Indian Employment Law Labour Law AND Contract Law

INDIAN EMPLOYMENT LAW
LABOUR LAW
AND
CONTRACT LAW

Mewa Singh Shyan SDE
FOREIGN DIRECT INVESTMENT
India today allows investment in mostly all sectors and
remains one of the most attractive emerging markets.

A foreign investor whilst making investment in India has
to make itself aware of the complex labour laws in India.
The Indian labour laws place considerable restrictions on
the freedom of an employer to reduce work force,
dismiss its employees, close down factory etc.

In order to understand the nuances of Employment /
Labour & Industrial law it would be pertinent to
differentiate between the law applicable to executive &
management (white collar ) job and workmen (blue
collar) job.
Knowledge of Law provisions
LABOUR LAWS

Apprentice Act 1961
Contract Act 1872
Contract Regulation & Abolition Act 1970
Employees Provident Fund Act 1952
Factories Act 1948
Industrial Dispute Act 1947
Industrial Standing Order Act 1946
Minimum Wages Act 1948
MRTP & PULP Act 1972
Payment of Wages Act 1936
Payment of Gratuity Act 1972
Trade Union Act 1926
Workmens Compensation Act 1923
Knowledge of Law provisions
BUSINESS LAWS

Companies Act 1956
Income Tax Act 1948
Air Pollution Act 1981
Water Pollution Act
Bombay Sales Tax Act 1959
Central Sales Tax Act
Central Excise Act 1944
Custom Act 1944
Consumer Protection Act 1986
Essential Commodities Act 1955
Environmental (Protection) Act 1986
Monopolies & Restrictive Trade Practices Act 1969
Foreign Exchange Regulation Act 1973
SOME IMPORTANT LABOUR LAWS
APPLICABLE TO WORKMEN
In India several labour laws regulate various conditions of work, wages,
service, labour relations and other such related matters and for the present
presentation we will discuss the complex labour laws in the Organized
sector in India. Some of the relevant laws which are discussed here are as
follows:

The Industrial Disputes Act, 1947;

The Factories Act, 1948;

Shops and Establishment Acts of various states;

The Contract Labour (Regulation and Abolition) Act, 1970;

The Trade Unions Act, 1926;

The Workmens Compensation Act, 1923;

The Employees Provident Funds and Miscellaneous Provisions Act, 1952;

The Employees State Insurance Act, 1948;
THE INDUSTRIAL DISPUTES ACT,
1947 (IDA)
IDA - is an Act to make provision and settlement of
Industrial Disputes with the objective to maintain
industrial peace and economic justice.
IDA categories employees into workman and non-
workman.
Section 2 (s) of IDA defines workman.
Workman means any person employed in any
industry to carry out manual, skilled and unskilled,
technical, operational, clerical or supervisory work for
hire or reward.
The definition specifically excludes persons
employed in managerial or administrative capacity and
also those persons (otherwise falling within the
definition of workman)
An Act to provide for the payment by certain classes of employers to the
workmen of compensation for injury by accident.
Employer is liable to pay compensation to the employee in case of injury
arising out of and in the course of his employment.
The liability to pay compensation is independent of any neglect or wrongful
act of the employee.
This liability springs out of relationship of master and servant. It is not a
liability which arises out of tort.
However, employer shall not be liable if injury does not exceed 3 days or the
workmen was under influence of drugs/alcohol, willful disobedience of rules
and safety guards. However, these limitations not applicable in case of
death of the employee.
Workmen shall be deemed to have been injured in case of contracting
occupational disease in the course of his employment.
The Schedules under the Act detail the amount of compensation for different
type of injuries.
Provides for one-time payments in case of death and in case of permanent
disablement, compensation is made depending on the percentage of loss of
earning capacity.
Once an employee elects to file proceedings under this Act he cannot file
civil suit for damages thus the Employer is protected from double
proceedings.

THE WORKMENS COMPENSATION ACT, 1923
TRADE UNIONS ACT, 1926
This Act provides for the registration of Trade Unions and in certain
respects to define the law relating to registered Trade Unions

Seven or more persons can get together to form a Trade Union.

In order for the Trade Union to register it has to have at least ten
percent or one hundred of the workmen which ever is less as its
members.

Section 9 - On registration the Registrar will issue a Certificate of
Registration.

Section 19 agreement between members will not be void or
voidable merely by reason that the object of the agreement
amounts to restraint of trade.
FACTORIES ACT , 1948

Employers are required to follow stringent licensing and safety measures.

Factory is defined as a place where manufacturing process is carried out using 10
workers using electrical power or 20 workers without power.

Manufacturing process also includes petrol pumps, retail workshops, handicraft
industries etc.

Post Bhopal tragedy (Union Carbide case) special chapter (IVA) has been added
making disclosures mandatory for hazardous processes.

The working hours, leave , weekly days off and wages are similar to Shop and
Establishment Acts- this is discussed later herein.

Under the Act the occupier is responsible for all compliances and in the case of an
incorporated company the Director on the board of the company must be designated
for the purpose of an occupier. Failing which all directors could become liable.
SHOPS AND ESTABLISHMENT
In India most States have a legislation (Shop and Establishments Act) in place which
regulate aspects such as working hours, leave with pay, overtime etc.

Shop and Establishments Act apply to shops, commercial establishments, banks,
insurance companies, hotels, restaurants, software companies and other service
providers. However, they do not apply to factories as Factories Act, 1948 governs
that conditions.

The establishment are required to register in each city under the Act. Some of the
salient features is discussed herein of Bombay Shop and Establishment Act, 1948
(BSA) which are akin to the enactment of other States.

Working hours for 48 hours per week spread over 6 days is permitted. Overtime
payment is made at the double normal hourly rate.

Employee who has worked minimum 240 days will become eligible for 21 days paid
leave and employee is not allowed to accumulate more than 42 days leave.

BSA also has provisions regarding toilets, hygiene etc. and makes provisions for
maternity benefits etc.

THE CONTRACT LABOUR (REGULATION
AND ABOLITION) ACT, 1970
An Act to regulate employment of contract labour in certain establishments and
to provide for its abolition in certain circumstances and for matters connected
therewith
Allows Employers (principal Employers) to use Contractors for supply of labour.
It applies to establishments employing twenty or more persons.
It does not apply to establishments where nature of work is intermittent or
casual.
Principal Employer as well as the Contractor have to register themselves.
The Contractor has to provide amenities and facilities which include canteens,
rest-rooms, first-aid facilities etc.
In case the Contractor fails to provide the facilities the Principal Employer will
have to provide the same and adjust and recover the expense from the
Contractor.
Both the Principal Employer and the Contractor have to maintain Registers and
Records of the Contract Labour employed.
The appropriate Government in consultation with the Central and State Board
can prohibit employment of contract labour in any process, operation and
establishment- if it is of the view that it is perennial in nature, the work can be
carried out by regular workmen.

WORKMAN V/S NON-WORKMAN

The Labour can be broadly classified in two main categories i.e.
unorganized sector and organized sector.

Unorganized sector includes small establishments and employment
relationships of irregular duration and not regulated by any of the labour
laws. For e.g. Artisans, petty shopkeepers, hawkers etc.

Organized sector is identified by specified/fixed operating conditions laid
down by various labour law.

Workman derives certain rights and benefits from the various labour and
industrial laws in India.

Non-workman is defined as employees carrying out managerial and
administrative work and their terms of employment is essentially derived
from the contract drawn up between the Company.

NON-WORKMAN IN PRIVATE SECTOR
Primarily, none of the Labour Laws apply to non-
workmen and service condition of such employees are
governed by the respective contracts and general
service conditions (if existing).

In case of termination, courts cannot reinstate the
Employee.

Employee only has recourse for damages.

Courts in India are conservative in awarding damages
and punitive damages are rarely awarded.

SOCIAL SECURITY LEGISLATIONS
The Employees Provident Funds and Miscellaneous
Provisions Act, 1952 (EPFA).

EPFA applies to establishments and factory employing 20 or more
persons.

Employee drawing salary upto Rs.6,500/- per month has to become
member of the provident fund.

EPFA in provident fund scheme provides wherein 12% is contributed by
both the employee and the employer with administration charge of 1.5%.

In Pension/Superannuation fund scheme a part of the contribution to the
provident fund (8.33%) is diverted to this scheme.

The Deposit Linked Insurance Fund Scheme is for providing Life
Insurance benefits. The employer contributes 0.5% and 0.01% towards
administrative cost of the basic wages.
CONTD
The Payment of Gratuity Act, 1972
It applies to factories, mine, oilfield, plantation, port , railway,
Shops and Establishments employing ten or more persons.
Applicable to employees who have rendered continuous service
for five years.
Employees with less than five years will be entitled in case of
death or disablement.
Employer has to pay within 30 days from the date it becomes
payable to the employee.
Total amount of gratuity payable shall not exceed Rs.3,50,000/-
to 10 Lakhs unless there is a contract to the contrary.
Compulsory insurance is necessary towards gratuity from Life
Insurance Corporation, unless employer exempted from the
Government.
Gratuity is calculated at the rate of 15 days wages for every
completed year of service or a part thereof exceeding six
months.
CONTD
The Employees State Insurance Act, 1948

The contribution under this Act of an employee comprises of
contribution payable by the employer and the employee.

Presently every insured employee and his employer have to
pay the Employees State Insurance Corporation at the rate of
1.75% and 4.75% respectively of the wage of the employee.

Under the Act, the employer is liable to pay compensation to
workmen incapacitated due to an accident arising out and in the
course of employment.
VOLUNTARY RETIREMENT SCHEME
(VRS)
VRS is also popularly known as golden handshake.
Allows industrial establishments to shed work force
without contravening labour laws.
In the nature of self induced retrenchment and is a
legal way to downsize.
In M&A allows companies to downsize the target
company, however in preparation of the VRS certain
technicalities are involved.
VRS payment is generally based on years of service.
At the same time the company cannot compel the
workers to accept VRS and it has to apply uniformly
and cannot be applied selectively.
NON-COMPETITION AND PROTECTION OF
CONFIDENTIAL INFORMATION
Under section 27 of the Indian Contract Act, 1872 an agreement which is in
restraint of trade is considered as void.

However, the courts are loathe to problems faced by the employers and
have recognized the need to protect confidential information. The Supreme
Court in the case of Niranjan Shankar Golikari v. Century Spg. & Mfg. Co.
Ltd. reported in AIR 1967 SC 1098 held that when an employee for a term
binds himself not to take employment during that term it will not be hit by
section 27 and restrained the employee from serving anywhere else for the
duration of the agreement.

The Indian courts have in cases of non-compete clause in employment
agreement differentiated them as in during the term and after the term of
employment.

Terms which restrict employment after the expiry of the agreement the
courts have applied the reasonableness test and the view has been that the
livelihood cannot be taken away and therefore would be hit by section 27.

WHEN TERMINATION OF EMPLOYMENT IS
ILLEGAL IN LAW
Workmen get protected under various legislations in India. Under
section 9A of IDA it becomes difficult to vary the terms and
conditions of the workman.

It will be illegal to retrench and lay off if statutory conditions are not
fulfilled and prescribed compensation is not paid to the workmen.

In certain cases Appropriate Governments prior permission is also
required.

Termination of employees not workmen will be governed by the
terms of their appointment letter / employment contract and
follows, any termination not as per their contract may be construed
to be illegal.
DRAFTING OF EMPLOYMENT CONTRACTS FOR
COMPANIES SETTING UP OPERATIONS IN INDIA
Identify the long term requirement of employees.

Identifying the workmen and employees not covered under definition of workmen,
respectively.

Local laws of the State should be borne in mind while drawing up the contracts

Issue appointment letters which clearly define the employment terms and conditions.

Employment contracts, where necessary, should be put in place with clauses for
wages, benefits, non-compete, confidentiality, term, termination etc.

Depending on the requirement, use fixed term contracts for workmen.

The terms and conditions of the employment should be clearly explained to
employees before execution and should be drafted without any ambiguity.
FIXED TERM CONTRACTS- SECTION 2(OO) (BB)
It applies to workmen under a contract for fixed term and termination of such
workmen would not amount to retrenchment.

The Supreme Court in the case of Harmohinder Singh v kharagh canteen,
Ambala reported in (2001) 5 SCC 540 has held that an employees services
could be terminated on the basis of a stipulation in his contract fixing a
particular tenure or period beyond which the employee would be discharged.

The Supreme Court in the case of Morinda Co-operative Sugar Mills v Ram
Krishna reported in (1995) 5 SCC 653 has held that seasonal workers by their
nature of employment would be covered under section 2(oo) (bb).

Recently, the Supreme Court in the case of Kishor Chandra Samal v Divisional
Manager, Orissa State Cashew Development Corporation, reported in JT 2005 (10)
SC 46 has held that even if there were repeated contracts issued for
successive terms spread over several years, so long as each contract was
for a fixed period, section 2(OO) (bb) would apply, and termination of
employment would stand excluded from the definition of retrenchment.
FIXED TERM CONTRACTS- SECTION 2(OO) (BB)
It applies to workmen under a contract for fixed term and
termination of such workmen would not amount to
retrenchment.
The Supreme Court in the case of Harmohinder Singh v kharagh
canteen, Ambala reported in (2001) 5 SCC 540 has held that an
employees services could be terminated on the basis of a
stipulation in his contract fixing a particular tenure or period
beyond which the employee would be discharged.
The Supreme Court in the case of Morinda Co-operative Sugar Mills
v Ram Krishna reported in (1995) 5 SCC 653 has held that seasonal
workers by their nature of employment would be covered under
section 2(oo) (bb).
Recently, the Supreme Court in the case of Kishor Chandra Samal
v Divisional Manager, Orissa State Cashew Development Corporation,
reported in JT 2005 (10) SC 46 has held that even if there were
repeated contracts issued for successive terms spread over
several years, so long as each contract was for a fixed period,
section 2(OO) (bb) would apply, and termination of employment
would stand excluded from the definition of retrenchment.
LAY-OFF AND RETRENCHMENT OF
WORKMAN IN PRIVATE SECTOR
Section 2 (kkk) defines lay-off the failure of the employer to
provide employment due to shortage of raw material, power etc.
but who has not been retrenched.

Section 2 (oo) defines retrenchment as termination of a
workman for any reason whatsoever otherwise than voluntary
retirement, reaching age of superannuation, non renewal of
contract or termination due to continued ill-health.

Section 2 (oo) (bb) provides for termination of the service of a
workman as a result of the non-renewal of the contract of
employment between the employer and the workman
concerned on its expiry or of such contract being terminated
under a stipulation in that behalf contained therein.
CHAPTER VA AND VB OF IDA WITH REFERENCE TO
LAY-OFF, RETRENCHMENT, TRANSFER AND CLOSURE

Chapter VA applies to industrial establishment - in which less than fifty workmen on
an average working day have been employed in the preceding calendar month and
which are seasonal in character.

Section 25C- A workman laid-off under this Chapter is entitled to fifty percent of his
basic wages and dearness allowance.

The workman who has been in continuous service for at least one year (a year being
defined as 240 days of actual work) is terminated, covered under chapter VA, the
conditions listed below will have to be fulfilled.

Section 25F- Workman cannot be retrenched unless the employer has complied with
(i) giving one months notice in writing, (ii) paid compensation equivalent to 15 days
average pay (for every completed year of continuous service) or any part thereof in
excess of six months and (iii) notice in the prescribed manner to the appropriate
Government.
CHAPTER V B CONTD.
Chapter VB applies to industrial establishment in which not less
than one hundred workmen were employed on an average per
working day for the preceding twelve months.

Section 25M Prohibits the employer to lay- off except with the
prior permission of the appropriate Government unless it is due
to the shortage of power or due to natural calamity.

Section 25N No workman to which this chapter applies can
be retrenched until the employer (i) has given three months
notice in writing with reasons for retrenchment and (ii) prior
permission has been obtained from the appropriate
Government (specified authority).

An extremely compelling case has to be made out in the
application to the appropriate Government, but even so the
Government rarely grants this permission.

TRANSFER AND CLOSURE
Section 25FF- provides for transfer of an
undertaking , whether by agreement or
operation of law, in which case workmen are
entitled to compensation as if the workman had
been retrenched.

The transferee of the undertaking is not bound
to take the employees.

The transferor is only bound to compensate the
workman as if he is deemed to be retrenched
. CLOSURE CHAPTER VB
Section 25-O provides the procedure for closure.
An employer intending to close the undertaking has to
take at least 90 days prior permission of the
appropriate Government.
If the appropriate Government does not communicate
within 60 days, permission will be deemed to have
been granted.
On permission being granted, workman will be entitled
to receive compensation which shall be equivalent to
fifteen days average pay for every completed year of
service or any part thereof in excess of 6 months.

EMERGING TRENDS IN LABOUR LAW IN
INDIA
There is a change in the mind-set of the courts and it
is being seen that the courts are interpreting laws
more liberally that is providing the employer more
flexibility.
Several amendments are on the anvil which will give
the freedom to the employers by not being required to
make an employee permanent, even if the employee
has completed 240 days.
Labour laws in the Special Economic Zone (SEZ) are
to be amended substantially with amendment in the
Contract Labour (Regulation and Abolition) Act, 1970
which will allow the employers to follow a hire and fire
policy under certain conditions.

Enactments passed by Central & State Legislations
Regulations formed by Local bodies & authorities
Rules framed by Subordinate Legislation
Court of Records
Contitution of India
Understanding the Laws
Foundation for
Enforcement of laws
Laws of Natural J ustice
Usage & Customs
Human Rights
Concepts
Writs of Habeas
Corpus, Mandamus,
Prohibition, Certiorari
& Quo Warranto
Caveat AND stay
COURTS: CIVIL, CRIMINAL, INDUSTRIAL/LABOUR, OTHERS
THE WRITS
HABEAS CORPUS: Order to produce person
detained.
MANDAMUS: To demand for some activity or
action or performance.
PROHIBITION: Preventing subordinate Courts
from exercising jurisdiction.
CERTIORARI: To quashing of decision of
lower court or to remove case from lower body.
QUO WANRRANTO: To oust the one who has
not legally qualified to hold public office.
CONTRACT REGULATION &
ABOLITION ACT 1936
Under Section 7, Registration of Establishment is
necessary wherein the labours are employed under
contracts. All contractors are expected to get the
license under the provisions of section 12 of this Act.
Application for such licenses are to be submitted along
with the Certificate from principal employer. This
application for license contains details like details of
work, expected dates of commencement & completion,
Maximum number of labours proposed to be deployed.
Under Rule 81, Principal Employer is expected to submit
returns within 15 days of the commencement of work
or completion of work under each contractor in form
VI-B. and to send the annual report/ return in Form-
XXV before 15th February.
The authorised supervisor executing The work has to
perform statutory duties of examining following
documents
Muster Roll in Form XVII
Register of Wages in Form XVIII
Register of Deductions in Form XX
Register of Fines in Form XXI
Register of Advances in Form XXII
Register of Overtime in Form XXIII
Wages slip to be given in Form XIX
All these documents are to be maintained by the contractors
under Rule 78. By virtue of sections 16 to 19, the Principal
Employer has to provide facilities for the Welfare of contract
labours like Canteen, Rest Rooms, Other facilities and First
Aid facilities. Responsibility for payment of wages to
Labours rests on Principal Employer u/s 21.
The Principal Employer has to
maintain following records
Rule 74 : Register of Contractors in Form XII
Rule 75 : Register of Person Employed in Form
XIII
Rule 76 : Employment Card/Form XIV, Contractor
to issue
Rule 77 : Service Certificate in Form XV
Rule 79 : To display Abstract of Act.
Chapter VI: Penalties and Procedure
Section 22 : Obstruction to Inspectors [3
months/Rs 500]
Section 23 : Contravention of provisions [6
months/Rs 1000]
Section 24 : Other Offences [8 months/Rs
1000 & Rs 100 per day]
Section 25 : Offences by Companies
Section 26 : Cognizance of offences
Section 27 : Limitation [3 months]
MINIMUM WAGES ACT 1948
CHAPTER I : Fixing Minimum wages for specified
employees under provisions of section 3,4 & 5.
CHAPTER II : Procedure for Revision of rates.
CHAPTER III : Constitution of Advisory Board &
Committees under section 7, 8 & 9
CHAPTER IV : Fixing Hours for normal working days
under section 13
CHAPTER V : Maintenance of registers and records
CHAPTER VI : Provision related to Claims & Penalties
WORKMENS COMPENSATION
ACT 1926
CHAPTER I : Definition part
CHAPTER II : Provisions regarding
Compensation
CHAPTER III : Various authorities
under Act, their powers
& procedures
CHAPTER VI : State Govts power
to make rules

INDUSTRIAL DISPUTE ACT 1947
CHAPTER I : EXTENT AND DEFINITIONS- It contains
important definitions of Employer, Industrial disputes, Layoffs,
Lockouts, Public Utility Company, Retrenchment, Unfair Labour
Practice
CHAPTER II : Section 3 to 9 - Authorities under the Act:
Works ommittee, Conciliation Officer, Board of Conciliation,
Labour Courts, Industrial Courts, Industrial Tribunal, National
Tribunal
CHAPTER III : Reference of Dispute, Notice under section
22 & Voluntary Reference of Disputes
CHAPTER IV : Section 11 to 21 Powers & Duties
CHAPTER V : Section 22 to 25 : Strikes & Lockouts
CHAPTER VA : Section 25 A to J Layouts & Retrenchment
CHAPTER VB : Section 26 to 31 Misc Provisions
FACTORIES ACT 1948
CHAPTER I : Preliminaries
CHAPTER II : The Inspecting Staff
CHAPTER III : HEALTH: S.11-Cleanliness, S.12-Disposal of
waste, S.13-entilation/Temp., S.14-Dust & fumes, S.16-
Overcrowding, S.17-Lighting, S.18-Drinking Water, S.19-
Latrines/Urinals, S.20-Spittons etc
CHAPTER IV: SAFETY: S.21- Fencing, S-22- Work near
machinery in motion, S.23- Employment of young person,
S.24- Striking Gear, S.25- Self acting m/c, S.26- Casing of
new m/c, S.28-Hoist & Lifts, S.29-Lifting m/cs, chains, ropes
& lifting tackles, S.31-Pressure Plants, S.32-Floors, stairs,
S.33-Pits, sumps, opening in floors, S.34 - Excessive weights,
S.35-Protection to Eyes, S.36A-Portable electric lights, S.40A-
Maint. Of buildings, S.40B-Safety Officers
FACTORIES ACT 1948
CHAPTER IVA: Provisions regarding Hazardous
Process
CHAPTER V : WELFARE: S.42-Washing Facilities,
S.44- sitting facilities, S.45-First Aid
appliances,S.46 Canteens, S.47- Rest
rooms & Lunch rooms, S.48- Creches
CHAPTER VI : WORKING HOURS OF ADULTS
Sections 51 to 66
CHAPTER VII: EMPLOYMENTS OF YOUNG
PERSONS
CHAPTER VIII: ANNUAL LEAVE WITH WAGES
CHAPTER IX :SPECIAL PROVISIONS
CHAPTER X :PENAULTIES & PROCEDURES
ACCIDENT REPORTING ..
Under IE Act: To Electrical Inspector in Form XIII in 48 hrs
Under Factories Act: To Factory Inspector in 48 hrs
Under Indian Boiler Act: To Boiler Inspector in 24 hrs
Under Petroleum Act Nearest Magistrate & Inspector of
Explosives
Under Indian Explosives Act : To Chief Inspector of Explosives
GUILTY OF NEGLIGENCE.. IN
Indian Panel Code : IPC
GROSS NEGLIGENCE
CONTRIBUTORY NEGLIGENCE
RESPONSIBILITY/ DUTY TO MANAGE
INJURY RESULTED
INTENTION OF WRONG DOER
RIGHT TO INITIATE ACTION
Protection of Engineers
Section 80 of Civil Procedure Code: No suit
shall be instituted against a public servant in
respect of any act purporting to be done in his
official capacity until expiration of two months
next after notice in writing.
Similar provision exist in IE Act sec. 56
MSEB employee is public servant as per Sec.81 of
IE Act 1910.

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