Employment Law in India

Local Employment Law always has to be taken into account whenever you are planning to outsource your business to an offshore destination. As you usually don´t transfer your own staff on a domestic payroll, you will possibly have to directly hire employees from other countries. And their contract of course will be subject to local law.

As Employment Law varies and not every possible outsourcing-destination can be looked at by this blog, the example of the Indian law system was chosen to show that there are sometimes vast differences to be expected in other countries.

This chapter wants to give the reader a brief overview of what are the most important aspects to be considered when talking about Labor Law/ Employment Law in India. It will describe the most important acts and briefly outline some consequences of enforcing these.

Indian Employment Law bases in parts on quite old roots like the Trade Unions Act (1926) and the Minimum Wages Act (1948). As jurisdiction was in a constant flow for the past fifty years, it became quite intransparent from a today´s perspective.

The probably most significant act today is the so called Industry Dispute Act of 1947 that makes layoffs almost impossible. The protection given to employees under this Act is that strong, that it requires companies to ask for permission from the government in case they want to lay off staff. And this permission only rarely is granted. (cf. Vermeer, Neumann 2008, p. 122) Furthermore it authorizes the government to order that any company that employs more than 100 people must constitute a work committee. This committee works as a major instrument of internal labor-management relations. Most of the local government also ordered to form these committees in the meantime. (cf. van Kennedy 1958, p. 490)

The function of the Act can be summed up by:

The Act and other analogous statutes provide the machinery for regulating the rights of the employers and the employees for investigation and settlement of industrial disputes in peaceful and harmonious atmosphere by providing scope for collective bargaining by negotiations and mediations and, failing that, by voluntary arbitration or compulsory adjudication by the authorities created under these statues with the active participation of trade unions. (Bashin 2007, p. 1-2)

The Act additionally points out what circumstances have to be met that strikes and lock-outs can be held legally. (cf. Chandrashekar 1970, p. 369) It also describes precisely a set of conditions of employment that have to be met. That includes topics as classification of workmen, shift schedules, rules governing attendance, leave and holidays, reaction to misconducts as well as termination and grievance procedures. Every set of conditions additionally has to be approved by a designated officer of state or central government. The officer even is empowered to chance the proposed conditions in order to make the orders certifiable. (cf. van Kennedy 1958, p. 491)

The basic techniques of dispute settlement mentioned in the Act are: (cf. Bashin 2007, pp. 2-6 and Chandrashekar 1970, pp. 370-372)

Collective bargaining: This is a technique by which disputes are settled between labor unions and management. The Act allows an agreement bargained including authorities that then binds all employees, no matter if they are a member of a union or not. It also allows agreements found without being supported by authorities that are later on only binding for the parties who participated in the bargaining.

Investigation: The Act also empowers the government to form a court of inquiry. Although the report provided by this court is not binding for the parties, it usually paves the way for an agreement.

Arbitration: This voluntary technique is binding for both parties. Today this technique is the one used most frequently. Within this process a neutral third party renders a decision after having heard both parties. (cf. Vagadia 2007, p. 46).

Adjudication: This means a settlement by Labor Courts, Industrial- or National Tribunals. These authorities issue an award that again is binding for both parties. There is also no provision for appeal.

The Act also clarifies under with circumstances strikes or lock-outs are allowed. In public utility service no employee is allowed to go on strike without announcing the strike six weeks ahead. In non-essential industries, strikes are not allowed when a arbitration or adjudication continues and additionally until two month after the conclusion of proceedings. Civil Servants do not have a right to strike at all. (cf. Chandrashekar 1970, p. 376)

Another important Act as a part of Industrial Labor Law in India is the Contract Labor Act of 1970. It objects to prevent exploitation of contract labor and wants to introduce better conditions of work. Contracted people are hired by a contractor and are indirect employees. It differs from direct labor in terms of employment relationship and method of wage payment. They are hired by a contractor, who is again hired by an establishment that wants to use the services of the contractor. (cf. Padhi 2010, p. 251) The Act itself for example rules that provisions are to be made for rest-rooms, first-aid, wholesome drinking water and so forth. It also makes provisions for inspections of the staff. It also regulates that if the contractor fails to pay wages to its employees, the principal employer who contracted the contractor is liable to pay the wages instead. (cf. Padhi 2010, p. 259)

The Minimum Wages Act of 1948 states that no industry is allowed to exist without being able to pay at least a bare minimum wage. The minimum wage itself is to be determined by the local government and depends on diverse factors which are variable. The local government can decide if minimum wages should be fixed to any trade or industry, any locality and at which rates it should be fixed. It basically aims to provide social justice. (cf. Padhi 2010, pp. 473-474) What is to be regarded as a minimum of course varies to the point of view of the investigator. Some say it is the amount necessary for mere subsistence, some use the amount of health and decency whereas others say a wage minimum is characterized by providing a standard of comfort. (cf. Padhi 2010, p. 470).

The Payment of Wages Act of 1936 applies to persons employed in a factory or employed otherwise and whose monthly wage is not exceeding Rs. 1600. It ensures the payment of wages in a particular form without deductions and in regular intervals. (cf. Kumar 2003, p. 60) It makes the manager of a company directly responsible for ensuring the payment of the wages and says that the period in which wages should be paid shall not exceed one month. More precisely the wage should be paid before the expiry of the 7^th day of the following month. An exception is a company having more than 1.000 employees, where the wages should be paid before day 10 of the following month. The wage should be paid in current currency and in once piece. It further states that no other deductions than allowed by the Payment of Wages Acts are to be made from the monthly wage. (cf. Kumar 2003, pp. 62-64). Additionally the Act states that an external inspector will be asked to monitor the payments of the companies and to enforce the Sections of the Act. (cf. Kumar 2003, p. 69)

The Workmen´s Compensation Act of 1923 deals with compensations paid to employees if they are injured by an accident. It basically says that an employer is liable to pay a compensation to his employee if the accident is related to the course of his employment.  (cf. Kumar 2003, p. 297) The amount of the compensation is dependent on the nature of the injury caused by accident and the average monthly wages of the employee. (cf. Kumar 2003, p. 302) The younger the worker and the higher his wage, the greater will also be his compensation. (cf. Bahsin 2007, p. 7)

If you want to look at retirement benefits, two important Acts have to be considered. One of them is the Payment of Gratuity Act of 1972, the other one is the Employees Provident Fund Act. The first one rules that every employee who has worked for the company for at least five years is entitled to receive 15 day´s wages for every completed year he worked for the company. The later one offers the possibility for the employee to contribute 12 percent of his wage to a fund where the payment will be matched by the employer.  (cf. Bahsin 2007, p. 8)

Under Indian Law women are protected in the same way men are under the Equal Remuneration Act of 1976. This Act ensures equal payment for men and women for the same or similar work. It also bans discrimination in recruitment and service condition. (cf. Bahsin 2007, p. 11)

In summary one can say that labor laws in India are pro-worker what has led to serious rigidities and consequences in terms of performance. One of these consequences is a slow growth of employment despite increasing GDP. (cf. Datta, Sil 2007, p. 1) Scholars state three basic theories for more flexibility in labor markets. The first one emphasizes the ability of the labor force to chance according to the fluctuations of the markets. The second theory mainly states that labor costs need to be lowered because of the rising competitiveness. The third one opts for free markets without government interference in general. (cf. Datta, Sil 2007, p. 3)