Minimum statutory terms
Termination of employment
Discrimination and harassment
Occupational health and safety
Regulation of outsourcing and contracting
Industrial relations

Acknowledgment

This Guide was prepared by the Workplace Law & Advisory – Asia practice of Freehills International Lawyers, with assistance from the following firms:

Contacts:

George Cooper
Practice Leader
+65 6236 9941 begin_of_the_skype_highlighting              +65 6236 9941 
george.cooper@freehills.com

Celia Yuen
Senior Associate
+65 6236 9972 begin_of_the_skype_highlighting              +65 6236 9972 
celia.yuen@freehills.com

Note:     This Guide:

• is current to 31 March 2010;
• contains general introductory information only, without an assumption of a duty of care by Freehills or the other firms listed;
• does not contain legal advice; and
• is not intended to be, nor should it be relied on as, a substitute for legal or other professional advice.

If employers have workplace relations issues or requirements in particular jurisdictions, then Freehills Workplace Law & Advisory - Asia can assist, working with local counsel.

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Minimum statutory terms

Key statutes
Employment law in India is based on common law (derived from English law) and statutory laws, divided between the central (that is, federal) legislation and state/territory legislation. 

The framework of employment legislation in India is complex. Often applicability is determined by the industry sector, the class and number of employees, the location of the establishment and the notifications issued by the appropriate government. 

The key statutes can be categorised as follows:

• minimum entitlements legislation: Minimum Wages Act 1948, Payment of Wages Act 1936, Payment of Bonus Act 1965, Payment of Gratuity Act 1972, Maternity Benefit Act 1961
• terms and conditions of employment: state/territory-specific Shops and Establishments Acts and industry-specific legislation for example, Factories Act 1948
• the Industrial Employment (Standing Orders) Act 1946, which applies to ‘industrial establishments, factories and railways’ with more than 100 ‘workmen’, and compels covered employers to frame ‘Standing Orders’, which are a set of rules relating to prescribed matters (for example, leave and holidays, payment of wages, disciplinary action for misconduct etc) and which have statutory force, once certified by the appropriate Labour Commissioner
• welfare legislation: Workmen’s Compensation Act 1923 or Employees’ State Insurance Act 1948, as applicable
• social security legislation: Employees’ Provident Funds and Miscellaneous Provisions Act 1952
• dispute resolution legislation: Industrial Disputes Act 1947, and
• contract labour regulation: Contract Labour (Regulation and Abolition) Act 1970.

Employer work rules
As noted above, certain establishments are legally required to frame Standing Orders. For employers in India to whom the Standing Orders requirement does not apply, there is no legal requirement to establish work rules. An employer may nevertheless choose to formulate work rules, company policies, employee handbooks, or similar documents. An employer may choose to incorporate some or all of its company policies into employee contracts of employment, though should be aware that in doing so employee consent may be required in order to amend such policies. For this reason, many employers establish policies or handbooks that are expressed not to form part of the contract of employment, but with which employees are nevertheless required to comply.

Probationary period
Probationary periods are not specifically regulated by legislation, except in cases where the Industrial Employment (Standing Orders) Act 1946 is applicable. They are however common practice in employment contracts. Employers and employees are free to agree in the contract upon the duration of the probationary period and whether or not the employer is entitled to extend it for a further period.

Minimum wage
Minimum wages are provided for by the Minimum Wages Act 1948 for prescribed categories of employees in scheduled industries. In addition, each state/territory provides for specific minimum wages rules which apply to scheduled industries. 

The central government and the state/territory governments periodically review and enhance the minimum wage rates, taking into account a basic wage plus a ‘dearness allowance’, which varies according to the cost of living index and industry.

Remuneration structure
Consistent with the governmental approach to minimum wage rates noted above, many employers structure remuneration with a ‘basic wage’ and a ‘dearness allowance’. In addition, employees may be paid various types of allowances depending on the nature of their duties (for example: shift allowance, conveyance allowance, overtime allowance etc). Remuneration structuring is often tax-driven, with certain payments and allowances receiving concessional tax treatment.

Employees may be entitled to receive a bonus pursuant to statute. The Payment of Bonus Act 1965, which applies in respect of establishments with 20 or more employees, grants to employees with a length of service of at least 30 working days in the relevant accounting year and earning a salary not exceeding INR10,000 per month, a bonus of between 8.33% and 20% of the salary earned by the employee during the accounting year.

Working hours
Working hours are regulated by different statutes, depending on the nature of the enterprise and where it is located. For example, hours of work provisions are set out in the Factories Act 1948 and the various state/territory Shops and Establishments Acts. If employees are required to work more than the prescribed minimum working hours, they are normally required to be paid at a prescribed overtime rate (usually double the rate of ordinary wages).

Public holidays
Public holiday entitlements are regulated by different statutes, depending on the nature of the enterprise and where it is located. For example, public holiday provisions are set out in the Factories Act 1948 and the various state/territory Shops and Establishments Acts and/or are declared by the appropriate government by issuing notifications. 

Typically, employees are entitled to a paid rest day on public holidays or if they work, are to be provided a compensatory day off and/or double wages, depending upon the applicable statute.

Paid annual leave
Annual leave entitlements are regulated by different statutes, depending on the nature of the enterprise and where it is located. For example, annual leave provisions are set out in the Factories Act 1948 and the various state/territory Shops and Establishments Acts.

Other types of leave

Maternity leave—The Maternity Benefit Act 1961 applies to employers as prescribed with 10 or more employees and provides for 12 weeks paid maternity leave for any female employee who has worked for the employer for more than 80 days in the 12 months immediately preceding the delivery date. In addition, an employer must provide up to one month’s paid leave where a female employee suffers from an illness arising out of pregnancy, delivery or miscarriage. Note that employees covered under the Employees’ State Insurance Act 1948 are entitled only to unpaid leave from the employer, as they may receive maternity benefits under that Act.

There is no statutory requirement for employers to provide any form of paternity leave.

Others—Other leave entitlements are regulated by different statutes, depending on the nature of the enterprise and where it is located.

Provident fund
The Employees’ Provident Funds and Miscellaneous Provisions Act 1952 provides for provident funds, pension and deposit linked insurance for employees. It is applicable to establishments engaged in a scheduled industry and employing 20 or more persons. All employees working in such establishments earning wages up to INR6,500 per month have a statutory entitlement to benefits available under the Act. Employees earning more than INR6,500 per month can seek coverage under the Act by making a joint application with the employer to the relevant provident funds authority. 

Where the Act applies, both the employer and the employee are required to contribute an amount equal to 12% per month of the basic wages, ‘dearness allowances’ and retaining allowance (if any) of the employee to a statutory fund, subject to a maximum of INR6,500. However, the employee may choose to contribute a greater sum with prior approval of the concerned provident funds authority. In addition, an employer is also required to contribute 0.5% of an employee’s wages every month towards the Employees’ Deposit Linked Insurance Scheme and to pay specified administrative charges.

During the term of employment, an employee can withdraw up to a certain percentage from his/her provident fund account in certain circumstances. However, at the time of retirement or on superannuation, retrenchment or discharge from services, an employee can withdraw the full amount. In case of death of a member, the accumulated balance is payable to his/her nominees and/or his/her legal heirs.

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Termination of employment

Legal requirements
In India any employer who intends to dismiss a ‘workman’ is subject to the provisions of the Industrial Disputes Act 1947. The category of ‘workmen’ excludes employees employed in a managerial or supervisory position.

Provisions on termination of the contract may also be contained in the Standing Orders applicable to the establishment (see above, ‘Key statutes’), for example regarding the notice period to be given by the employer. Usually Standing Orders also prescribe the procedure to be followed in the case of termination without notice (for example, for misconduct). 

In the event the contract of employment provides better terms for termination over the minimum statutory requirements (for example, provides for longer notice, higher severance compensation etc), those terms would apply.

Notice periods
The length of notice period and the payment in lieu of it are usually fixed by the parties in the employment contract or provided for by the applicable Standing Order. Applicable state/territory legislation may also provide for a minimum notice period.

Restrictions on the ability to terminate employment
Restrictions on the right to dismiss are contained in several laws. For example, under the Employees’ State Insurance Act 1948 employers may not dismiss employees while they are receiving sickness or maternity benefits. In addition, according to the Maternity Benefit Act 1961 a female employee’s employment must not be terminated during or on account of maternity leave.

Remedies
Different remedies are provided in case of wrongful dismissal, depending on the category of employees involved. ‘Workmen’ (see above in ‘Legal requirements’) are entitled to initiate an industrial dispute and if the labour court or industrial tribunal considers the dismissal not justified, it may direct that the workman be reinstated, with or without back wages, or give other relief (including the award of any lesser punishment) as the circumstances of the case may require.
All employees, including those who are not ‘workmen’, may seek compensation for wrongful dismissal (that is, dismissal in breach of the contract of employment) in the common law courts.

Severance payments
Under the Payment of Gratuity Act 1972 (which applies to establishments with at least 10 employees during the preceding 12 months), an employee who leaves employment after five years continuous service is entitled to payment of a ‘gratuity’ equal to 15 days wages for every completed year of service (or part thereof in excess of six months) up to a maximum of INR350,000 (a proposal to increase the maximum amount of gratuity to INR1,000,000 is pending approval before the Parliament of India). The requirement to complete five years continuous service is not required in a case where employment ends due to death or disablement of an employee. The gratuity may be forfeited in the event the employment contract is terminated for serious misconduct.

Further, in the case of retrenchment, ‘workmen’ with more than one year’s service are entitled to a severance payment (see below in ‘Specific requirements applicable to redundancy’) in addition to any entitlement to receive gratuity.

Specific requirements applicable to redundancy
Under the Industrial Disputes Act 1947 employers must comply with certain requirements in relation to redundancy involving a ‘workman’ who has been in continuous service for at least one year, as follows:

• to give one month’s notice together with reasons for retrenchment, or to give payment in lieu
• to pay retrenchment compensation at the rate of 15 days per year of continuous service
• to notify the government of the retrenchment
• to apply the ‘last on, first off’ principle in selecting ‘workmen’ for retrenchment, except for a reasonable cause, and
• to give retrenched ‘workmen’ an opportunity to offer themselves for re-employment.

In certain establishments (that is, factories, mines, plantations) with more than 100 employees, prior government approval for retrenchment is required and employees are entitled to three months notice or payment in lieu thereof, instead of one month.

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Discrimination and harassment
In general, the Indian Constitution prohibits discrimination in public appointments on ground of religion, race, caste, gender and place of birth. This general principle has also been implemented in several statutory provisions for the private sector: for example, the Equal Remuneration Act 1976 provides for the payment of equal remuneration to men and women for similar work, and for the prevention of discrimination on the ground of gender, while the Industrial Disputes Act 1947 prohibits discrimination against employees on the ground of trade union activity.

There is currently no specific legislation in India on sexual harassment at the workplace. However, the Supreme Court has laid down some guidelines for employers in order to protect the fundamental rights of women and guarantee appropriate work conditions. A bill to cement these guidelines into statute has been proposed.

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Occupational health and safety
Provisions on occupational health and safety exist both at a central and at a state/territory level, generally based on the type of enterprise (for example, the Factories Act 1948 or Shops and Establishments Acts may apply).

Under the Workmen’s Compensation Act 1923, an employer is liable to pay an employee compensation if a personal injury is caused to him/her by an accident arising out of or in the course of employment, provided that the period of the resulting disablement exceeds three days. This obligation extends to employees of contract labour providers, where the employee performs work which is ‘ordinarily part of the trade or business’ of the principal employer (hirer). The amount of compensation to which an employee is entitled is calculated according to formulae set out in the Workmen’s Compensation Act 1923, which vary according to the nature of the injury (that is, death, permanent total disablement, permanent partial disablement or temporary disablement). Note that employees covered under the Employees’ State Insurance Act 1948 are not entitled to recover compensation under the Workmen’s Compensation Act 1923.

The Employees’ State Insurance Act 1948 applies to all non-seasonal factories run with power and employing 10 or more persons and to factories which run without power and other specified establishments employing 20 or more persons. All employees earning wages of up to INR15,000 per month are entitled to be covered.

The Employees’ State Insurance Act 1948 provides for health care and cash benefit payments in the case of sickness and maternity, and employment injury or death due to employment injury resulting in loss of wages or earning capacity etc. 

The employer and the employees are required to contribute 4.75% and 1.75% of the employees’ wages, respectively, every month into a statutory fund.

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Regulation of outsourcing and contracting
The central government specifically regulates the use of contract labour, under the provisions of the Contract Labour (Regulation and Abolition) Act 1970 (CLRAA). The CLRAA applies to establishments with 20 or more ‘workmen’ engaged as contract labour (that is, hired by or through a contract labour provider), as well as to contract labour providers who employ or had employed 20 or more ‘workmen’ on any day of the preceding 12 months.

Contract labour providers must have a licence under the CLRAA, and principals must be issued a certificate of registration by the appropriate authority. Contract labour providers are responsible for the payment of wages and must ensure certain basic conditions in the workplace (for example, supply of drinking water, toilet facilities, fully equipped first aid boxes etc). In the case of a failure by the contract labour provider, the principal is liable to pay the applicable amounts and to meet the same obligations and may recover these expenses from the contract labour provider.

Certain legislation in India also imposes joint obligations upon both the contract labour provider and the principal in respect of the employees placed with that principal. Hence, if the labour provider defaults, the principal will be directly liable. Examples include the obligation to make provident fund contributions, the obligation to provide maternity benefits, and the liability to pay compensation for work-related injuries.

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Industrial relations

Legislation in brief
The main statutes are the Trade Unions Act 1926 (which entitles employees to form unions or associations with a minimum of seven members) and the Industrial Disputes Act 1947 (which sets out the mechanism for the resolution of industrial disputes). 

State/territory legislation may also contain provisions relating to industrial relations.

Role of trade unions
Indian law guarantees the right to form trade unions and prohibits discrimination on the grounds of trade union membership. Levels of unionisation across a number of industries tend to vary on a regional basis, with high levels in states such as Kerala, Tripura and West Bengal, but much lower levels in Delhi, for example. 

Unions may be registered or unregistered, although the Trade Unions Act 1926 grants rights to and imposes liabilities on a registered trade union. In particular, registered trade unions are immune from legal proceedings in a civil court for acts done under the Industrial Disputes Act 1947 in contemplation or furtherance of an industrial dispute.

Collective agreements, industrial action and disputes
The Industrial Disputes Act 1947 regulates the system for negotiation, conciliation, arbitration and settlement of disputes, involving some specific bodies, such as work committees (comprised of both employer and employee representatives), conciliation officers, boards of conciliation, and courts of enquiry. 

The labour courts, industrial tribunals and national tribunals adjudicate industrial disputes.

Where parties in collective bargaining cannot resolve a dispute, either party or the government may commence conciliation proceedings before a government-appointed conciliation officer and the settlement is then registered in the labour department and becomes binding on all parties (usually for a period of three years). If conciliation fails, the parties may invoke arbitration or the appropriate government may refer the dispute to adjudication before a labour court or a tribunal.

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