The Employment

Law Review
Law Business Research
Fourth Edition
Editor
Erika C Collins
The Employment Law Review
Reproduced with permission from Law Business Research Ltd.
Tis article was frst published in Te Employment Law Review 4th edition
(published in March 2013 editor Erika C Collins).
For further information please email
Adam.Sargent@lbresearch.com
The
Employment
Law
Review
Fourth Edition
Editor
Erika C Collins
Law Business Research Ltd
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Te publisher acknowledges and thanks the following law frms for their learned
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Acknowledgements
ENS (EDWARD NATHAN SONNENBERGS)
ESTUDIO GRAU ABOGADOS
GEORGE Z GEORGIOU & ASSOCIATES LLC
GIANNI, ORIGONI, GRIPPO, CAPPELLI & PARTNERS
GIESE & PARTNER
GONZALEZ CALVILLO, SC
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KGDI LAW FIRM
KOCHHAR & CO
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MATHESON
MATTOS FILHO, VEIGA FILHO, MARREY JR E QUIROGA ADVOGADOS
NESTOR NESTOR DICULESCU KINGSTON PETERSEN
PAUL HASTINGS (EUROPE) LLP
PAUL HASTINGS LLP
PAUL HASTINGS LLP SHANGHAI REPRESENTATIVE OFFICE
Acknowledgements
iii
SAGARDOY ABOGADOS
SAYENKO KHARENKO
SRVULO & ASSOCIADOS SOCIEDADE DE ADVOGADOS, RL
SKRINE
SNR DENTON
SOTYSISKI, KAWECKI & SZLZAK
TILLEKE & GIBBINS
TSMP LAW CORPORATION
URENDA, RENCORET, ORREGO Y DRR
VAN OLMEN & WYNANT
WALDER WYSS LTD
iv
CONTENTS
Editors Preface ...................................................................................................xi
Erika C Collins
Chapter 1 GLOBAL DIVERSITY AND
INTERNATIONAL EMPLOYMENT ..................................... 1
Erika C Collins
Chapter 2 EMPLOYMENT ISSUES IN CROSS-BORDER
M&A TRANSACTIONS .......................................................... 7
Erika C Collins and Michelle A Gyves
Chapter 3 SOCIAL MEDIA AND INTERNATIONAL
EMPLOYMENT ..................................................................... 14
Suzanne Horne and Eleni Konstantinou
Chapter 4 AUSTRALIA ............................................................................ 31
Miles Bastick, Shivchand Jhinku and Zo Adams-Lau
Chapter 5 AUSTRIA ................................................................................ 46
Jakob Widner
Chapter 6 BELGIUM ............................................................................... 65
Chris Van Olmen
Chapter 7 BRAZIL ................................................................................... 81
Vilma Toshie Kutomi
Chapter 8 CANADA ................................................................................ 99
Jefrey E Goodman and Christopher D Pigott
Chapter 9 CHILE ................................................................................... 112
Francisco della Maggiora M
Chapter 10 CHINA .................................................................................. 125
Gordon Feng and Erika C Collins
Contents
v
Chapter 11 COSTA RICA ........................................................................ 143
Carolina Soto Monge
Chapter 12 CYPRUS ................................................................................ 155
George Z Georgiou, Anna Praxitelous and Natasa Aplikiotou
Chapter 13 CZECH REPUBLIC ............................................................. 170
Lenka Velvarsk
Chapter 14 EL SALVADOR ..................................................................... 186
Diego Martn-Menjvar and Carlos Roberto Rodrguez Salazar
Chapter 15 ESTONIA .............................................................................. 201
Heli Raidve
Chapter 16 FINLAND ............................................................................. 218
Petteri Uoti and Loviisa Hr
Chapter 17 FRANCE ............................................................................... 229
Deborah Sankowicz and Jrmie Gicquel
Chapter 18 GERMANY ........................................................................... 246
Tomas Griebe and Jan-Ove Becker
Chapter 19 GREECE ............................................................................... 266
Efe G Mitsopoulou and Ioanna C Kyriazi
Chapter 20 GUATEMALA ....................................................................... 284
Lionel Francisco Aguilar Salguero
Chapter 21 HONG KONG ..................................................................... 291
Michael J Downey
Chapter 22 INDIA ................................................................................... 309
Manishi Pathak
Chapter 23 INDONESIA ......................................................................... 327
Nafs Adwani
Chapter 24 IRELAND.............................................................................. 342
John Dunne and Georgina Kabemba
Contents
Chapter 25 ITALY .................................................................................... 361
Rafaella Betti Berutto
Chapter 26 JAPAN ................................................................................... 374
Setsuko Ueno
Chapter 27 LATVIA ................................................................................. 389
Sigita Kravale
Chapter 28 LUXEMBOURG ................................................................... 405
Guy Castegnaro, Ariane Claverie, Cline Defay, Christophe
Domingos, Laurence Chatenier, Lorraine Chery and Evelyne Schoeser
Chapter 29 MALAYSIA ............................................................................ 425
Siva Kumar Kanagasabai, Selvamalar Alagaratnam and Foo Siew Li
Chapter 30 MALTA .................................................................................. 444
Ron Galea Cavallazzi
Chapter 31 MEXICO ............................................................................... 454
Miguel Valle, Jorge Mondragn and Rafael Vallejo
Chapter 32 NETHERLANDS ................................................................. 473
Eugenie Nunes
Chapter 33 NICARAGUA ....................................................................... 496
Bertha Xiomara Ortega Castillo
Chapter 34 NORWAY .............................................................................. 506
Gro Forsdal Helvik
Chapter 35 PERU ..................................................................................... 519
Jos Burgos C
Chapter 36 POLAND .............................................................................. 535
Roch Paubicki and Karolina Nowotna
Chapter 37 PORTUGAL .......................................................................... 549
Pedro Furtado Martins, Dora Joana and Nuno Pais Gomes
Contents
viii
Chapter 38 ROMANIA ............................................................................ 564
Delia Paceagiu Ratoi, Iurie Cojocaru, Alexandru Lupu and
Patricia-Sabina Macelaru
Chapter 39 RUSSIA .................................................................................. 577
Irina Anyukhina
Chapter 40 SAUDI ARABIA .................................................................... 596
Amgad T Husein, John Balouziyeh and Fadil M Bayyari
Chapter 41 SINGAPORE ........................................................................ 608
Ian Lim, Nicole Wee and Gordon Lim
Chapter 42 SLOVAKIA ............................................................................ 622
Katarna Matulnkov
Chapter 43 SLOVENIA............................................................................ 634
Vesna afar and Martin afar
Chapter 44 SOUTH AFRICA .................................................................. 652
Susan Stelzner, Stuart Harrison, Brian Patterson and Zahida
Ebrahim
Chapter 45 SPAIN .................................................................................... 673
Iigo Sagardoy de Simn
Chapter 46 SWEDEN .............................................................................. 693
Erik Danhard and Jennie Lw
Chapter 47 SWITZERLAND .................................................................. 705
Ueli Sommer
Chapter 48 TAIWAN ............................................................................... 718
Seraphim Mar
Chapter 49 TURKEY ............................................................................... 731
Serbulent Baykan and Handan Bektas
Chapter 50 UKRAINE ............................................................................. 744
Svitlana Kheda
Contents
ix
Chapter 51 UNITED ARAB EMIRATES ................................................ 758
Ibrahim Elsadig
Chapter 52 UNITED KINGDOM .......................................................... 768
Suzanne Horne
Chapter 53 UNITED STATES ................................................................ 780
Patrick Shea and Erin LaRufa
Chapter 54 URUGUAY ............................................................................ 795
Gabriel Ejgenberg
Chapter 55 VIETNAM ............................................................................ 806
Michael K Lee, Huong Ti Tanh Nguyen and Doan Ngoc Tran
Appendix 1 ABOUT THE AUTHORS .................................................... 819
Appendix 2 CONTRIBUTING LAW FIRMS CONTACT DETAILS .. 853
xi
EDITORS PREFACE
It has once again been my great pleasure to edit this most recent edition of Te Employment
Law Review. In reviewing chapters for inclusion in this edition, I was struck repeatedly
by both the breadth and variety of laws and approaches to employment regulation across
jurisdictions as well as the similarities, especially with regard to certain trends, some of
which are discussed below. As with the earlier editions, this book is not meant to provide
a comprehensive treatise on the law of any particular country but instead is intended to
assist practitioners and human resources professionals in identifying key issues so that
they may, in turn, help their clients avoid potentially troublesome (and often costly)
missteps.
One of the common themes during 2012 was an increase in the promulgation
of laws and regulations designed to increase fexibility and lower the costs of labour for
employers while maintaining sufcient protections for employees. A prime example of this
trend is the passage throughout 2012 of legislation in EU Member States implementing
the EU Directive on Temporary Agency Work, which came into efect in December
2011. Te Directive and related implementing legislation ensure certain minimum
compensation and benefts for temporary agency workers while also increasing fexibility
for employers. Both Vietnam and Mexico also adopted legislation in 2012 that sanctions,
but also places limitations on, labour outsourcing arrangements. In Brazil, President
Dilma Roussefs Greater Brazil Plan also has been aimed at increasing employment and
avoiding the slowdown and economic crisis faced by other jurisdictions. Among the
employment-related measures implemented pursuant to the Greater Brazil Plan are relief
from payroll contributions for the information technology sector and other incentives
to foster employment. Finally, in the UK, a novel idea is under consideration that would
allow an employer to issue an ownership interest in the company to the employee in
exchange for the employees agreement not to be protected by the unfair dismissal laws.
While these eforts are, of course, aimed at benefting workers by addressing
unemployment, a number of them also are by-products of another trend: the
implementation of austerity measures in response to debt crises in Europe and elsewhere.
Fewer unemployed citizens means lower entitlement spending for governments. Other
xii
Editors Preface
employment-related austerity measures also have been implemented or proposed that are
less benefcial to employees and jobseekers. In the Netherlands, for example, the period
of time during which an individual can collect unemployment benefts was reduced
from three years to two. Portugal continues to consider a reduction of remuneration and
benefts for civil servants and employees public enterprises.
Tis fourth edition once again includes several general-interest chapters one
addressing employment issues in cross-border mergers and acquisitions, one addressing
social media in the workplace, and another addressing global diversity initiatives. Tis
edition also boasts the addition of fve new countries, bringing the number of covered
jurisdictions to 52.
I wish once again to thank our publisher, particularly Lydia Gerges, Adam Myers
and Gideon Roberton; all of our contributors; and my associate, Michelle Gyves, for
their tireless eforts to bring this edition to fruition.
Erika C Collins
Paul Hastings LLP
New York
February 2013
309
Chapter 22
INDIA
Manishi Pathak
1
I INTRODUCTION
Employment relations in India are governed by the Constitution of India, treaties,
statutes, collective and individual contracts and judicial precedents. Tere are around
165 pieces of labour legislation, including 55 central (federal) and 110 state pieces of
legislation. Employment legislation lies in the concurrent list of the Seventh Schedule
of Article 246 under the Constitution of India, which gives both the central and state
governments (up to a certain extent) the power to legislate matters that are on the list.
In India most of the labour and employment laws primarily apply only to a
workman as defned in the Industrial Disputes Act, 1947 (the ID Act). Te information
provided in this chapter applies primarily to the workman category of employees as
defned under the Industrial Disputes Act, 1947 (discussed below). A workman is
defned as a person who is employed to do any manual, unskilled, skilled, technical,
operational, clerical or supervisory work for hire or reward, excluding a person:
a who is employed mainly in a managerial or administrative capacity; or
b who is employed in a supervisory capacity and draws a salary exceeding 10,000
rupees per month or exercises functions mainly of a managerial nature.
An employee is classifed as a workman based on the nature of the duties performed and
not the designation of the employee.
i Dispute resolution mechanisms
Te Industrial Disputes Act, which is the primary statute dealing with labour dispute
resolution, provides for the establishment of the following authorities for the resolution
of labour disputes.
1 Manishi Pathak is a senior partner at Kochhar & Co.
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310
Conciliation ocers
Conciliation ofcers are government ofcials appointed by the Labour Department to
mediate and promote the settlement of industrial disputes between workmen and their
employers. Teir powers are neither judicial nor quasi-judicial but are administrative in
nature.
Boards of conciliation
Te appropriate government (central or state government) has the power to constitute
a board of conciliation for the settlement of an industrial dispute referred to it. Te
board of conciliation can have either two or four members (appointed in equal numbers
from the parties to a dispute, to be nominated by the parties), and a chairman, who is
independent. Te board of conciliation functions like an arbitral tribunal.
Labour courts
Labour courts have been set up by the government in all states for the purpose of
adjudicating industrial disputes relating to matters specifed in the Second Schedule of
the ID Act, such as discharge or dismissal, application and interpretation of standing
orders, and the legality of a strike or lockout.
Industrial tribunals
Industrial tribunals adjudicate industrial disputes relating to the matters specifed in
the second or third schedule of the ID Act and for performing such matters as may be
assigned to them under the ID Act. Te functions and duties of the industrial tribunals
are quasi-judicial in nature.
National tribunals
National tribunals adjudicate disputes that in the opinion of the government involve
questions of national importance or are of such a nature that industrial establishments
situated in more than one state are likely to be afected.
Courts of inquiry
In special cases, the appropriate government (central or state government), may establish
a court of inquiry to look into any matter relevant to an industrial dispute.
Apart from the authorities set up under the ID Act, state high courts and the
Supreme Court of India also have jurisdiction to hear certain labour disputes under the
provisions of the Constitution of India.
Every state has a high court, which has superintendence over all courts and
tribunals throughout the state. Te high court exercises jurisdiction with regard to
employment laws, which is an original jurisdiction Article 226 of the Constitution
of India empowers the high court to issue appropriate orders and writs for enforcement
of the fundamental rights guaranteed under the Constitution, where a party has been
denied such a right or in the matters originating from labour court decisions.
Te Supreme Court of India is a court of record and, hence, the judgments
pronounced by it form judicial precedents that are to be followed by all subordinate
courts in India. Te Supreme Court also exercises appellate and original jurisdiction with
regard to employment laws.
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Employers and employees may also agree to refer the dispute to arbitration under
the ID Act.
Civil court
Te civil court also has jurisdiction to decide employment-related matters for employees
in the category of non-workmen. Every award passed or order issued by the industrial
court or settlement arrived before the industrial court is executed by a civil court.
ii Major employment law statutes
Certain statutes described below are only applicable to specifc categories of employees
or establishments.
Te Industrial Disputes Act, 1947
Te ID Act provides for the investigation and settlement of industrial disputes through
dispute resolution authorities. It also provides the conditions regulating strikes, lockouts,
lay-ofs and retrenchment, changes in conditions of services and prohibits unfair labour
practices by the employer or employees.
Te Trade Unions Act, 1926
Te Trade Unions Act provides for the recognition and registration of trade unions,
providing legality to labour organisations and enabling collective bargaining.
Te Industrial Employment (Standing Orders) Act, 1946 (the IESO Act)
Te IESO Act regulates the conditions of employment of workmen by providing for
certifcation of standing orders. Standing orders are written documents dealing with
terms and conditions of employment. Since standing orders are drafted by employers,
the afected trade unions or workers are given an opportunity to object. Te IESO Act
prescribes model standing orders as a minimum standard that the employers are required
to follow while preparing their own standing orders. It is primarily applicable to industrial
establishments employing 100 or more workmen; however, the state government may, by
notifcation, extend the applicability to establishments with fewer than 100 employees.
For instance, the state of Maharashtra and Gujarat has extended the applicability of the
IESO Act to establishments with 50 or more employees.
Te Payment of Wages Act, 1936 (the PW Act)
Te Payment of Wages Act regulates the payment of wages to workers employed in
certain specifed industries and provides a remedy against illegal deductions and
unjustifed delays in the payment of wages. It is applicable to workers employed in a
factory, industrial or other establishment, whether directly or indirectly (i.e., through a
contractor). Te PW Act is applicable to an employed person drawing a wage of 18,000
rupees per month (earlier the wage ceiling was 10,000 rupees per month).
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Te Minimum Wages Act, 1948 (the MW Act)
Te MW Act safeguards the interests of workers by providing a minimum wage for
certain jobs. It requires employers to pay their workers the minimum wages as fxed
under the MW Act from time to time by the government.
Te Payment of Bonus Act, 1965
Te Payment of Bonus Act provides for the payment of statutory bonuses to the
employees, employed in certain establishments on the basis of profts or the productivity
of the establishment.
Te Factories Act, 1948 (the Factories Act)
Te main objective of the Factories Act is to regulate working conditions in factories
including working hours, leave, holidays, overtime and the employment of children,
women and young persons, and ensure basic minimum requirements for the safety,
health and welfare of the factory workers.
Te Maternity Benet Act, 1961
Te Maternity Beneft Act provides for maternity leave and other benefts before and
after childbirth, medical termination of pregnancy or miscarriage. Te employer is
required to pay maternity benefts at the rate of the average daily wage for the period of
her actual absence up to a maximum of 12 weeks.
Te Employees Compensation Act, 1923
Te Employees Compensation Act applies to persons employed in factories, mines,
plantations, construction works and certain other hazardous occupations. It provides for
payment of compensation to workmen and their dependants in the event of an injury
caused due to an accident arising out of and in the course of employment, and resulting
in disability or death. Te amount of compensation to be paid depends on the nature of
the injury, the average monthly wage and the age of the workmen.
Te salary limit for the purposes of compensation is 8,000 rupees.
Te Employees State Insurance Act, 1948 (the ESI Act)
Te ESI Act, wherever applicable, provides for health care and cash beneft payments in
the case of sickness, maternity and employment injury. It provides for need-based social
insurance schemes that protect the interest of workers in contingencies such as sickness,
maternity, temporary or permanent physical disablement, or death due to employment
injury.
Te salary limit for eligible employees is 15,000 rupees.
Te Employees Provident Fund & Miscellaneous Provisions Act, 1952 (the EPF Act)
Te EPF Act provides for the institution of provident funds, family pension funds and
deposit-linked insurance funds for the employees, which taken together provide old-age
and survivorship benefts, long-term protection and security to the employee (and after
his or her death to his family members), and advances in times of need. Te salary limit
for employees covered by the EFP Act is 6,500 rupees.
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313
Te Payment of Gratuity Act, 1972
Te Payment of Gratuity Act provides for the payment of a gratuity to employees on
termination of employment after completion of a minimum of fve years of continuous
service with the employer and upon his or her death. Te gratuity is payable at the
rate of 15 days average wages for every completed year of service up to a maximum of
1 million rupees. It is the duty of the relevant state labour department to ensure efective
implementation of such payments. Te maximum gratuity that can be paid is up to
1 million rupees (or more, if the employer wishes).
II YEAR IN REVIEW
i Privacy law
Te Information and Technology (Reasonable Security Practices and Procedures and
Sensitive Personal Data or Information) Rules, 2011 (the Rules), has introduced privacy
law regarding personal information and sensitive personal data and information.
Personal information is defned as any information that relates to a natural person
which is capable of identifying such person.
Sensitive personal data or information means such personal information which
consists of:
a passwords;
b fnancial information such as bank account or credit card or debit card or other
payment instrument details;
c physical, physiological and mental health conditions;
d sexual orientation;
e medical records and history;
f biometric information; and
g any details relating to the above clause as provided to a body corporate for
processing or storage, under lawful contract or otherwise.
Te above information would not be regarded as sensitive personal data or information
for the purposes of these Rules if such data or information is freely available or accessible
in the public domain, or furnished under the right to information or any other law
presently in force.
Te Rules provide certain obligations on bodies corporate (including employers)
that collect, receive, possess, store, deal or handle the information of the information
provider. Tese obligations include framing a policy for handling and dealing with
personal information, including sensitive personal data and information, the mode of
collection of information, the disclosure of information, transfer of information and
security measures that are required to be undertaken by the body corporate.
ii Social security/employees provident fund
A foreign national, employed in India in an establishment to which the EPF Act applies,
is required to become a member of the EPF Fund, unless India has entered into a social
security agreement on a reciprocity basis with his or her home country and the employee
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314
is contributing to a social security programme in his or her home country and has
obtained a detachment certifcate from their respective social security authorities.
Social security agreements with Belgium, Germany, Switzerland, Denmark,
Luxembourg, France, the Republic of Korea and the Netherlands have been made
efective from 1 September 2009, 1 October 2009, 29 January 2011, 1 May 2011,
1 June 2011, 1 July 2011, 1 November 2011 and 1 December 2011 respectively.
III SIGNIFICANT CASES
i American Express Bank Ltd v. Ms Priya Puri
Te Delhi High Court held that the right of an employee to search for better employment
cannot be curbed by a court injunction on the ground that the employee is privy to the
employers confdential data. Te Court held that the employer cannot be allowed to
perpetuate forced employment in the guise of confdentiality.
ii DLL (International Taxation), Mumbai v. Morgan Stanley & Co Inc
In this case Morgan Stanley & Co (MSCO) outsourced some of its activities to one of
its group companies in India, Morgan Stanley Advantages Services Pvt Ltd (MSAS), by
entering into a service agreement. Te basic questions that arose before the Bombay High
Court were whether MSCO had a permanent establishment (PE) in India under the
double taxation avoidance agreement (DTAA) between India and the US, on account
of the services rendered by MSAS. It was held that to decide whether a PE had been
established the Court must conduct a functional and factual analysis of each activity
of the establishment. Furthermore, where MSCO seconded an employee to MSAS in
India, such employee did not become an employee of MSAS and he or she retained
employment with MSCO. In this sense a service PE is established in India (under the
DTAA, a service PE exists or is established where an enterprise furnishes services within
a contracting state, through its employees or personnel).
iii Bhilwara Dugdh Utpadak Sahakari S Ltd v. Vinod Kumar Sharma and Others
In this case the Supreme Court has held that the employees of the contractor would be
deemed the employees of the principal employer if they were doing the work of regular
employees and working under the direct orders of the principal employer.
iv New Delhi Municipal Corporation v. NDMC General Majdoor Union and
Another
In this case the Delhi High Court held that when the nature of work to be performed by
the permanent employees and that of the muster roll employees (daily-rated labourers) is
diferent both in respect of skill and responsibilities, the demand of equal pay by muster
roll employees to that of permanent employees, applying the principle of equal pay for
equal work, is not sustainable. It is settled law that equal pay for equal work is not a
principle to be applied in abstract.
India
315
v Bharat Fritz Werner Karmika Sangha v. Management of Bharat Fritz Werner
Ltd
In this case the Karnataka High Court held that extending beneft of ex gratia towards
payment of bonuses to certain workmen and denying others who engaged in strike action
is illegal, and an act of victimisation and discrimination, because the ex gratia payment
was being paid for a long time and had become a condition of service. It was further held
that condition of service cannot be changed without following the procedure as specifed
in the Industrial Disputes Act, 1947.
vi Goa Bottling Co Pvt Ltd v. deputy Regional Director, ESI Corporation, Goa
and Others
In this case the High Court of Bombay held that, in view of Circular dated 26 June
1982 issued by the ESI Corporation, the repair and maintenance of factories, including
furniture and packing charges, etc., would be within the ambit of expenditure to attract
ESI contribution. It was further held that in the absence of bifurcation of payment made
for loading and unloading to the contractor, the whole amount will be taken as wages
for the purpose of ESI contribution.
vii Superintending Engineer, Mettur Termal Power Station, Mettur v. Appellate
Authority, Joint Commissioner of Labour, Coimbatore and Another
It has been held by the Madras High Court that when the contractor, who engages the
workmen, does not pay the amount of gratuity to them, the principal employer is liable
to pay gratuity to such workers as per the provisions of the Section 21(4) of the Contract
Labour (Regulation and Abolition) Act, 1970. Te principal employer will have a right
to recover the amount from the contractor.
viii Te Assistant Director Employees State Insurance Corporation Marol v. M/s.
Western Outdoor Interactive Private Limited and M/s. Reliable Software
Systems Private Limited v. Employees State Insurance Corporation Regional
Oce, Marol
Te Mumbai High Court in this case declared software development activity as a
manufacturing process and therefore considered a software development establishment
as a factory, covered under the ESI Act.
IV BASICS OF ENTERING AN EMPLOYMENT RELATIONSHIP
i Employment relationship
Except for a few state-specifc laws that require documents to establish an employer
employee relationship, Indian employment laws generally do not specify for an
employment contract to be in writing. It is recommended, however, that employers
enter into detailed employment contracts or communicate the terms and conditions of
employment to the employees through a written letter at the beginning of employment.
Employment contracts in India would generally include the following terms:
a name and address of the employer and employee;
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316
b title of job or nature of work (or job description);
c place of work;
d probation period, if any, and its terms;
e date of commencement of employment;
f salary details;
g any benefts that an employee is entitled to;
h type of contract: permanent or fxed-term;
i period of notice required for termination of employment;
j leave entitlement;
k conditions under which the employer can terminate the contract; and
l restrictive covenants non-compete, confdentiality, non-solicitation provisions,
etc.
Apart from certain state-specifc statutes, the employment laws in India do not provide
any provisions relating to when and how an employment contract should be executed.
Such contract may be executed in writing before or after the employee has started
working for the employer. It is best practice, however, to execute such contract before the
commencement of employment.
In practice, the terms of employment may be amended when both the parties
agree to such amendment in writing. In the case of a workman, however, the ID Act
provides that an employer can change the terms of employment with respect to certain
specifed issues that are adverse to the employees by giving 21 days advance written
notice. If any employee challenges the change with the labour authorities, the employer
would not be able to make such change until the fnal resolution of the dispute.
ii Probationary periods
Under the employment laws in India, probationary periods are permissible. Pursuant to
the IESO Act (in establishments to which it is applicable) a workman can be employed
on a probationary basis to provisionally fll a permanent vacancy for a maximum of
three months. For establishments to which the IESO Act is applicable, a probationer
is not entitled to any dismissal notice or payment in lieu of notice during the period of
probation.
In establishments to which the IESO Act is not applicable, employers are free
to decide on the reasonable duration of probation. Te notice periods would, however,
depend on the applicable state-specifc Shops and Establishments Act.
iii Establishing a presence
Strictly speaking, a foreign company has to have an Indian presence (i.e., branch ofce,
liaison ofce, project ofce, joint venture, subsidiary) to carry on business in India and
to hire employees. A foreign company, however, can engage a service provider in India to
provide services through its manpower.
Subject to certain factors, a foreign company that is not registered in India can
engage an independent contractor. An independent contractor could be deemed to
have established a PE of the foreign company in accordance with the applicable DTAA
between India and the relevant foreign country. Where a PE is deemed to have been
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created in India, the profts of the foreign company attributable to the PE would be liable
to taxation in India.
Depending on the applicable statutes based on the nature of industry and category
of the employee, the employees would be entitled to benefts under the following statutes:
a the ESI Act;
b the EPF Act, which provides for the setting up of the following social schemes:

Provident Fund Scheme;

Family Pension Fund Scheme; and

Deposit-linked Insurance Scheme; and

c bonus; and
d gratuity.
Where an employees salary is liable to be taxed in India, it is the responsibility of the
employer to deduct the tax (at applicable rates) and pay it to the Indian income tax
authorities.
V RESTRICTIVE COVENANTS
Under Indian law, a non-compete clause that operates during the employment relationship
is valid and enforceable. Such covenants post-termination, however, are considered void.
For their deterrent value, it is common practice to include non-compete clauses for both
during the term and after termination of an employment contract.
VI WAGES
i Working time
Depending on the nature of establishment or industry, the employment-related statutes
provide for the maximum number of hours an individual can be required or allowed to
work in a day or week.
Te Factories Act applies to all factories in India and the state-specifc Shops
and Establishments Act (the SEA), which is a state legislation, applies to all shops and
establishments in a state and generally provides for maximum working hours, which
generally are up to nine hours a day and 48 hours a week.
Te Factories Act provides that every employee is entitled to 24 hours of
continuous rest in a week (i.e., a weekly day of). If a weekly day of or compensatory
day of falls after a night shift, the 24 hours from the end of the shift are given to him
or her as his or her weekly day of. Also under the Factories Act and SEA, women are
not allowed to work at night. In some states, however, exemptions have been provided
for certain businesses such as the information technology industry, etc. Specifc approval
may also be required.
ii Overtime
Pursuant to the Factories Act and certain state SEAs, any work done over nine hours a
day or 48 hours a week is considered overtime. Compensation for overtime work must
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be in the form of a higher wage. An employee working overtime generally becomes
entitled to wages at the rate of twice his or her ordinary rate of wages.
Tere are limits prescribed by the state-specifc SEAs and the Factories Act on the
amount of overtime work that can be performed by an employee. Tese limits vary from
state to state and may be daily, monthly, quarterly or yearly.
VII FOREIGN WORKERS
Tere are no separate registers that an employer must maintain with respect to foreign
workers. Te registers that must be maintained in respect of Indian workers are also
applicable to foreign workers.
Foreign nationals who wish to work in India require an employment visa.
Additionally, foreign nationals who intend to stay in India for more than 180 days need
to obtain a registration certifcate from the relevant Foreigners Regional Registration
Ofce (the FRRO) within 14 days of arrival in India. Tere are no restrictions on the
length of a foreign workers assignment; however, usually an employment visa is only
granted for up to one year, after which an extension is required from the Ministry of
Home Afairs. Further extensions, if required, can be granted by the state government
or the relevant FRRO up to a maximum of fve years from the date of issue of the visa.
Te employer must deduct and pay taxes or local benefts for such foreign workers
in accordance with the Income Tax Act, 1961, and applicable social security legislation,
such as the EPF Act. Indian employment and labour laws do not make a distinction
between national and non-national employees. However, whether foreign nationals who
work in India for subsidiaries of their parent companies or work for short to long-term
fxed periods avail themselves of benefts under Indian laws depends on individual choice.
Te obligations of the employer with regard to the statutory benefts apply equally to
both these classes of employees, provided the employees meet the criteria entitling them
to these benefts.
To be eligible for an employment visa, foreign workers must earn a salary of more
than US$25,000 per annum and should not be appointed for a job for which qualifed
Indians are available.
VIII GLOBAL POLICIES
Te IESOA requires industrial establishments wherein 100 or more workmen are
employed or were employed on any day of the preceding 12 months to frame their own
standing orders. Te state governments also have powers to extend their applicability
to industrial establishments with fewer than 100 employees. Te standing orders are
required to deal with matters that include the following:
a classifcation of workmen (whether permanent, temporary, probationer, etc.);
b the method of informing workmen of the hours of work, holidays, pay days and
wage rates;
c shift working;
d attendance and late arrival;
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e conditions of leave, the procedure for applying for leave and the authority that
may grant leave;
f requirement to enter premises by certain entrances;
g closing and reopening of sections of the industrial establishment, and temporary
stoppages of work and the rights and liabilities of the employer and workmen
arising therefrom;
h termination of employment, and the notice to be given by employer and workmen;
i suspension or dismissal for misconduct, and acts or omissions that constitute
misconduct;
j means of redress for workmen against unfair treatment or wrongful demands by
the employer or its agents;
k sexual harassment matters;
l service record;
m confrmation;
n age of retirement;
o transfer;
p medical aid in case of accidents;
q medical examination;
r secrecy; and
s exclusive service.
Te standing orders must be written in English and in a language understood by the
majority of the workmen. Tere is no need for the standing orders to be signed by the
employer, and notifcation of the same on a special notice board near the entrance of the
establishment is sufcient. Tey can also be posted on the intranet.
Disciplinary rules are not necessarily incorporated into an employment contract.
Usually, such rules are included in the standing orders or the employees handbook, and
a reference to the same is made in the employment contract. Once the draft standing
orders are framed by the employer, they are submitted to the certifying ofcer, who
forwards a copy of the same to the trade union or workmen along with a notice requiring
such trade union or workmen to submit their objections, if any, within 15 days of such
notice. Te parties are given an opportunity to be heard with regard to the standing
orders, and the certifying ofcer adjudicates upon the reasonableness of the same. Te
standing orders framed by the employer have to be certifed by the government certifying
ofcer.
IX TRANSLATION
Tere is no specifc employment law that requires the translation of employment
documents into local language or an employees native language. However, for any
document, including employment documents, to be binding upon an employee,
it must be understood by the employee. Terefore, if the employee or employees do
not understand English, it would be appropriate to have the employment document
translated into a language understood by the employee or employees concerned.
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All employment documents (i.e., ofer letter, employment contract, confdentiality
agreement, restrictive covenant agreement, proprietary information and assignment
agreement, bonus or other incentive compensation plan, employee handbook or other
policies) should be translated into the local language if the employees do not understand
English. In India, generally employees other than certain levels of employees understand
English.
Tere is no criminal penalty for not translating the employment documents into
a local language or the employees native language.
In case of any dispute regarding the terms of employment, it may be difcult for
the employer to prove the terms of such documents as part of the terms of employment
if the employee does not understand English. In other words, an employee can express
ignorance about the terms of his or her agreement with the employer.
X EMPLOYEE REPRESENTATION
Pursuant to the ID Act, in the case of an industrial establishment in which 100 or
more workmen are employed, the appropriate government (state or central) may require
the establishment of a works council with a maximum of 20 members. Representatives
of the employer are nominated by the employer and the workmen elect their own
representatives.
Te number of representatives of the workmen should not be fewer than the
number of management representatives.
Te election procedures for representatives are as follows:
a the employer fxes a date as the closing date for receiving nominations from
candidates for election as workmens representatives on the works council. Tis
date is notifed to the concerned workmen and trade unions;
b every nomination must be made and submitted to the employer on the prescribed
form, signed by the candidate to whom it relates and attested by at least two other
voters belonging to the group the candidate seeks to represent. Such nomination
form is supplied by the employer to all the workmen requiring it;
c on the day after the closing date, the nomination papers are scrutinised by the
employer in the presence of the candidates and the attesting persons. Forms that
are not valid are rejected; and
d if the number of validly nominated candidates is equal to the number of seats,
such candidates are declared as duly elected. If this is not the case, however, then
elections are held.
Te duly elected representatives hold ofce for a term of two years. No additional rights
and protections are given to such representatives. Te committee must meet at least once
every three months.
Te employer is responsible for all arrangements connected to the election, such
as fxing the closing date, providing copies of nominations to the workmen requiring
them, providing a suitable space for the committees meetings, and providing other
necessary facilities for carrying out the work of the committee.
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Every establishment employing 20 or more workmen is required to have one
or more grievance redressal committees for the resolution of disputes arising out of
individual grievances in the absence of an established grievance redressal mechanism
in the establishment. Te grievance redressal committee consists of an equal number of
employers and workmen. Te chairman of the committee is selected from among the
employers and the workmen, alternating on a rotation basis every year. Te members
of the committee cannot exceed six. As far as possible, the committee should have one
female member if the committee has two members and if the numbers of members
are more the number of female members should be proportionately increased. Te
committee should dispose of the complaint within 30 days of the application being fled
by the aggrieved employee. If a workman is aggrieved by the decision of the grievance
redressal committee, the aggrieved person may refer an appeal to the employer and the
employer shall dispose of the same within one month from the date of receipt of the
appeal. A copy of the decision should also be sent to the workman concerned.
XI DATA PROTECTION
i Requirements for registration
Tere is no requirement for the company to register with the data protection agency or
another government body.
If the company collects, receives, possesses, stores, deals, or handles personal
information or sensitive personal data or information, the company is obliged to have a
privacy policy and make it available to its employees.
If the employer collects any sensitive personal data or information (described
as above) from the employee, the consent of the employee is required to be obtained
regarding the purpose of the use of such information before such information is collected.
Te consent should be in writing or by way of any electronic mode of communication.
Te company is required to limit its access to the information to only the purposes
for which consent has been obtained from the provider of information.
Te IT Act requires reasonable security procedures to be maintained. Te rules
state that reasonable security procedures would be either (1) the IS/ISO/IEC 27001 on
Information Technology Security Techniques Information Security Management
System Requirements; or (2) a code developed by an industry association and approved
and notifed by the government. Te security procedure has to be audited on a regular
basis by an independent auditor who has been approved by the government of India.
Such audit should be carried out at least once a year or as and when the body corporate
has undertaken a signifcant upgrade of its computer resources.
As per the IT Act, a company is required to implement and maintain reasonable
security practices and procedures for protection of such personal data and information
from unauthorised disclosure. Such practices and procedures may be in the form of
an agreement between the company (transferor) and the agencies handing personal
information of the employees (transferee). Failure to comply with the aforesaid provision
may render the transferor company liable to pay compensation to the persons who sufer
any related loss.
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ii Cross-border data transfers
Tere is no requirement for a company to register cross-border transfers with a protection
authority.
If the company collects any sensitive personal data or information from the
employee, the consent of the employee is required to be obtained regarding the purpose
of the use of such information before such information is collected. Te consent should
be in writing or by way of any electronic mode of communication. However, if the
information is transferred overseas through any other body corporate and not directly by
the employee, the consent of the employee is not necessary; the overseas company must,
however, ensure the same level of data protection that is adhered to by the company
transferring such information, under a lawful contract.
Joint-user agreements or safe harbour registration are not necessary, but the
company is required to ensure the protection of personal data and information of
employees by implementing adequate security practices and procedures.
Onward transfer is allowed, subject to the transferee ensuring the same level of
protection as the transferor.
iii Sensitive data
Personal information means any information that relates to a natural person, which,
either directly or indirectly, in combination with other information available or likely to
be available with a body corporate, is capable of identifying such person.
Sensitive personal information is defned as such personal information relating to:
a password;
b fnancial information such as bank account, credit card, debit card or other
payment instrument details;
c physical, physiological and mental health conditions;
d sexual orientation;
e medical records and history;
f biometric information; and
g any detail relating to the above clause as provided to a body corporate for
processing or storage, under lawful contract or otherwise.
Te above information would not be regarded as sensitive personal data or information
for the purposes of these rules if such data or information is freely available or accessible
in the public domain or furnished under the right to information or any other law
presently in force.
iv Background checks
In India there is no prohibition on an employer carrying out a background check. It
is common for employers to ask prospective employees questions regarding their
background and also to request references from past employers, which is not prohibited
by law in India. Credit checks may be difcult as such information is only available
to members of Credit Information Bureau (India) Limited (CIBIL), which only
includes banks, fnancial institutions, state fnancial corporations, non-banking fnancial
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companies, housing fnance companies and credit card companies. Hence, a company
may not have access to this information.
It is advisable to procure an employees written consent prior to conducting
background checks.
XII DISCONTINUING EMPLOYMENT
i Dismissal
In India, there is no concept of hire and fre. Termination of service under the ID Act
(applicable to workmen) is referred to as retrenchment and includes termination of
service for any reason whatsoever, except the following:
a as punishment imposed by way of disciplinary action;
b voluntary retirement of a workman, or retirement of a workman upon reaching
the age of superannuation;
c termination as a result of the non-renewal of the contract of employment or
under a stipulation thereof; or
d termination on the grounds of continued ill health.
Te ID Act details the procedure to be followed for retrenchment and requires an
employer to serve to the concerned employees at least one months notice indicating the
reasons for such retrenchment. In certain specifed establishments with more than 100
employees, however, an employer is required to serve a notice of at least three months
giving the reasons for retrenchment. Te procedure and conditions as provided in the
ID Act only regulate retrenchment of workmen. Te services of non-workmen maybe
terminated pursuant to company policy or the employment contract.
Generally, in any case of retrenchment, a notice in the prescribed form has to
be served to the relevant government authority. In certain specifed establishments in
which not fewer than 100 workmen were employed on average per working day for
the preceding 12 months, however, prior approval has to be given by the appropriate
government authority. In such a case the appropriate government authority, on receipt
of the application for approval, makes an inquiry and gives the parties interested in
the retrenchment an opportunity to be heard, and then considering the adequacy of
the reasons for the proposed retrenchment grants or refuses such approval. Tere is no
requirement for the company to notify the relevant works council or trade union.
Tere is no concept of social security in India. Te only support available is that
provided under the EPF Act.
An employer is not required to provide any alternative employment. Te retrenched
employees, however, have a right of frst rehire (i.e., where an employer wishes to employ
workmen, it is required to frst ofer employment to those employees who were retrenched
by it and are citizens of India). Further, in every case of retrenchment, an employer is
required to follow the last in frst out rule in a particular employee category, unless
there are valid reasons for not complying with the rule, such as inefciency, unreliability
and habitual irregularity of the employee. Tere are no categories of employees who are
protected from dismissal.
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An employer is required to serve notice indicating the reasons for retrenchment.
Pay in lieu of notice is permissible. Where a workman has been in continuous service
for not less than one year, a compensation that is equivalent to 15 days average pay for
every completed year of continuous service or any part thereof in excess of six months
is required to be paid to the concerned workmen. An employee may also be entitled to
other severance or dismissal payments pursuant to the employment contract or company
policy.
Te parties may enter into a settlement agreement.
ii Redundancies
Redundancy is not defned in any law. However, an employers inability to give
employment on account of the reasons as prescribed in the ID Act, which include a
shortage of coal, power or raw materials, an accumulation of stock, the breakdown of
machinery and a natural disaster, is known as a lay-of under the ID Act.
In India, there is no separate set of rules or defnitions for collective dismissal
or reduction in workforce. Subject to certain exceptions, any kind of termination of
service is known as retrenchment. Collective dismissal or a reduction in the workforce
would generally be referred to as retrenchment of a signifcant number of employees.
Except in certain cases, an employer is not generally required to notify or seek
approval of the relevant government authority for the purposes of a lay-of. For instance,
an establishment in which no fewer than 100 workmen have been employed on an
average per working day for the preceding 12 months, an employer cannot lay of any
employee without the prior permission of the appropriate government authority, unless
such lay-of is due to shortage of power or a natural disaster, and in the case of a mine,
such lay of is due also to a fre, fooding, an excess of infammable gas or an explosion.
In such cases, the employer is required to seek approval for the continued lay-of of such
employees within 30 days of such lay-of.
Tere is no statutory requirement to notify the works council or trade union.
From a practical perspective, however, if an employer has in place any representative
forums they should be notifed of such redundancy.
If during a period of 12 months a workman is laid of for more than 45 days, it
would be lawful for the employer to retrench such employee after the expiry of 45 days
of the lay-of. In such a case, the general conditions of retrenchment with regard to
compensation, approval and right of rehire would be applicable.
Te company is not statutorily required to provide any notice to the employee of
a lay-of. Usually, the employees are notifed by a notice displayed on the notice board of
the concerned department.
Te ID Act provides that whenever a workman who is employed in an
establishment and has rendered at least one year of continuous service is laid of, whether
continuously or intermittently, he or she is entitled to be paid compensation for all days
(excluding weekly days of) of 50 per cent of the total basic wage and dearness allowance
that would be payable to him, had he not been laid of. (Dearness allowance includes
all cash payments made to an employee on account of a rise in the cost of living, rent
allowances, overtime allowances, bonuses, commission or any other allowance payable
to the employee in respect of employment or of work done during such employment.)
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Te parties may enter into a settlement agreement. In the event of a dispute, the
parties can enter into a settlement agreement at any time including during conciliation
proceedings, and such settlement would be binding on the parties.
XIII TRANSFER OF BUSINESS
Te ID Act provides protection for certain employees afected by a transfer of a business
(in which they are employed) from one employer to another employer. Tese provisions
are only applicable to employees who fall within the category of workmen as defned
under the ID Act.
As per the provisions of the ID Act, the afected employees who have worked
for a period of 240 days in a year preceding such transfer of business are entitled to
retrenchment benefts, including one months notice or salary in lieu thereof and
compensation equivalent to 15 days salary for every completed year of service or any part
thereof in excess of six months. Tese benefts are payable to the employees in addition to
the normal terminal benefts payable by the employer such as gratuity, provident fund,
etc.
One months notice to an afected employee regarding retrenchment, or one
months salary in lieu of notice and the retrenchment compensation are, however, not
payable to the employee if the following requirements are fulflled:
a the services of the employee have not been interrupted by such transfer of business;
b the terms and conditions of services applicable to the employee after such transfer
are in no way less favourable to the employee than those applicable to him or her
immediately before such transfer; and
c the new employer is, under the terms of the said transfer or otherwise, legally liable
to pay the employee in the event of retrenchment compensation on the basis that
the employees services have been continuous, and have not been interrupted by
such transfer.
Employees who do not fall within the defnition of workman do not have any such
protection under the ID Act. If the agreement dealing with the transfer of the business
also has similar clauses for the non-workman category of employees, such provisions
would be extended to such employees.
XIV OUTLOOK
i Provident fund
Pursuant to a recent proposal, employers may be required to make mandatory provident
fund contributions (under the EPF Act) to workers with a salary of up to 15,000 rupees
as opposed to the current threshold of 6,500 rupees.
ii Social security agreement
India has signed a social security agreement with Hungary, Norway and the Czech
Republic and these are to be made efective shortly. Negotiations are at various stages
with Canada, Quebec, Sweden, Australia, the United States and Austria.
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iii Bonus
Pursuant to a recent proposal, employers may be required to extend a statutory bonus
to employees with a salary of 15,000 rupees or less as opposed to the current threshold
of 10,000 rupees.
Te minimum bonus payable is also likely to be increased from 8.33 per cent to
11 per cent of the annual salary.
Te minimum threshold for calculation of a bonus is also likely to be increased
from 3,500 rupees to 5,000 rupees.
819
Appendix 1
ABOUT THE AUTHORS
MANISHI PATHAK
Kochhar & Co
Manishi Pathak is a senior partner in the corporate and regulatory practice of the frm.
His practice encompasses strategic corporate investments, mergers and acquisitions,
winding up, joint ventures, foreign collaborations, technology transfers, private equity
and venture capital transactions and various other types of commercial transactions.
Manishi also co-chairs the employment law practice of the frm. His employment
law experience includes drafting and advising on employment documentation for
employee handbooks, stock option schemes, termination of employees, closures of
undertakings, transfers of employees and various litigation pending before conciliation
ofcers, tribunals and courts including high courts and the Supreme Court. He is an
ofcer of the employment and industrial relations committee of the International Bar
Association (IBA) and also on the executive committee of Ius Laboris. Manishi has
authored many articles in publications of international repute on corporate governance,
employment laws, foreign investment laws and M&A, etc., and has also been a speaker
at many IBA conferences on various topics such as employment law, employee relations,
vendor fnance, etc.
About the Authors
820
KOCHHAR & CO
11th Floor, Tower A
DLF Towers Jasola
Jasola District Centre
New Delhi 110 025
India
Tel: +91 11 4111 5222
Fax: +91 11 4056 3813
manishi.pathak@kochhar.com
delhi@kochhar.com
www.kochhar.com