India is a vast country and the labor laws are also widespread with about 140 federal and state level legislations apart from the other district rules and regulations, orders and circulars. The HR laws in India have been trying very hard to keep up with the business trends in India but haven’t been successful so far. The Indian government has been trying to change the decrepit labor and employment laws but we are still behind as per the 2020 World Bank ratings in terms of doing business in India, although we moved up 14 places from previous ranking.
Apart from procedural hassles, labor laws in India often contain overlapping definitions of ‘employers’, ‘employees’, ‘wages’, etc. which also lead to never-ending interpretational issues.
To ease compliance problems that organizations face, the government of India has decided to consolidate important labor laws under four categories which are;
- Social security and welfare
- Industrial relations
- Safety and work conditions
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Common employment laws in India
It is critical that in-house counsels understand HR policies in India along with practical knowledge to understand all aspects of employment so as to avoid costly and tiresome litigation. Three critical all-time employment issues are highlighted below:
i) One of the most common problems that employers face is the employees joining competing organizations. Once an employee is terminated the employer cannot restrict him/her irrespective of the employment agreement according to the Indian Contract Act 1872 (“Contract Act”).
To this effect, organizations have been using non-compete and non-poaching contracts to deter employees from joining a competitor. Such agreements are not necessarily helpful as post-termination non-compete clauses are not enforceable in India.
Thus retaining employees by HR managers is a good strategy and becomes necessary to protect the company’s intellectual and confidential data. In-house counsel need to come up with well drafted employment agreements so as to prohibit solicitation of employees and customers in case the need arises. Another important preventive measure should be proper handing over of any system/laptop used by the terminated employee for data theft.
(ii) At-will termination of employees is not recognized in India and thus an employee can only be terminated for reasonable grounds or on grounds of misconduct, the provisions for which are under the Industrial Disputes Act, 1947 (IDA). This act is applicable only to ‘workmen’ category individuals. Terminating senior level employees is slightly easier and thus the ‘workmen’ category of staff are fairly protected although terminating a senior employee can be a cause for great reputational risks.
A terminated employee who challenges the organization on the basis of unfair termination poses a threat for a great deal of damage to the company. Some of the provisions laid out by the act are lack in performance, redundancy, confidence deficiency, closing down of the establishment, etc and are recognized by courts as ‘reasonable’ grounds for termination of employment. In-house counsels need to culminate a culture of transparency in organizational procedures and establish grievance redressal methods in order to avoid trade-union activity.
(iii) The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH Act) in India has empowered the female employees to speak up about sexual harassment that they faced in the workplace. There has been a rise in the number of complaints due to the enforcement of this act thus encouraging female employees to speak up about past incidents too that went unreported due to the fear of retaliation. One of the methods to discourage such incidents from occurring is by holding proper disciplinary proceedings and investigations as per the POSH Act while holding the perpetrator accountable. Another way is by drafting a clear code of ethics against any sort of sexual harassment and getting all employees to attend trainings regarding the same.
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Critical changes in HR laws in India in the recent past
- The Maternity Benefit Act, 1961 (MBA) has recently changed and prolonged the maternity leave from 12 weeks to 26 weeks. This act also has provisions for mothers who are adopting or opting for surrogacy. Employers need to inform the employees at the time of hiring, in written as part of the employment contract, all the benefits they can avail under the MBA.
- The Indian government has also amended the Employees Compensation Act, 1923 (ECA) to allow employers to compensate employees for injuries arising out of and in the course of employment, which needs to be mentioned in the employment agreement at the time of joining.
- The Rights of Persons with Disabilities Act, 2016 along with the Rights of Persons with Disabilities Rules, 2017 repeals the Persons with Disabilities (Equal Opportunity Protection of Rights and Full Participation) Act, 1995, which have provisions for equal opportunity of employment to the employees who come under this category. It also enforces the appointment of an officer to oversee the recruitment of disabled persons and also to provide additional training facilities, assistive devices etc.
- The Employees State Insurance Act, 1948 (ESI Act) has enhanced the wage threshold for coverage from Rs 15,000 per month to Rs 21,000 per month thus bringing the ESI Act head to head with the Payment of Bonus Act, 1965 which was also revised from Rs 10,000 per month to Rs 21,000.
The ever-changing HR laws in India along with the developing economic and industrial scene is proving to be quite a challenge for the in-house counsels of the organizations. Therefore it has become extremely necessary that they keep themselves up to date with the latest developments and keep updating the company’s code of ethics so as to ensure that HR managers are complying with the updated and important HR laws.
- “In-house counsels should keep pace with changing labour laws” By Ajay Singh Solanki Preetha S 17 July, 2017
- “Employment Law Issues in India” by Khaitan & Co. on 25 July, 2017
- “The role of in-house counsel in India” by Vivek Vashi and Prakritee Yonzon, Bharucha & Partners