Labour laws in India are nothing less than a maze, comprising around 140 federal and state level legislations besides other rules, orders, departmental notifications and circulars.
It is unfortunate that the Indian employment law regime and evolving business landscape have not been able to keep pace with each other.
Although the Indian government has been making efforts to revamp archaic rules and procedures, the 2017 World Bank ratings for doing business in India indicate that India still has many miles to go. In addition to the procedural hassles, labour laws in the country often contain overlapping definitions of ‘employers’, ‘employees’, ‘wages’, etc. which also lead to never-ending interpretational issues.
The government is in the process of consolidating important Indian labour laws under four broad heads—(a) social security and welfare; (b) wages; (c) industrial relations and (d) safety and working conditions, which, if implemented, are likely to address many of the compliance hassles faced at an organisational level.
Below are the top employment law challenges which most in-house counsels may be facing. With legislations governing almost every aspect of employment, a sound understanding of applicable employment laws coupled with practical knowledge to handle such issues would help in-house counsels prevent expensive and cumbersome litigation and at the same time, mitigate potential reputational risks for their organisations.
a. Sexual harassment allegations: Sexual harassment allegations have taken the media by storm recently. The enactment of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH Act) in India, has bolstered confidence among female employees to report incidents of sexual harassment without fear of retaliation/victimisation, which probably went un-reported in the past.
This is evident from the rising number of sexual harassment complaints that employers in India have been receiving over the last couple of years. The adage ‘prevention is better than cure’ fits well in this context. The key is to prevent and minimise the probability of incidents of sexual harassment from occurring.
This can be achieved by (a) promulgating a culture of gender sensitivity and zero tolerance towards sexual harassment; (b) drafting a robust and clear anti-sexual harassment policy (c) conducting trainings to sensitise employees (and the Internal Complaints Committee members); (d) ensuring adequate safety and security of female employees (especially at the night) and monitoring such security systems closely; (e) conducting the sexual harassment investigation in a fair and transparent manner in accordance with the POSH Act; (f) ensuring confidentiality and prevent retaliation or victimization of the victim; and most importantly, (g) setting a clear precedent of non-tolerance towards sexual harassment.
b. Employment termination: ‘At-will’ employment is not recognised in India and therefore employment may be terminated only for reasonable grounds or on grounds of misconduct.
Employment termination-related provisions are contained under the Industrial Disputes Act, 1947 (IDA) which is applicable only to ‘workmen’ category individuals; Model Standing Orders under the Industrial Employment (Standing Orders) Act, 1946; state-specific shops and establishments acts, employment contracts and company policies.
In the Indian context, termination of senior level employees is fairly easier when compared to ‘workmen’ category individuals given the protections available to ‘workmen’ under law (although the reputational risks in such cases could be greater and more damaging).
While non-performance, redundancy, loss of confidence, closure of establishment, etc have been recognized by courts as ‘reasonable’ grounds for termination of employment, given the employee beneficial law regime in India, it would be critical for employers to prove before a court of law (should the employee challenge the termination) that the termination was indeed on a ‘reasonable’ ground and not an act of victimisation.
For instance, courts would set aside a termination order for ‘non-performance’ if the employer is unable to demonstrate (by way of adequate documentation) that the employee was a consistent non-performer and that the employee was given ample opportunities/training to improve his/her performance, in spite of which, the employee’s performance did not improve.
Similarly, the law requires employers to conduct a disciplinary inquiry in accordance with the principles of natural justice and establish the act of misconduct before terminating an employee for misconduct. In this context, it becomes increasingly important for employers to clearly outline acts/omissions that would amount to ‘misconduct’ in their employee policies.
An employment termination without complying with the due process under the law is likely to be set aside more often than not. Therefore, it is important for in-house counsels to carefully think over and strategise before any employee’s employment is terminated.
At the end of the day, employment terminations are not favourable for both the employer (on account of the litigation risks associated with it) and the employee (on account of the stigma that an employment termination entails).
Therefore, to the extent possible, employers and employees should strive to amicably part ways even if that requires the employer to incur some additional costs by providing the separating employee a favourable severance package helping him/her to keep going until he/she finds a fresh job.
In cases where employees are being terminated on account of reasons not necessarily attributable to the employee (for instance, closure of an establishment, role becoming redundant etc) employers should, to the extent feasible, try to accommodate the employees in other divisions/teams of the organisation and if that would not be possible, assist them with outplacement services.
All these actions may, to an extent, help in minimising the potential litigation risk. In this context, it is pertinent to note the recent involvement of trade unions in the IT/IT enabled services sector.
Given the changing scenario, in-house counsels should endeavour to foster a culture of transparency within the organisation and devise an effective internal employee grievance redressal mechanism which could potentially help fend off unfavourable trade-union activity (especially external trade unions).
c. Handling confidentiality breaches and poaching by former employees: Trade secrets and innovative ideas are of paramount importance to every employer which, if disclosed to a third party/competitor, could lead to significant loss to the employer. Extensive use of technology, flexible working arrangements, use of employee’s own device at workplace etc have led to increased instances of confidentiality breaches by employees (especially after cessation of employment).
In addition, employers are faced with situations where former employees attempt to poach/solicit employees who are valuable assets to the business.
Given the fundamental rights enshrined under the Constitution of India and the Indian Contract Act, 1872, it is not legally possible for an employer to prevent employees from joining a competitor.
Today, with various targeted online platforms for professionals such as LinkedIn and online job portals such as Naukri.com, Times Jobs, Indeed etc, it has become easy for competitors to identify people having the requisite expertise for a job/function.
While organisations have been using non-compete and non-poaching contracts as standard tools to prevent employees from joining a competitor and keep poachers at bay, such agreements do not necessarily serve the purpose (although they may act as a deterrent), given the fact that post-termination non-compete clauses are not enforceable in India.
Given the above backdrop, effective retention strategies may be adopted to incentivice and retain critical talent which include (i) providing employee stock options; (ii) making retention payouts linked to a minimum period of employment; (iii) recognising and rewarding talent etc. Although post-termination non-compete clauses are not enforceable in India, plausible remedies for confidentiality breach and solicitation are available and enforceable in the country.
To that extent, well-drafted agreements for protection of confidential information and prohibition of solicitation (of employees and customers) go a long way should a dispute arise.
In-house counsels should also look at implementing robust procedures to deal with departing employees which include (a) reminding the employee of his/her post termination obligations by executing necessary documentation and procuring appropriate undertakings from the employee; (b) carrying out proper handing over of company property; (c) conducting forensic analysis of computer system/laptop or smart phones used by the employee to identify any data theft; (d) notifying the new employer of the employee’s continuing obligations etc.
As an employer, one should ensure that the employment documentation clearly indicates that the employee shall not bring/use within the company premises any confidential information of a previous employer or third party which could expose the employer to litigation for unfair competition.
d. Keeping pace with the changing employment laws: Labour laws in India have been undergoing an overhaul given the emerging economic and industrial scenario and this is expected to continue for the next few years.
As in-house counsels, it is becoming increasingly important not just to keep oneself abreast of the latest developments but also to anticipate and take timely steps to ensure organisational compliance. The task becomes more challenging and difficult if the amendments are ambiguous in nature.
Following are a few critical changes that have recently come through:
(i) The Maternity Benefit Act, 1961 (MBA) has been recently amended, enhancing maternity leave from 12 weeks to 26 weeks besides introduction of certain new categories of leaves (for adopting and commissioning mothers).
Similarly, the government of India has amended the Employees Compensation Act, 1923 (ECA), one of the federal level statutes that requires employers to compensate employees for injuries arising out of and in the course of employment.
Both MBA as well as ECA now mandate employers to inform employees, in writing, of (i) all the benefits available to them under MBA and (ii) the right to compensation available to them under ECA, at the time of commencement of employment.
Given the above requirement, employers will now need to add appropriate provisions to the employment contract or employee policies. MBA also requires employers having at least 50 employees to provide crèche facility either individually or as a shared common facility within the prescribed distance.
(ii) The Indian government has also enacted the Rights of Persons with Disabilities Act, 2016 along with the Rights of Persons with Disabilities Rules, 2017 (together, the ‘Disability Law’) which has repealed the earlier Persons with Disabilities (Equal Opportunity Protection of Rights and Full Participation) Act, 1995.
While majority of the obligations under the Disability Law are cast upon the government/local authorities, certain obligations are also cast upon employers in the private sector which include (i) framing an equal opportunity policy; (ii) appointing a liaison officer to oversee the recruitment of disabled persons; and (iii) providing additional facilities for the disabled (at the establishment) such as training facilities, assistive devices etc.
(iii) The applicability threshold for the Contract Labour (Regulation & Abolition) Act, 1976 in Maharashtra and Andhra Pradesh have recently been revised to 50 from the previous limit of 20 contract labourers.
Similarly, the wage threshold for coverage under the Employees State Insurance Act, 1948 (ESI Act) was recently enhanced to Rs 21,000 per month from Rs 15,000 per month.
This move has brought the wage threshold under the ESI Act at par with that of the Payment of Bonus Act, 1965 which was also revised last year from Rs 10,000 per month to Rs 21,000.
In addition to the above, the government is currently considering proposals to raise the wage threshold under the Employees Provident Fund & Miscellaneous Provisions Act, 1952 for eligibility to Rs 25,000 compared with the existing threshold of Rs 15,000.
The gratuity threshold under the Payment of Gratuity Act, 1972 is also proposed to be enhanced to Rs 2,000,000 compared with the existing limit of Rs 1,000,000.
Preetha S and Ajay Singh Solanki are senior members (employment laws) at Nishith Desai Associates.
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