guide book on indian employment laws · • payment of wages act, 1936 • minimum wages act, 1948...
TRANSCRIPT
GUIDE BOOK ON
INDIAN EMPLOYMENTLAWS
India is currently home to over 1.3 billion people, and it is estimated that by the year 2021, about 34% of the Indian population will be in the age group of 15-34 years (with approximately 26% being in the 15-29 years age group). Understandably, Indian labour and employment laws will play a key role in ensuring growth of business and employment opportunities. Presently, there is multiplicity of labour legislations, with often overlapping and sometimes conflicting statutory provisions.
NOTE FROM THE AUTHOR
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Organizations have to ensure compliance with a varied set of State and Central laws. Indian labour laws are often viewed by industry as being too prescriptive, procedural and inflexible, in addition to being archaic and out-of-tune with the constantly evolving business environment. Several of the statutes date back to Indian independence 70 years ago, or even before.
That said, the last few years have seen a clear attempt by the government to try and streamline, simplify and update Indian labour laws. The government has proposed drafts of four major Labour Codes to consolidate and simplify 44 key employment statutes. The most recent developments have been around the Code on Wages, which seeks to implement a national floor minimum wage (subject to certain exceptions) and the Code on Social Security and Welfare, which aims to provide a universal and portable social security account number (VIKAS) to all workers linked to their Aadhaar. While the jury is still out on specific provisions of all these draft Codes, such measures are certainly in the right direction.
It will be some time before all creases are ironed out and these Codes become binding law, but in the
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interim, the government has been regularly enacting amendments to existing laws. Apart from initiatives towards electronic record keeping and compliance monitoring, other recent changes include revisions to the Maternity Benefits Act, 1961 (increasing paid maternity benefit to 26 weeks), enactment of the Rights of Persons with Disabilities Act, 2016 (which extends in parts to the private sector as well), and increasing the wage limits for coverage under laws like the Payment of Wages Act, 1936, the Employees’ State Insurance Act, 1952, etc. Earlier, we also saw changes to the Payment of Bonus Act, 1965 and the enactment of The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.
While the initiatives taken by the government in reforming old labour laws has kick-started an era of evolution, at present, any given industry is subject to at least 15-20 different employment laws alone. Understanding and complying with these can be crucial to avoid liability and prosecution for the entity and its management. Hence, Indian and multinational corporations who intend to carry out business in India often require expert guidance to navigate through a substantial number of complex employment laws.
Atul Gupta
4 September 2017
[email protected] T + 91 80 4343 4646
This employment law guide has been created in a Q&A format for ease of reference, and aims to provide a broad overview of subjects such as recruitment, immigration, benefits, restrictive covenants, personal data protection, anti-harassment, taxation, employee separations and disputes. The guide is intended to be a ready reckoner for entities operating or planning to operate in India and provides a conceptual and practical introduction to key employment concepts in India. Do take note that the contents of this document are not the nature of formal legal advice, and readers are advised to seek expert counsel tailored to their specific facts and circumstances before relying on the same.
Finally, I would like to thank Parvathy Tharamel (employment) and Ayush Tandon (tax) for their contributions to this publication.
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CONTENTS
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1. Overview of labour laws in India 11
2. Indian workforce 15
3. Immigration 19
4. Hiring and employment contracts 23
5. Benefits regime in India 27
6. Restrictive covenants 35
7. Employee separations 37
8. Anti-harassment and anti-discrimination laws 41
9. Personal data protection 43
10. Taxation 45
11. Dispute resolution framework 49
12. About Trilegal 51
13. About the author 53
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INDIA
Employment Laws Guide
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The Constitution of India classifies ‘labour’ as a subject on which both the Central and the State governments are empowered to legislate. In exercise of this power, most State legislatures have
OVERVIEW OF LABOUR LAWS IN INDIA
01.
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Q. What are the sources of labour and employment laws in India? Are these laws based on legislative enactments, judicial precedents, contracts, trade union or collective bargaining agreements?
• Payment of Wages Act, 1936
• Minimum Wages Act, 1948
• The Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013
• The Equal Remuneration Act, 1976
• The Industrial Disputes Act, 1947
• The Contract Labour (Regulation and Abolition) Act, 1970
• The Apprentices Act, 1961
• The Professional Tax Acts
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• Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act)
• Employees’ State Insurance Act, 1948 (ESI Act)
• Payment of Gratuity Act, 1972
• Maternity Benefit Act, 1961
• Payment of Bonus Act, 1965
• Employees’ Compensation Act, 1923
• National, Festivals and Holidays Acts
• The State-specific Shops and Establishments Acts
• The Labour Welfare Fund Acts
• The Factories Act, 1948
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STATUTES ON BENEFITS AND SOCIAL SECURITY
STATUTES ON WAGES
STATUTES ON PROTECTION OF CERTAIN CLASSES
OTHER KEY STATUTES
either enacted amendments to a Central legislation on a particular subject or created their own rules for implementation. Further, several State governments have also enacted independent statutes. Subject to these legislations, the legal relationship between an employer and employee in India is also routinely regulated by contract.
An illustrative list of the important Central and State employment statutes is provided below
The applicability of labour statutes is often based on the nature of the establishment concerned (whether a unit is engaged in manufacturing or related activities or is a commercial establishment such as an IT/ITES company) and the employee concerned (blue collar vs. white collar). Senior level employees and employees occupying a managerial position are often outside the scope of labour legislations and would in most cases be governed primarily by the mutual contract with the employer.
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While the duality of legislation permits each State to focus and incorporate provisions that are best suited to its local requirements, it also sometimes leads to conflicts and ambiguities in interpretation between State and Central statutes, in the event the subject matters overlap. Hence, courts in India have intervened to resolve the ambiguities as India follows the common-law system under which, judicial rulings are also considered as binding precedent. Further, collective bargaining and trade union agreements are negotiated between employees and the respective employer subsequent to which, the terms of these agreements become binding on the parties to the agreement.
Considering the above factors, it is important for employers to keep track of legislative developments at the Central as well as the State levels and principles enumerated in judicial decisions to ensure all-round compliance.
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INDIAN WORKFORCE
02.
Q. Does law distinguish between different types of workers? Is uniform protection afforded to all workers under Indian law?
Yes, Indian law distinguishes between various types of workers and for analysing the applicability of various employment legislations, the workforce can be primarily classified into the following:
• Workmen• Supervisors• Managers
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Indian courts have laid down various tests, parameters and rules of interpretation to determine if an employee is a workman. Some of these tests include the following:
Indicative tests for determining if an employee is a “supervisor”
• Whether the employee is authorized to hire, transfer or suspend other employees?• Whether the employee can make recommendations for granting leave?• Whether the employee can carry out appraisals?
Indicative tests for determining if an employee is in a “position of management”
• Whether the employee has the authority to operate the employer’s bank account?• Whether the employee has the ability to make commitments and enter into agreements on behalf of the employer?• Whether the employee has the authority to hold disciplinary proceedings and order punishments, etc.?
WORKMAN
The term ‘workman’ has been defined under Section 2(s) of the Industrial Disputes Act,1947 (ID Act) as any person employed in any industry to do manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied. The definition specifically excludes, inter alia, any such person who is (a) appointed mainly in a managerial or administrative capacity, or (b) who is appointed in a supervisory capacity and draws wages exceeding INR 10,000 per month.
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Yes, workers who are provided to a principal employer through a third-party agency or a contractor, and who work out of the premises of that principal employer would be classified as “contract workers”.
The engagement of contract workers may require compliance with the provisions of the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA) if the minimum number of workers prescribed under the CLRA Act (usually 20), are engaged by the employer in its establishment. The threshold for applicability may vary based on location. For example, in Maharashtra, the threshold for applicability is 50 or more workmen.
Q. Does Indian law recognize the concept of hiring contract workers? What are the rules associated with engaging contract workers? Are there any risks associated with hiring workers through third party agencies?
KEY TAKEAWAYS
• The definition of workman is quite wide and majority of the workforce would usually be classified as workmen. • Some senior level employees would not be considered workmen if they are (a) employed in a position of supervision; or (b) employed in a position of management.• Wage threshold and designation is not the sole criterion for determining whether an employee would fall within the definition of a ‘workman’. • The assessment would primarily depend on the roles and responsibilities of the employee in each case, and whether the individual is employed in a supervisory role or position of management.
Hence, in order to assess whether or not the employees in question can be classified as ‘workmen’, it would be necessary to look at the nature of work undertaken by them and their roles and responsibilities.
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RISKS TO WATCH OUT FOR!
The principal employer could be held liable for payment of wages to the contract workers, if the contractor fails to do so. There is also a risk of courts finding that the contract workers are in reality, ‘de facto’ employees of the end user - principal employer, depending on a number of factors such as:
• The nature of the relationship involved, • Extent of supervision and control, • The length of time for which the services are provided by the worker, etc.
Hence, it is important that a company follows certain mitigating strategies before engaging contract workers in its premises to deter claims regarding employee benefits.
Q. What regulates the terms and conditions of workers who are not covered under the labour and employment statutes?
If an employee is not covered under any of the labour statutes, then the terms and conditions stipulated in their employment contract and the organization’s internal policies would primarily determine the rights and liabilities of the employer and the employee.
In a few locations, there are also restrictions on the type of activities in which contract workers can be engaged. For example, employment of contract labour in core activities is prohibited in Andhra Pradesh.
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IMMIGRATION
03.
Q. What are the various type of visas issued by India to foreigners for work related visits? What are the conditions to be fulfilled for grant of work visa?
Foreign nationals may enter India for commercial activity by obtaining any of the following visas:
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(a) Businessvisa A Business visa is usually granted to a person who intends to enter India to establish business ventures, sell/purchase products, have technical discussions, for recruitment, as partners in a business, for consultations/participation in exhibitions, etc. The business cannot be money lending or any ‘petty’ business or trade. Usually, business visas are granted with a multiple entry facility and for a period up to five years or a shorter duration. Often these visas are subject to stay stipulations of a maximum of six months.
(b) Employmentvisa An Employment visa is granted to non-citizens desiring to come to India for the purpose of employment. The following conditions are to be fulfilled before an employment visa is granted for working in India:
• The foreign national should be a highly skilled or a qualified professional, who is engaged by a company or organisation in India, either as a consultant or as an employee. • Employment visa is granted only for jobs for which qualified Indians are not available and is not granted for routine, ordinary or secretarial/clerical jobs. • The foreign national being sponsored for an employment visa should draw a salary in excess of USD 25,000 per annum, subject to certain exceptions. • The foreign national must hold a valid passport and a re-entry permit if required under the law of the country of his or her nationality.
The employment visa is employer specific and a change of employer is not permitted during the currency of an employment visa except in certain specified circumstances, such as change of employment between a registered holding company and its subsidiary, etc. In all other cases, the foreign national will have to leave the country and apply for a new employment visa if there is a change in employer.
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DURATION OF EMPLOYMENT
VISA
The duration of the employment visa is granted is at the discretion of the Government. • Employment visas with multiple entry facility can be issued for up to 2 years or the term of the assignment, whichever is less. • Foreign nationals engaged in the IT software and ITES sectors can be granted an employment visa with multiple entry facility for up to 3 years or the term of the employment, whichever is less. After the expiry of the original term of the visa, it can be extended on a year on year basis, up to a maximum period of 5 years from the date of issue of the initial employment visa, subject to good conduct, submission of documents to show continued employment, filing of income tax returns, and no adverse security inputs on the foreigner.
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Q. Are there any reporting requirements under the immigration laws?
All foreign nationals visiting India on long term (more than 180 days) business or employment visas are required to register within 14 days of their arrival with the Foreigners Regional Registration Office (FRRO)/ Foreigners Registration Office (FRO) of the place where they intend to stay. However, registration is not required if the continuous stay in India does not exceed 180 days, unless there is a specific endorsement in the visa which states that registration is required.
Further, the Indian host/sponsor of the foreign employee, also has an obligation to inform the FRRO/FRO in case of termination of the contract, and to notify them of the departure of the foreign national from the country, along with the foreign national’s flight details and date of departure.
(c) e-Visa: To liberalize, simplify and rationalize the existing visa regime, Indian government has recently introduced an e-Visa facility. The aim of this facility was to provide an opportunity to international travellers to visit India by obtaining an e-Visa after making an online application rather than obtaining a visa through visit to an embassy. In support of this move, the Ministry of External Affairs and Ministry of Home Affairs has directed that international travelers residing in France or other permitted countries can visit India on an e-visa for “casual business visit”.
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HIRING AND EMPLOYMENT CONTRACTS
04.
Q. What are the conditions around conducting background checks on employees?
There is no specific employment legislation that regulates the actions of the employer to conduct pre-employment background checks. It is a common practice for employers to verify the credentials of prospective employees, such as reference checks, criminal record checks, verification of employment/education history, etc. However, employers must take care to comply with the provisions of applicable data protection legislation, including the requirement to obtain prior consent before collecting or processing ‘sensitive personal data’.
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Q. What are the common types of employment contracts in India?
Q. Do employers and employees have the flexibility to negotiate terms and conditions of employment?
The types of employment contracts used by private employers in India are:
• An open-ended contract wherein the contract continues until such time as the employer or the employee ends it; or• A fixed-term contract which comes to an end after a specified duration.
An employer and an employee are free to negotiate the terms of the employee’s employment. However, there are several legislations which prescribe the minimum working hours, overtime payments, holidays and leave, etc. which must be borne in mind while determining the terms and conditions of employment. In the event a contract is less beneficial than an applicable statute, the statute would normally override the contractual provisions.
ARE EMPLOYMENT
AGREEMENTS MANDATORY IN INDIA?
The relationship between an employer and employee in India can either be express or implied. However, the practice of executing employment contracts is widely followed by almost all establishments in India, and in some States (including Karnataka and Delhi), the State Shops Act requires the employer to issue a written appointment letter to the employees.
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Q. Are there laws regulating probation period in India?
While there is limited law dealing with probation, it is not unusual for employment contracts to include a probation period (usually 3 to 6 months), with an option for extension. State legislations must however be assessed to ensure that there are no limitations on the duration to which probation can be extended.
Q. Should employers roll out policies setting out terms of employment?
In some States, an employer is required to formulate service rules under the Industrial Employment Standing Orders Act (SO Act) and have them certified by local labour authorities. Usually larger establishments and employers have in place employment handbooks and employment policies which set out in detail certain terms of employment such as working hours, code of conduct, leave, disciplinary proceedings, grievance procedures, performance management, etc.
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Q. What are the terms and conditions stipulated in a secondment agreement when a foreign national is seconded to India?
In case of secondment of employees, the parties (i.e. the foreign entity, the Indian entity and the employee in the proposed arrangement) would normally enter into a secondment agreement which would govern the terms of the secondment.
The secondment agreement normally includes the following provisions/information: • The duration of the secondment, scope of work, place of work, etc.;• Terms of payment, i.e. the amount of salary that the employee will be entitled to and which entity would make the payment;• Information on other benefits, leave, insurance (if any), etc.;• Confidentiality provisions and other rules of discipline, including which entity has the ability to take action against the employee;• Provisions around termination of the secondment agreement;• Ability of the employer to end/extend the secondment;• Impact of the secondment on employment in the home country;• Obligation of the employee to pay tax in India;• That the secondment is conditional on the employee obtaining a valid work permit/visa in India.
ADDITIONAL
CONSIDERATIONS
It would be important to undertake a tax assessment to determine whether there are any tax issues associated with the secondment arrangement - such as Permanent Establishment (PE) risk etc.
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BENEFITS REGIME IN INDIA
05.
Q. What are the contingencies addressed by India’s social security benefits? Are the social security benefits government funded or financed by the employer?
Indian social security legislations and schemes primarily address contingencies that may arise due to stoppage or reduction of earnings resulting from sickness, maternity, employment injury, occupational diseases, unemployment, invalidity, old age and death.
These social security statutes broadly cover payments which are contributory and non-contributory.
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(i) ContributoryLawsThe contributory benefits are those which require the social security programs to be financed by both the employees and the employers and, in some cases, are supplemented by grants from the government. The key contributory schemes include the following:
• EPF Act: The EPF Act (and the schemes prescribed thereunder) takes care of the retirement needs of individuals enrolled with the Employees’ Provident Fund Organisation (EPFO). The EPF Act applies to establishments with 20 or more employees. For employees covered by the EPF Act, both the employer and the employee must contribute 12% of the individual’s monthly pay (defined to include basic wages, dearness allowance and retaining allowance, if any) to the EPFO. The EPF Act currently prescribes a wage ceiling of INR 15,000 for employee coverage (for domestic staff), and anyone earning above this sum need not be mandatorily covered by the EPF Act providedthat such employees are not already members of the EPFO (through a previous employer). Further, for Indian passport holders, the employer’s contribution payable under the EPF Act can be limited to 12% of INR 15,000, even where the monthly pay of the employee exceeds this amount.
• ESI Act: The ESI Act applies to establishments with 10 or more employees (20 in some States), and to employees earning INR 21,000 per month or less. With respect to these employees, the employer is required to make monthly contributions to the authorities appointed under the ESI Act. The contribution rate under the ESI Act is currently 1.75% of wages as the employee’s contribution, and 4.75% of the wages as the employer’s contribution. Employees covered under the ESI Act are eligible to receive a number of benefits, such as free medical treatment at ESI hospitals, maternity benefit, compensation in case of any injury/death during the course of employment, etc.
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ii) Non-ContributoryLawsThe major non-contributory benefits are the following:
• Employees’ Compensation Act: Under the Employees’ Compensation Act, 1923, an employer is required to compensate its employee (or his/her dependents) in the event of injury, occupational disease or death of the employee duringthecourseofemployment. The compensation under this legislation is only payable to employees who are not receiving benefits under the previously discussed ESI Act. Recent amendments have made it mandatory for organizations to inform employees of the benefits under this statute. Compensation under this law is calculated on the basis of various parameters, such as the wages of the employee, loss of earning capacity, etc. as per prescribed formulae.
• Payment of Gratuity Act, 1972: This statute applies to establishments with 10 or more employees. Gratuity is a reward for long service, payable at the time of cessation of employment to employees who have completed 5 years of “continuous service”. In some exceptional circumstances, such as earlier death or disablement of the employee, gratuity may be payable even before the employee has completed 5 years of continuous service. Gratuity is paid at the rate of 15 days’ wages, for every completed year of service, and is normally capped at INR 1,000,000.
HEALTH INSURANCE COVER
Indian law does not make it mandatory for private employers to provide health insurance cover to all its employees. However, many medium to large scale companies choose to provide this benefit to employees as a good practice.
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• Payment of Bonus Act, 1965: An employer is required to pay bonus as per the prescribed rates (8.33% to 20%, depending on the allocable surplus calculated in accordance with this law) to all employees whose wages do not exceed INR 21,000 per month. If an employee earns more than INR 7,000 per month, bonus can calculated only on INR 7,000 or the applicable “minimum wage” prescribed for the employee, whichever is higher. New establishments are exempt from paying this statutory bonus if the establishment doesn’t derive any profits during the first 5 accounting years.
Expat employees who hold a non-Indian passport and are employed by an Indian entity covered by the EPF Act, would be classified as ‘International Workers’ under this law. An International Worker includes:
(a) Indian employees having worked or going to work in countries with whom India has entered into a social security program;(b) An employee other than an Indian employee, holding other than an Indian Passport, working for an establishment in India to which the EPF Act applies
For anyone classifiable as an ‘International Worker’, the establishment would be expected to contribute provident fund at the rate of 12% of the individual’s monthly pay (defined to include basic wages, dearness allowance and retaining allowance, if any). The employee would need to make a 12% contribution through a payroll deduction. However, unlike domestic employees, the wage threshold of INR 15,000 for coverage under the EPF Act, or for limiting PF contributions, does not apply to International Workers. Accordingly, establishments would be required to pay 12% of the entire wages without any upper limit. The provident fund department interprets this further to include the entire global wages earned by an International Worker, and not just wages drawn in India.
Q. What are the social security laws for expatriate employees?
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Such provident fund contributions need not be made in India for expat staff, if such individual can be classified as an ‘Excluded Employee’. In broad terms, where an expat worker comes from a country with which India has a bilateral Social Security Agreement (SSA), and who is contributing to the social security programme of his or her home country (as evidenced by a certificate of coverage issued in terms of the SSA), such an individual would be treated as an excluded employee for a specified duration depending on the SSA (usually 4-5 years) and need not make provident fund contributions under the EPF Act in India for such duration.
TREATMENT OF PIOS/OCIS
Organizations are often unaware that some of their employees are Persons of Indian Origin (PIOs)/ Overseas Citizens of India (OCIs), since these individuals do not need an employment visa to enter and work in the country even though they do not hold an Indian passport. The PF department tends to classify PIOs/OCIs as International Workers, exposing the organization to uncapped PF payments for such individuals. It is therefore advisable to seek information on the nationality and passport of any potential employee at the time of recruitment.
SOCIAL SECURITY AGREEMENT
(SSA) BETWEEN INDIA AND FRANCE
India and France have an SSA that came into effect from 1 July 2011. The Indo-French SSA stipulates that individuals who are employed in France and contributing to the French social security system, need not contribute provident fund in India for a period of up to 60 months.
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Q. Are there any restrictions on working hours of employees? Is there a requirement to pay overtime wages? Should employees be given a rest break?
• Working Hours: The working hours vary based on the nature and location of the establishment. In most states, the average working hours are limited to 8 - 9 hours a day and 48 hours a week.
• Overtime: Employees made to work for additional hours must be paid overtime (usually prescribed at twice the rate of the employee’s regular wages). Further, the total numbers of overtime hours are also subject to limits prescribed by law. Usually, the overtime hours are limited to 50 hours in a quarter in most Indian States. While such an assessment must be carried out for each location separately, in many States, overtime provisions do not extend to senior employees.
• Interval of rest: Most Shops and Establishment legislations (S&E) mandate that all employees be given a rest break (usually half an hour to one hour) after every 5 hours of work. The total spread over of a work day, including any intervals for rest and overtime, should not normally exceed 11-12 hours depending on the location.
SPECIAL PROTECTION TO FEMALE EMPLOYEES
Certain legislations provide for special protection to female employees. Under the S&E laws of most states, women cannot be made to work during night time hours (unless an exemption is obtained for this purpose and various special conditions relating to security of employees are adhered to).
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The common leave entitlements are the following:
(a) PrivilegeLeave Usually prescribed under various state S&E legislations for commercial establishments, and typically calculated based on the number of days worked by the employee. For e.g. many State S&E Acts prescribe that employees are entitled to 1 day privilege leave for 20 days worked. However, the S&E legislations tend to vary quite a bit from one State to another, so leave entitlement must be assessed based on the location in which the employee works.
The Factories Act, 1948 (which applies to manufacturing establishments) prescribes that an adult will be entitled to 1 day paid leave on completion of 20 days of work.
If such privilege leave is unused, employees may encash the same at the time of cessation of employment.
(b) CasualLeaveandSickLeave In respect of employees engaged in commercial establishments, casual leave and sick leave are governed by the S&E laws. In respect of employees engaged in manufacturing and related activities, paid casual and sick leave provisions may be found under the applicable SO Act and the model standing orders prescribed under the SO Act. In many states, the SO Act has been extended to commercial establishments as well.
Q. What are the statutory leave entitlements in India?
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MATERNITY LEAVE (ENTIRELY
FUNDED BY EMPLOYER)
• Delivery and confinement: - 26 weeks for women with less than 2 surviving children. Not more than 8 weeks can be taken prior to the delivery. - 12 weeks for women with two or more surviving children. Not more than 6 can be taken prior to delivery.
• Adoption and Surrogacy Leave: 12 weeks from the date the child is handed over. • Miscarriage or medical termination of pregnancy: 6 weeks• Tubectomy operation: 2 weeks• Illness on account of pregnancy: 1 month NOTE: The Maternity Benefits Act, 1961 also provides various other benefits such as medical bonus, nursing breaks and provision of crèche facilities in establishments with 50 or more employees.
(c) Holidays The national and festival holidays statutes in certain states prescribe yearly holidays for festivals, celebrations and other events of local importance. In addition to these holidays, most employees are eligible to a weekly-off every week under the S&E laws and the Factories Act, 1948. Employees required to work on a statutory holiday are either required to be paid double the wages for the day, or be provided a compensatory holiday on any other day within a prescribed time period.
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RESTRICTIVE COVENANTS
06.
Q. Are restrictive covenants enforceable in India?
• Confidentiality: Usually employment contracts impose confidentiality obligations on employees during and after the term of employment and such clauses are enforceable. Unauthorized disclosure of confidential information can form basis for termination of employment, and the organization can also seek damages and/or an injunction preventing the employee from divulging and further confidential information. However, courts apply a strict test to claims pertaining to breach of confidentiality to ensure that the information concerned is indeed confidential information and that there is sufficient evidence to prove the disclosure of such information.
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• Non-Compete: Indian law does not recognize the concept of a reasonable restrictive covenant and holds that all non-competition covenants extending beyond the duration of employment are void and unenforceable. Such clauses are considered to be in restraint of trade under the Indian Contract Act, 1872 and hence not enforceable. However, it is not uncommon to see organizations retain these provisions in their employment contracts as a deterrent for employees.
• Non-Solicitation: Commercial non-solicitation and non-dealing clauses between parties restricting them from offering inducements to employees, customers, clients and suppliers of the other to break their contract or their legal relationship or prevent them from entering into a contractual relationship with the other, are enforceable. Employers in India include post termination non-solicitation and non-dealing clauses for durations based on their commercial needs, but typically around 6 months to 2 years. A breach of non-solicitation obligations may be remedied primarily through damages since prohibiting employees (who have been incorrectly solicited) from entering into commercial relationships with the defaulting party would amount to reading a post termination non-compete clause into the employment contract of such employees.
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EMPLOYEE SEPARATIONS
07.
Q. What are the laws governing cessation of employment?
An employer-employee relationship can be terminated by the following methods:
• At the instance of the employer; • At the instance of the employee (through resignation); • By mutual agreement; • Employee’s retirement/superannuation; and • Automatically, on the expiry of a fixed-term contract.
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Employment terminated by the employer largely falls within two categories:
(a) TerminationSimpliciter In India, there is no concept of ‘at-will’ employment. Therefore, services of most classes of employees cannot be terminated without a reasonable cause. Reasonable cause has been broadly interpreted by courts to include these categories:
• Redundancy: Termination on account of redundancy would be legal where the employer is able to demonstrate that the post occupied by the discharged employee has been abolished and/or there is a genuine surplus of employees. Under the ID Act, organizations are expected to follow the ‘last in first out’ rule while deciding which ‘workman’ category employees must be made redundant first.
• Poor performance: Employees may be discharged for poor performance. Courts have upheld such terminations where prior to the termination, employees were provided a fair opportunity to improve their performance. • Loss of faith: Termination for loss of faith has been held to be a reasonable ground for termination of services. Such separations have to be conducted with careful planning to avoid such exits being viewed as stigmatic in nature. • Continued ill-health: Illness should be of a sufficiently long duration and should be of a nature which affects the discharge of normal duties of an employee.
(b) StigmaticTermination The services of an employee may be terminated without notice or payment in lieu thereof for any misconduct. Misconduct may include various actions/omissions such as harassing other employees, breach of disciplinary standards or company policies, habitual late coming, etc. Grounds for misconduct related to termination must ideally be detailed in company policies and the employment contract. When termination is on grounds of misconduct, under Indian laws there is normally a need to hold a disciplinary inquiry and follow the principles of natural justice before any punishment (including termination) can be ordered.
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Q. What are the severance payments which may be claimed by an employee upon cessation of employment?
Severance payments usually include the following:
(a) RetrenchmentCompensation Retrenchment compensation is payable to ‘workman’ level employees, who are being ‘retrenched’ under the ID Act. Workmen who have completed one year of continuous service (normally interpreted as 240 days) are eligible to receive 15 days’ wages for every year of service (or part thereof in excess of 6 months).
(b) LeaveEncashment This includes an amount payable to an employee for the number of days of untaken leave available to the credit of the employee at the time of cessation of employment.
(c) NoticePay If an employer does not want the concerned employee to serve his notice period, the same can usually be bought out by paying the employee in lieu of the notice. However, employees who have been terminated on grounds of misconduct will not be entitled to this component.
(d) Gratuity Gratuity is paid upon termination, to employees who completed at least 5 years of continuous service, at the rate of 15 days’ wages for every completed year of service, and can be presently capped to an amount of INR 1,000,000.
In addition, State-specific laws may prescribe certain additional payments, and these would need to be assessed on a case to case basis.
The table on the next page sets out the various severance components that have to be paid in each type of termination:
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In addition to the components specified above, the following components may also be payable:
(a) Any contractual amounts that have been guaranteed to employees; and
(b) In cases where the employer is seeking a release from the employee (usually in a scenario where an alternative approach is being adopted) the employer could also pay ex gratia amount as consideration for a release of claims.
*NOTE
The Payment of Gratuity Act, 1972 provides that the gratuity payable to an employee can be forfeited wholly or partially in certain circumstances (for instance if employment is being terminated for an offence which constitutes moral turpitude, or due to an act or wilful omission that caused damage, loss or destruction to the employer’s property).
#NOTE
It may be advisable to pay certain amounts such as notice pay and retrenchment compensation as well where the mutual separation is brought about at the employer’s behest.
Termination Simpliciter
Redundancy
Poor performance
Loss of faith
Continued ill-health X
Stigmatic Termination
Sexual Harassment X X
Other Types of Misconduct X X
Unauthorised absence X X
Alternative Approaches
Resignation X X
Mutual separation# X X
*
TYPE OF EXIT SEVERANCE COMPONENTS
Notice pay (where
notice is not served)
Retrenchment compensation
(for workmen-level
employees)
Leave encashment
Gratuity Accrued and unpaid
salary
*
*
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ANTI-HARASSMENT AND ANTI-DISCRIMINATION LAWS
08.
Q. What are the compliances under the laws governing anti-harassment and anti-discrimination at workplace?
- Establishments that employ 10 or more employees are required to constitute a special committee (Internal Committee or IC) to deal with complaints of
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sexual harassment at the workplace under the Sexual Harassment of Women at the Workplace (Prevention, Prohibition and Redressal) Act, 2013 (SH Act). This committee must be headed by a senior woman employee and also have an external member to ensure impartiality of the process. The SH Act also prescribes timelines within which the IC must address complaints of sexual harassment. Under the SH Act, employers are also required to (a) formulate and publish a policy on prevention of sexual harassment at the workplace, (b) take measures to sensitise employees by conducting workshops and awareness sessions, and organize training programs for members of the IC, and (c) prepare and file annual reports associated with incidents of sexual harassment at the workplace.
- The Equal Remuneration Act, 1976 provides for equal pay for men and women for equal work or work of a similar nature. Further, it also prohibits discrimination against women employees in matters relating to recruitment, conditions of service such as promotions, training, transfers, etc.
- The Rights of Persons with Disabilities Act, 2016 has been recently notified, and requires establishments to not discriminate against people with disabilities. Private establishments are required to publish an equal opportunity policy, maintain records and registers and follow the rules relating to accessibility to comply with the provisions of this Act.
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PERSONAL DATA PROTECTION
09.
Q. What are the obligations on employers under the personal data protection laws?
The Information Technology Act, 2000 and the Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 regulate the collection, disclosure, transfer and storage of ‘sensitive personal data or information’. Personal information is defined to include any information with which an individual is identifiable.
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Collection, transfer or disclosure of sensitive personal information by body corporates must be carried out only with the consent of individuals.
Further, body corporates that collect and store sensitive personal data or information are required to put in place reasonable security practices and procedures for the storage of sensitive information collected by them and also implement a privacy policy which is available for public viewing.
SENSITIVE PERSONAL INFORMATION
Certain personal information such as:• Medical history or medical records, • Financial information such as bank statements, credit card details, • Sexual orientation, • Details of physical or mental health, • Passwords etc.are classified as ‘sensitive personal information’.
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10. TAXATION
Q. What are the general principles regarding taxation on income?
Any income earned or benefit received by an employee in relation to services rendered under employment is taxed under the head ‘Salary’. Besides the cash remuneration, taxable Salary also includes benefits such as transportation, stock options or any other benefits provided by the employer. The cash component provided to an employee is divided into various benefits/ perquisites/ allowances. The Income Tax Act specifically provides for manner of taxability for some of these benefits. The benefits which are not specifically provided, are taxable in the hands of employee on an actual basis (without any deductions). As a general principle, taxable value of the perquisite is computed on the basis of cost to the employer (under an arm’s length transaction), less any amount recovered from the employee. The most appropriate mix of components depends upon the type of expenses incurred by the employee and quantum of salary.
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Q. What are the applicable tax rates in India currently?
Q. What are the rules determining which employees are subject to tax in India?
The applicable tax rates on Salary income of Indian as well as expatriate employees qualifying as tax residents of India for tax year 2017-18 are:
The charge of tax on Salary income of employees primarily depends on the employee and employer’s tax residency status. This can be broadly classified in the following categories:
• Indian tax resident employees exercising employment in India: Taxable in India• Non-resident employees exercising employment in an Indian company: Taxable in India• Non-resident employees exercising employment in India, in a foreign company (in cases like secondment): Taxable in India in certain cases, which are provided below
INCOME TAX SLAB (INR) RATE *
Up to 250,000 Nil
250,001 to 500,000 5%
500,001 to 10,00,000 20%
10,00,001 or above 30%
*SURCHARGE
10% of income tax, where total income is between 50 lakhs - 1 crore. 15% of income
tax, where total income > 1 crore; and
CESS
3% on total of income tax + surcharge
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Under various tax treaties, such as France, USA, Japan, etc., Salary income of a non-resident employee seconded to India (expatriates) is not taxable in India, if both of the following conditions are satisfied:
• The expatriate is present in India for less than 183 days in the aggregate during the relevant tax year; and• The expatriate is employed in a foreign company (employment in a permanent establishment of a foreign company is excluded from this condition).
The relevant criterion for determining the tax residency of a person is the individual’s physical presence in India. If the individual resides in India
a) For more than 182 days in a tax year (April 1 to March 31); or, b) Is present in India for 60 days in the relevant tax year and 365 days or more in the preceding four tax years,
then such person is deemed to be a tax resident of India. If the above conditions are not satisfied, the individual qualifies as a tax non-resident. G
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Q. What are the mandatory compliances relating to tax?
Withholding requirement: Every employer is required to withhold the requisite tax at the time of paying Salary to an employee. The quantum of tax to be withheld is equal to the entire tax liability of the employee, pursuant to his/her employment. Accordingly, the applicable withholding rate is equivalent to the normal slab rates applicable to individuals (refer Applicable Tax Rates above).
The tax withheld has to be deposited with the Government in compliance with the following timelines:
• Salary paid for the month of March: on or before 30th April;• In other months: by 7th of the following month
The employer is required to furnish a prescribed form to the employee stipulating the amount of tax withheld and deposited with the tax authorities on behalf of the employee. This enables the employee to take credit of the taxes paid (in case of expatriate employees) and claim refund of excess taxes deposited (if any).
Permanent Account Number (PAN): In order to pay tax in India, an employee including an expatriate employee is required to obtain a PAN registration. The tax authorities stipulate a prescribed online procedure for applying for PAN.
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11. DISPUTE RESOLUTION FRAMEWORK
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Q. How are the disputes between employers and employees resolved?
Labour courts and industrial tribunals (which are separate from the traditional civil courts) have been constituted under the ID Act to deal with labour/industrial disputes between the employer and a workman or group of workmen. The ID Act also provides a conciliation mechanism for settling industrial disputes before the matter is referred to a labour court or tribunal. Through conciliation, employers and workmen may enter into binding settlements, which need not be incorporated into individual employment contracts to be applicable to all employees.
Various other employment statutes also provide for separate dispute resolution mechanisms. For e.g. the S&E Acts in various states also contain provisions allowing employees to appeal a decision to terminate their employment, and seek redressal from the relevant authority (usually the jurisdictional labour commissioner).
Senior employees who fall outside the ambit of various labour laws such as the ID Act or the State specific S&E Act would normally not be eligible to approach these labour courts or labour commissioners for redressal of grievances. In senior management contracts the parties may agree on the mode of dispute resolution (which may include arbitration or traditional litigation), the jurisdiction for dispute resolution, etc.
INDUSTRIAL DISPUTE
Under the ID Act, an industrial dispute is a dispute or difference between two employers or between employer and workmen or between workmen and workmen, which is connected with the employment or non-employment or the terms of employment or with the conditions of labour.
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ABOUT TRILEGAL
Trilegal is a top-tier full service law firm with offices in five of India’s major cities - Mumbai, New Delhi, Gurgaon, Bangalore and Hyderabad. The firm and its lawyers have been consistently ranked and recognised by leading legal publications across each of our practice areas. Our clients include many of the world’s leading corporations, funds, banks and financial institutions.
LABOUR & EMPLOYMENT PRACTICE
Trilegal recognizes the importance of providing specialized advice on employment laws in India, and has created a dedicated practice with a focused team that advises some of the top Indian and multinational companies on varying issues connected with Indian employment laws. The firm has one of the most comprehensive employment practices in the country and are probably the only top tier Indian firm with a dedicated employment team.
Trilegal lawyers routinely advise clients on the entire gamut of labour and employment issues in India, including the following:
• Structuring senior management contracts and remuneration policies.• Structuring employee stock option schemes and advising on regulations related to issuance of restricted stock units of the foreign parent company and alternative stock and incentive options.• Drafting and advising on the enforceability of training bonds, confidentiality and non-compete agreements.• Employee benefits under various central and state legislations. • Advice on the various leave entitlements, working hours, wages, overtime and statutory
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social security benefits.• Labour law compliances and registrations.• Organization restructurings, reduction-in-force exercises, establishment closures, transfers and employment law aspects of M&A transactions.• White collar crime investigations and disciplinary proceedings.• Senior management exit strategy and agreements.• Employee dispute resolution and proceedings.
Pre-eminent, dedicated team that provides expertise across the breadth of employment and labour issues. Notable for work on sexual harass-ment claims and wrongful termination disputes, as well as employee miscon-duct investigations.
Chambers & Partners 2016
Labour & employment practiceRanked in band 1
Chambers & Partners 2017
ABOUT THE AUTHOR
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course on labour and employment laws in leading law universities, such as NALSAR.
Atul has been recognized as a leading lawyer by Chambers Asia Pacific 2014, 2015, 2016 and 2017 guides.
Atul is an alumnus of University of Pune. He is a member of Bar Council of Karnataka, India. He has also been elected as a member of IFCCI’s HR Committee and CII’s National Committee on IR.
Atul Gupta is Partner, Trilegal, and is part of the corporate and employment law practice group. Atul is an employment law specialist, and has also got extensive corporate law and foreign exchange law experience. Atul’s mixed corporate and employment law knowledge gives him the unique ability to provide comprehensive advice on complex transactions. His extensive experience and specialised knowledge of India’s vast labour and employment laws, further allows him to handhold clients in managing all legal aspects of their human capital.
Atul regularly advises clients on contract and policy formulation, misconduct/white-collar investigations, sexual harassment related matters, staff and establishment restructurings, employee separations, social security (PF) regulatory proceedings and a host of other labour and employment law related matters.
Atul has multi-sectoral experience in his practice, with his clients including auto majors, mid and large IT/ITES companies, logistics companies, health and imaging equipment manufacturers, renewable power providers, retailers, health care providers, major telecom companies and PE/VC funds, amongst others. Atul regularly conducts training sessions for clients and also contributes to legal publications by organizations such as the IBLJ, World Bank, etc. on a regular basis. He also conducts a credit
ATUL GUPTA
PartnerLabour and Employment / [email protected]
Chambers research cites, “The “brilliant” Atul Gupta is applauded by sources for his commercial awareness and practical approach. He has advised a diverse group of companies on Indian employment law matters.” “Atul Gupta frequently advises on complex cases reflecting his mixed employment and corporate practice. He has recently advised organisations on compliance with new workplace harassment regulations.”
MUMBAIPeninsula Business Park17th Floor, Tower BGanpat Rao Kadam MargLower Parel (West)Mumbai 400 013 IndiaT +91 22 4079 1000
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