions of employees engaged in shops and commercial establishments, which includes most private companies and firms. It regulates hours of work, payment of wages, overtime, leave, holidays, and other conditions of service.

Employees Provident Fund and Miscellaneous Provisions Act, 1952: The EPF Act read with all rules and schemes framed thereunder is one of the major social security laws in India. Under the EPF Act, both the employer and employee, subject to certain monetary limitations and conditions, are required to contribute 12% of an employee’s ‘basic wages’ to the Employees Provident Fund / EPF. The employer’s contribution is also directed to a pension fund, from which an employee would be entitled to monthly pension upon retirement. The EPF and pension scheme has extensive rules in relation to contribution and withdrawal of funds. In light of the COVID-19 crisis, the Indian Government had temporarily reduced the above contribution rate to 10 % for the months of May, June and July 2020.

Payment of Wages Act, 1936: The Wages Act regulates the mode and method of payment of wages to certain categories of employees, namely, those to whom the payable wages do not exceed INR 24,000 (~USD 330) per month, and to those employed in factories and industrial establishments. The Wages Act provides that wages must be paid without deductions of any kind except certain authorised deductions, such as taxes on income, fines, or deductions owing to absence from duty.

Factories Act, 1948: The FA Act was enacted to regulate working conditions in factories where manufacturing operations are undertaken. It has extensive provisions with respect to the health, safety and welfare of persons who work in factories, and also regulates the working conditions of persons working in a factory.

Minimum Wages Act, 1948: The MW Act provides for the payment of minimum rates of wages to employees working in specified kinds of employment, termed ‘Scheduled Employment’. Under the MW Act, the Government is required to fix industry-specific daily and monthly minimum wages, depending on the skill of the employee. Once minimum wages have been fixed, an employer is required to pay to every employee engaged in Scheduled Employment, wages at a rate that is not less than the minimum rate of wages fixed by the concerned Government for that class of employees.

Industrial Employment (Standing Orders) Act, 1946: The IESO Act is generally applicable to every industrial establishment wherein 100 or more workmen are employed, subject to any specific State rules in this regard. Certain States such as Karnataka, Maharashtra and Tamil Nadu have reduced the applicable threshold. The IESO Act requires employers in industrial establishments to formally define conditions of employment, such as classification of workmen, manner of intimating wage rates, working hours, leave periods, recruitment, shift working, attendance, procedure for availing leave, transfer of workmen, termination of workmen, and inquiries for misconduct. Such conditions are referred to as the ‘Standing Orders’. The State specific rules framed under the IESO Act provide for ‘Model Standing Orders’, which are a set of default conditions applicable to those industrial establishments that have not framed their own Standing Orders or to those industrial establishments that are awaiting certification from the Government on their own Standing Orders. In most cases, the internal employee handbook/service regulations of the employers are generally customised and filed as the Standing Orders of that establishment. The IESO Act however provides that while the Standing Orders adopted by an employer need not necessarily be a duplication of the Model Standing Orders, they should, as far as practicable, be in conformity with the same.

Trade Unions Act: The Trade Unions Act provides for registration of a trade union and the rights and obligations of a registered trade union. The minimum number of persons required to apply for registration of a trade union is 7; however, a trade union cannot be registered unless at least 10% of the workmen or 100 workmen (whichever is lesser, and subject to a minimum of 7 workmen), employed in an establishment are its members. While employers in certain States are not legally bound to recognise  trade unions or encourage collective bargaining, a registered trade union can enter into collective bargaining agreements with the employer for better wages and service conditions.

Contract Labour (Regulation and Abolition) Act, 1970: The CLRA provides for regulation of contract labour in establishments and provides for its abolition in certain circumstances. A ‘workman’ is deemed to be ‘contract labour’ if he is hired in connection with the work of an establishment, by or through a ‘contractor’, with or without the knowledge of the ‘principal employer’. The term contractor is defined to mean a person who undertakes to produce a given result for an establishment through contract labour or who supplies contract labour for any work of the establishment. The manager or occupier of the establishment is the principal employer. Under the CLRA, every principal employer is required to make an application in the prescribed form, for the registration of the establishment with the labour authorities. Every contractor under the CLRA Act must also be licensed and should undertake work through contract labour only in accordance with such license. The contractor is required to pay wages and provide facilities for the welfare and health of the contract labour, which includes providing rest rooms, canteens, wholesome drinking water, toilets, washing facilities, and first aid facilities in every establishment. The above compliances vary depending on the number of contract labour engaged in an establishment. It is important to note that as per the CLRA, in case the contractor fails to pay wages to the contract labour, the principal employer will be responsible for the same.

New Developments

  • Codification of Labour Laws

As part of a major rationalising and simplifying exercise, India has  consolidated about 29 of the 44 Central laws into 4 comprehensive labour codes: Code on Wages, 2019 (“Code on Wages”); the Occupational Safety, Health and Working Condition Code, 2020 (“OSHW Code”); the Industrial Relations Code, 2020; (“IR Code”); and the Code on Social Security, 2020 (“Social Security Code”).

  • Code on Wages

The Code on Wages was notified by the Ministry of Law and Justice in 2019. The Central Government has notified very few of the provision of the Code on Wages. However, it is yet to notify the other provisions of the Code on Wages. The Code on Wages subsumes and amends the following Central labour laws: the Wages Act; the MW Act; the ERA; and the Bonus Act. Further, on 7 July 2020, the Indian Ministry of Labour and Employment published the draft Code on Wages (Central) Rules, 2020 for seeking input from the stakeholders. These rules inter alia, prescribe the process and fixation method of calculating the minimum rate of wages, procedures for making payments, the process of constituting the Central Advisory Board for the purpose of fixing the floor wage, procedures for the deduction of wages and recovery, etc.

  • Code on Social Security

The Social Security Code has been passed by both houses of the Indian parliament and received the President’s assent on 28 September 2020.  However, the Social Security Code will enter into force (and likewise become enforceable) on a date yet to be notified by the Central Government. The Social Security Code will subsume the following Central labour laws: the Employees’ Compensation Act, 1923; the Employees’ State Insurance Act, 1948; the EPF Act; the Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959; the Maternity Benefit Act, 1961; the PG Act; the Cine Workers Welfare Fund Act, 1981; (h) The Building and Other Construction Workers Welfare Cess Act, 1996; and the Unorganised Workers’ Social Security Act, 2008. One of the most important aspects of the Social Security Code is that it includes within its ambit, certain non-traditional types of occupations/workers such as gig workers, platform workers and unorganised workers, and makes provisions for providing social security benefits to them.

  • Industrial Relations Code, 2020

The IR Code has been passed by both houses of the Indian Parliament and received the President’s assent on 28 September 2020. However, it shall come into force and become law on a date yet to be notified by the Central Government. The IR Code shall subsume the following Central labour laws: the ID Act; the IESO Act; and the Trade Unions Act. The applicability of the IR Code (and its Chapters thereof) on industrial establishments depends on various factors, such as the number of workers in an industrial establishment, as well as the nature and type of the industrial establishment.

The IR Code has introduced certain key changes to the current labour law. The IR Code has widened the scope of the term worker to include persons employed in a supervisory category, earning wages up to INR 18,000. Currently, the ID Act defines the term ‘workman’ to, inter alia, include persons in a supervisory category, earning wages up to INR 18,000. Significant changes with respect to the retrenchment process of workers have also been made. In regard to declaring a strike, the IR Code requires workers to give their employer a prior 14 days’ notice before going on strike. This requirement under the ID Act was limited to employers carrying out a public utility service. The IR Code also makes provisions for the recognition of trade unions. Further, penalties under the IR Code have increased significantly.

  • Occupational Safety, Health and Working Conditions Code, 2020

The OSHW Code aims to consolidate and amend the legislation that currently regulate occupational safety, health and working conditions of individuals employed in establishments, while providing the required flexibility for making necessary rules and regulations with respect to the subject matter thereof. The OSHW Code has been passed by both houses of the Indian Parliament and received the President’s assent on 28 September 2020. However, it shall come into force (and become enforceable) on a date yet to be notified by the Central Government.

The OSHW Code will subsume the following Central labour laws: the FA Act; the Mines Act, 1952; the Dock Workers (Safety, Health and Welfare) Act, 1986; the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996; the Plantations Labour Act, 1951; the CLRA; the Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979; the Working Journalist (Fixation of Rates of Wages) Act, 1958; the Working Journalist and Other Newspaper Employees (Conditions of Service and Miscellaneous Provisions) Act, 1958; the Motor Transport Workers Act, 1961; the Sales Promotion Employees (Conditions of Service) Act, 1976; the Beedi and Cigar Workers (Conditions of Employment) Act, 1966; and the Cine Workers and Cinema Theatre Workers Act, 1981. The OSHW Code is applicable to all ‘establishments’ including: places where an industry, trade, business, manufacturing or occupation is carried out; motor transport undertakings; newspaper establishments; audio-video productions; building and construction works; and plantations, provided that there are a minimum of 10 workers employed in such places of work.

The OSHW Code is also applicable to establishments engaged in hazardous/life threatening activities, mines or ports, regardless of the number of workers engaged therein. With respect to factories, the OSHW Code applies to: i) factories wherein 20 or more workers are engaged in the manufacturing process carried out with the aid of power; ii) factories wherein 40 or more workers are engaged in the manufacturing process carried out without the aid of power.

The OSHW Code imposes certain new obligations on employers, such as the obligation to conduct free health checkups for a certain class of employees, duty to issue appointment letters to every employee, and an obligation to report certain accidents and diseases. Further, the employer shall also provide separate bathing places and locker rooms for male, female and transgender employees.

  • Transgender Persons (Protection of Rights) Act, 2019

The Transgender Persons (Protection of Rights) Act, 2019 (“Transgender Act”) entered into force in December 2019. The Transgender Act aims to provide for the protection of rights of transgender persons and their welfare, and for matters connected therewith. Amongst other provisions, the Transgender Act prohibits discrimination against a transgender person, including unfair treatment in relation to employment as well as discrimination in matters connected with employment (recruitment and promotion), etc. Employers are also required to designate a complaint officer, who shall be responsible for dealing with complaints with respect to violations of the Transgender Act and shall also ensure compliance with the same.

  • Labour law reforms in light of COVID-19 crisis

Several States, such as Andhra Pradesh, Bihar, Punjab, Rajasthan and Karnataka have issued ordinances to relax the applicability of the ID Act to certain establishments, such that provisions relating to layoffs, retrenchment, closure of certain establishments, wherein the number of workmen employed is not less than one hundred, has recently been increased to three hundred workmen. In addition to the above, some States have introduced changes in the retrenchment compensation, which was previously calculated as fifteen days’ average pay for every completed year of continuous service, or any part thereof in excess of six months.

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