The principal sources of law and regulations relating to employment relationships in India are the Constitution of India, labour statutes, judicial precedence and collective and individual agreements. There are as many as 165 labour laws, including nearly 50 central (federal) laws. Most of the employment laws are applicable to employees in the worker category (blue-collar employees). This chapter specifically deals with the applicability of statutes to workers, although some aspects relating to the non-worker category of employees have also been covered here.
A worker is defined under the Industrial Disputes Act 1947 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:
Apart from certain employment statutes that may be applicable to the non-worker category of employees, the employment relationship with a non-worker is governed by the employment contract (provided the terms thereof are not less favourable compared to certain applicable statutes).
The main statutes and regulations relating to employment are:
Both central (federal) and state governments have their specific rules providing the procedure for proper enforcement of a statute. States have some statutes that deal with specific issues within the broader federal statutes umbrella.
Protected employee categories
Is there any law prohibiting discrimination or harassment in employment? If so, what categories are regulated under the law?
The Constitution of India provides equality of opportunity in matters of public employment as a fundamental right. The Constitution of India prohibits discrimination on the following grounds: race, gender, religion, place of birth, domicile, caste and descent.
Additionally, the Industrial Disputes Act 1947 and Industrial Establishment (Standing Orders) Act 1946 have established a list of ‘unfair labour practices’ and ‘misconduct’ for employers and employees respectively. The unfair labour practices are prohibited under the Industrial Disputes Act 1947, and some may amount to harassment in the workplace. Similarly, an employee charged of misconduct amounting to any kind of harassment shall be subject to punishment.
In specific circumstances, employees in the private sector could also seek protection against such discrimination being treated as a mala fide action on the part of the employer. However, a specific statute in this respect does not exist.
As far as discrimination based on gender is concerned, the Equal Remuneration Act 1976 prohibits discrimination on the grounds of gender and against women in matters of employment (recruitment, salary, etc).
Further, the Rights of Persons with Disabilities Act 2016 prohibits employers from discriminating on the ground of disability except in cases where such act or omission is a proportionate means of achieving a legitimate aim.
Also, the federal government has enacted the HIV and AIDS (Prevention and Control) Act 2017 wherein discrimination or unfair treatment against persons with HIV or AIDS in matters of employment is prohibited. Also, any person who is living or has lived with a person who is HIV positive is protected against discrimination.
Regarding sexual harassment, the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 (the Act) and the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Rules 2013 (the Rules) were notified and brought into effect from 9 December 2013. The Act lays down a comprehensive mechanism to deal with prevention of sexual harassment in the workplace as well as provides a redressal mechanism. The Act covers all women, irrespective of their age and employment status (whether regular, temporary, ad hoc or on daily wage basis, either directly or through an agent, including a contractor, with or without the knowledge of the principal employer, whether for remuneration or not, or working on a voluntary basis or otherwise) and also covers domestic workers.
The Act mandates an employer employing 10 or more employees in a workplace to form an internal complaints committee (ICC) to look into any complaints relating to sexual harassment. An employer is required to form an ICC at every workplace location. The ICC should be a four-member committee under the chairmanship of a senior female employee, including two employee members preferably committed to the cause of women or having experience in social work or legal knowledge and a third-party member (from an NGO, for example).
Complaints concerning any workplace employing fewer than 10 employees, or when the complaint is against the employer, will be looked into by the local complaints committee (LCC), constituted at the district level. In the absence of an ICC, a complaint can be made to the LCC, against a manager, for example.
Domestic workers have to approach the LCC in the case of any complaint.
The Act and the Rules have laid down timelines for submission of a written complaint and timelines within which an ICC or LCC would have to complete the inquiry, etc. The employer is obliged to enforce the recommendations of an ICC or LCC.
If an aggrieved female employee is in agreement, then the matter may be settled through conciliation by the ICC or LCC. However, monetary benefits cannot be the basis of any conciliation.
The Act prohibits disclosure of the identity and addresses of any aggrieved female employee, respondent or witness. In case of violation by any person, the employer can impose a 5,000-rupee penalty, or any penalty as prescribed in the service rules.
An employer is subject to various obligations under the Act, including bringing awareness about the Act and the Rules, and introduction of a policy. An employer could be subject to a fine of up to 50,000 rupees in the case of violation of its duties under the Act, and, in the case of subsequent violations, the fine may be doubled, together with a penalty in the form of cancellation of business licence and withdrawal of the registration required for carrying out business, etc.
What are the primary government agencies or other entities responsible for the enforcement of employment statutes and regulations?
The primary government agencies that are responsible for enforcement of employment law statutes based on applicable statutes are:
Worker representation
Is there any legislation mandating or allowing the establishment of employees’ representatives in the workplace?
The Industrial Disputes Act 1947 mandates constitution of a works committee in industrial establishments with 100 or more workers in the event that the relevant government issues any specific or general directions to that effect.
The number of representatives of the workers in the works committee should not be less than the number of representatives of the employer. The workers’ representatives must be chosen from among the workers in the establishment and in consultation with the trade union, if any, registered under the Trade Unions Act 1926.
The works committee is required to promote measures for securing and preserving amity and good relations between the employer and the workers, comment upon matters of common interest or concern and endeavour to resolve any material differences of opinion in respect of such matters.
Additionally, employers with 20 or more workers are required to have one or more grievances redressal committees to handle matters of individual disputes.
Powers of representatives
What are their powers?
The works committee has the power to co-opt members (ie, select employees) who have special knowledge of a matter that is referred to the works committee in a consultative capacity. The co-opted member or members can be present at meetings only for the period during which the particular question relating to their knowledge sphere is before the works committee.
Background information on applicants
Are there any restrictions or prohibitions against background checks on applicants? Does it make a difference if an employer conducts its own checks or hires a third party?
As per the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 (the IT Rules), employers are required to obtain consent from employees to undertake background checks if the information proposed to be confirmed includes personal information and sensitive personal data and information as described in the said statute. The obligations on the employers or third parties engaged by them for this purpose remain the same.
Are there any restrictions or prohibitions against requiring a medical examination as a condition of employment?
There is no specific restriction or prohibition against employers requiring medical examinations as a condition of employment. However, such examinations should be relevant for the purpose of the services to be rendered by the applicants in question, or in other words, a direct relationship with the requirement of work. Employers can refuse to hire applicants who do not submit to an examination provided that the medical examination is necessary for the purpose of rendering services.
Drug and alcohol testing
Are there any restrictions or prohibitions against drug and alcohol testing of applicants?
There is no specific restriction against drug and alcohol testing of applicants, but generally such tests are not carried out as a prerequisite for employment in India. An employer can refuse to hire an applicant who does not submit to an examination provided the medical examination is necessary to provide fitness to render services. There is no restriction on having a policy on prohibition on use of any drugs and alcohol during work hours. The Shops and Establishments Act of certain states, such as Uttar Pradesh and Delhi, provides that being under the influence of alcohol while in office shall constitute ‘misconduct’.
Hiring of employees
Preference and discrimination
Are there any legal requirements to give preference in hiring to, or not to discriminate against, particular people or groups of people?
An employer is not allowed to discriminate against particular people or groups of people. However, in some states the industrial policy may provide for preference to be given to natives of the relevant state.
Pursuant to the provisions of the Industrial Disputes Act 1947, preference is required to be given to retrenched blue-collar employees (who are citizens of India), who offer themselves for re-employment in the event that an employer proposes to employ any person subsequently.
Must there be a written employment contract? If yes, what essential terms are required to be evidenced in writing?
There is no specific requirement for a written employment contract; however, some employment statutes or state-specific statutes (or both) require an employment letter covering limited aspects to be issued. As a matter of best practice, written employment contracts are executed between the employer and the employee, or a detailed written appointment letter is issued to the employee, the terms whereof are required to be duly accepted and acknowledged by the employee.
The employment contracts generally used in India have the following information:
To what extent are fixed-term employment contracts permissible?
Fixed-term contracts are permissible in India if the requirement is only for a specific period. Fixed-term contracts are not permissible for a regular job requirement. There is no maximum period specified for fixed-term contracts under law; however, the same should be for a reasonable period.
In the case of employees in the worker category (blue-collar), the law specifically prohibits replacement of one fixed-term employee by another fixed-term employee to avoid permanent employment.
What is the maximum probationary period permitted by law?
There is no maximum probationary period provided in statute. The probationary period is generally from three to six months and, in some cases, one year. The probationary period is primarily governed by the terms of employment (the appointment letter, employee handbook, standing orders, etc, as applicable) or varies from company to company or duly approved and adopted standing orders.
Classification as contractor or employee
What are the primary factors that distinguish an independent contractor from an employee?
The primary factors that may distinguish independent contractors from employees are:
Is there any legislation governing temporary staffing through recruitment agencies?
The hiring of temporary staff through recruitment agencies is governed under the provisions of the Contract Labour (Regulation and Abolition) Act 1970. As per this Act, temporary staff would be considered as employees of the recruitment agencies. The organisation that utilises the services of the temporary staff would be regarded as a principal employer under the provisions of this Act. In the event the recruitment agency fails to pay salary or applicable employee benefits to the temporary staff, the principal employer would be required to pay salary or applicable employee benefits to the temporary staff (the principal employer would have a statutory right to recover the amount from the recruitment agency).
Foreign workers
Are there any numerical limitations on short-term visas? Are visas available for employees transferring from one corporate entity in one jurisdiction to a related entity in another jurisdiction?
There is no numerical limitation on short-term employment visas. Depending upon the qualifications of the person, or employment contracts, employment visas can last for up to five years. The visa requirements for people on employment visas in India, if they are transferred to a related entity in another jurisdiction (outside India), would depend on the visa regulation of the jurisdiction to which the employees are being transferred.
For foreign workers residing in India, in the case of changes in their employment, as per the new visa regulations, such foreign workers need not return to their home countries to arrange for new employment visas. While residing in India, such workers may be subject to fulfilment of prescribed requirements when making new applications to the government, seeking permission to change the details of their employment on the original visas.
Are spouses of authorised workers entitled to work?
As per the new guidelines issued by the government of India, spouses of authorised workers on dependent visas can convert their dependent visas into employment visas within India, subject to the following conditions:
What are the rules for employing foreign workers and what are the sanctions for employing a foreign worker that does not have a right to work in the jurisdiction?
The rules for employing foreign workers are as follows:
Is a labour market test required as a precursor to a short or long-term visa?
Yes. Employment visas may not be granted for routine, ordinary or secretarial or clerical jobs, or for jobs for which qualified Indian citizens are available.
Terms of employment
Are there any restrictions or limitations on working hours and may an employee opt out of such restrictions or limitations?
Normal working hours are generally restricted to nine hours per day and up to a maximum of 48 hours per week by the following, as applicable to an employer:
These acts also provide for rest periods, overtime, etc. For example, in Delhi, each employee must have a rest interval of 30 minutes for every five hours of continuous work. If required to work for more than the maximum number of working hours set by the applicable statute, employees are generally paid double their normal wages.
The Factories Act 1948 and certain state-specific Shops and Establishments Acts also provide for a maximum period of working hours, including maximum overtime periods for a week, month and quarter.
There is a restriction on employers making employees work beyond the maximum working hours prescribed by law.
What categories of workers are entitled to overtime pay and how is it calculated?
All employees are entitled to overtime, except employees who may fall under the definition of ‘employer’, such as a director, occupier or manager of a factory; any other person in control of the affairs of the business is exempt under a specific applicable law or any other employee specifically exempted from its applicability. It is also possible that the applicable statutes may have a ceiling on the maximum percentage of employees so exempt.
Overtime wages are calculated at a rate of up to twice the normal wage depending on the location or place of work of an employee.
Can employees contractually waive the right to overtime pay?
The right to overtime is a statutory right. For any contract or agreement whereby an employee relinquishes any statutory right, including the right to receive overtime, such a waiver would be void.
Vacation and holidays
Is there any legislation establishing the right to annual vacation and holidays?
Annual vacation legislation
The Factories Act 1948 provides for annual vacation for employees working in a factory. The state-specific Shops and Establishments Act provides for annual vacation for employees in an establishment other than a factory.
Annual vacation entitlement
Subject to an employee having worked for 240 days in a calendar year, 19 days of annual vacation is permissible to employees in factories or manufacturing units. Typically, 12 to 21 days of annual vacation is permissible for employees in an establishment other than a factory.
Holiday entitlement legislation
The state-specific National and Festival Holidays Act (applicable in certain states) provides prescribed national holidays. The state-specific Shops and Establishments Act also legislates holiday entitlement.
In addition to one day a week off, there are:
However, as per the market practice, some employers give two days a week off and 10 to 12 holidays (including national, festival and other holidays).
Sick leave and sick pay
Is there any legislation establishing the right to sick leave or sick pay?
Legislation that deals with sick leave and sick pay includes the state-specific Shops and Establishment Act and the Employees’ State Insurance Act 1948.
Depending upon the state, the Shops and Establishment Act may provide for sick leave ranging between seven and 14 days. Sick leave is generally paid leave in most of the states. In the case of sickness, an employee can also utilise any accrued casual and privilege leave.
In the case of employees covered under the Employees’ State Insurance Act 1948, sickness benefits are paid by the government at the rate of approximately 60 per cent of the salary, subject to certain conditions being fulfilled.
Leave of absence
In what circumstances may an employee take a leave of absence? What is the maximum duration of such leave and does an employee receive pay during the leave?
Employees can take leave of absence for sickness, accident, personal requirement, vacation or any other reasons as per their eligibility or entitlement, subject to approval by their employers.
Leave may be governed by the relevant state or federal legislation that exists where an office is located. Depending upon the location of an establishment, the total amount of leave could be between 27 and 44 days. Employees are entitled to receive payment for leave subject to the availability of leave to their credit and approval of the leave by the employer.
Mandatory employee benefits
What employee benefits are prescribed by law?
Subject to the applicability of a statute to an employee or an employer, employee benefits that are prescribed by law include the following: employee’s provident fund, employee’s state insurance, maternity benefit, bonus, leave (sick, casual and annual) and gratuity.
Part-time and fixed-term employees
Are there any special rules relating to part-time or fixed-term employees?
There is no specific law for part-time employees. Part-time employees generally have all the rights of regular employees, the only difference being they receive proportionate benefits.
Fixed-term contracts of employees in the worker category are recognised as an exception to the definition of retrenchment (termination in the general sense), and are therefore permissible under the Industrial Disputes Act 1947, subject to the condition that such contracts are not used to avoid or deny regular employment.
Must employers publish information on pay or other details about employees or the general workforce?
There is both federal and state legislation that mandates an employer to publish certain information in a conspicuous place within the establishment or factory. The information that needs to be published by an employer is as follows:
Post-employment restrictive covenants
Validity and enforceability
To what extent are post-termination covenants not to compete, solicit or deal valid and enforceable?
Post-termination clauses, such as non-compete, are generally not valid or enforceable under Indian law. Non-solicitation in the absence of sufficient evidence may not be enforceable. However, it is common practice to include such clauses in the employment contract, especially in the case of senior employees, owing to their deterrent effect.
Validity and enforceability
Must an employer continue to pay the former employee while they are subject to post-employment restrictive covenants?
In India, post-employment restrictive covenants are not enforceable. Upon severance of the employer-employee relationship, employers are not required to pay anything to former employees, even if there is a clause relating to post-employment restrictions in the employment contract.
Liability for acts of employees
Extent of liability
In which circumstances may an employer be held liable for the acts or conduct of its employees?
Employers can be held vicariously responsible for the acts or omissions of their employees under the common law, if such acts or omissions are carried out by employees either during the course of their employment or under the instructions of employers.
Taxation of employees
What employment-related taxes are prescribed by law?
Income tax is employment-related tax. Employers are required to deduct the applicable taxes at source and deposit them with the concerned income tax department. In certain states, such as Maharashtra, employers and employees may also be required to deposit professional tax as per the relevant state-specific Professional, Trade, Calling and Employment Act.
Employee-created IP
Is there any legislation addressing the parties’ rights with respect to employee inventions?
In the absence of any contract creating assignment or right in favour of the employer, an employee’s invention is not automatically the employer’s property, even if such invention is made:
Accordingly, an appropriate assignment would be required from the employee to create the interest of the employer in any invention.
Trade secrets and confidential information
Is there any legislation protecting trade secrets and other confidential business information?
Trade secrets are protected under intellectual property laws in India. However, there is no dedicated legislation in India regarding protection of trade secrets and confidential business information. Usually, trade secrets and confidential business information continue to be enforced contractually under the Indian Contract Act 1872. Through various judicial precedents, the courts in India have protected the rights arising out of trade secrets and confidential business information.
Data protection
Is there any legislation protecting employee privacy or personnel data? If so, what are an employer’s obligations under the legislation?
The IT Rules provide for privacy law in India with regard to personal information and sensitive personal data and information.
All employers (or any entity authorised on their behalf), for the purposes of collection, receiving, processing, storing, dealing or handling of personal data and sensitive personal information, are required to put in place a privacy policy including the following aspects:
Other obligations include the following:
Business transfers
Is there any legislation to protect employees in the event of a business transfer?
Employees in the worker category are protected in the event of a business transfer.
In the event of termination or retrenchment, employees (employed in continuous service (as defined in the Industrial Disputes Act 1947) for not less than one year) are entitled to the following benefits, as if such employees had been retrenched:
In the event that the new employer proposes to employ such employees, subject to following requirements, the above benefits are not payable to workers if:
Employees in the non-worker category do not have any such statutory protection, and generally the terms of contract would prevail.
For workers or non-workers, where the terms of contract, such as minimum notice period, leave or holidays, working hours or severance compensation, are better than those required by law, such terms of contract will prevail over statutory requirements.
Termination of employment
Grounds for termination
May an employer dismiss an employee for any reason or must there be ‘cause’? How is cause defined under the applicable statute or regulation?
The laws relating to dismissal or termination are different for employees in the worker and non-worker categories.
Employees in the worker category cannot be terminated without cause. Causes for termination could be misconduct, continued ill health, non-renewal of contract, redundancy, non-performance, etc.
Non-workers can be terminated without cause (except in a few states where the reasons for termination must be provided or grounds must be disclosed) by giving requisite notice or pay in lieu thereof as per the terms of the contract or the state-specific Shops and Establishments Act. However, recently, there have been judicial pronouncements wherein the courts have held that, even for termination of non-workers, a reasonable cause must exist.
Must notice of termination be given prior to dismissal? May an employer provide pay in lieu of notice?
It is possible to provide notice of termination or payment in lieu of the notice period. See question 36.
In which circumstances may an employer dismiss an employee without notice or payment in lieu of notice?
In cases of misconduct, employees can be terminated without notice or pay in lieu thereof, but an inquiry (following principles of natural justice) must be conducted before dismissing an employee in such a case.
Is there any legislation establishing the right to severance pay upon termination of employment? How is severance pay calculated?
The Industrial Disputes Act 1947 and, in some states, the applicable Shops and Establishments Act, provide for severance upon termination. Employees (workers in continuous service for a period of not less than one year) are entitled to the following severance pay in the event of termination of employment:
Certain state-specific compliances may also need to be adhered to.
Non-workers are entitled to a minimum of one month’s notice or salary in lieu thereof as may be agreed in a contract, gratuity, leave encashment or any other benefit as agreed between the employer and the employee.
For workers or non-workers, where the terms of contract, such as minimum notice period, leave or holidays, working hours or severance compensation, are better than those required by law, such terms of contract will prevail over statutory requirements.
Are there any procedural requirements for dismissing an employee?
Employees in the worker category can be dismissed with cause (non-renewal of contract, non-performance, continued ill health, etc). In cases of misconduct, an inquiry must be held before dismissing the employee. Where a prima facie case exists against the employee, a charge sheet detailing the allegations against the employee, which are acts of misconduct, should be issued to the employee. The employee should be afforded reasonable time to submit a reply to the charge sheet. If the reply is found to be unsatisfactory, an employer shall proceed with a domestic inquiry. The employer shall appoint a presenting officer (PO), who represents the case on behalf of the employer, and an inquiry officer (IO), who undertakes the disciplinary proceedings. The employee shall be informed about the appointment of the IO, and the IO shall inform the employee about the date, time and venue of the inquiry. During the disciplinary proceedings, the IO should provide a reasonable opportunity to the PO and the employee to prove their respective positions, including the production of documents, witnesses and cross-examination of witnesses. The IO shall maintain a written record of submissions made by all persons, and obtain an endorsement from such persons for the same. Thereafter, an inquiry report shall be prepared by the IO detailing the charges against the employee, the defence of the employee, the evidence assessed and the findings following the inquiry. Based on the findings in the inquiry report and the gravity of the offence, the employer shall decide on the disciplinary action, including dismissal, etc, that needs to be taken against the employee.
To dismiss an employee in the non-worker category:
For both workers and non-workers, where the terms of contract, such as minimum notice period, leave and holidays, working hours or severance compensation, are better than those required by law, such terms of contract will prevail over statutory requirements.
In what circumstances are employees protected from dismissal?
Employees in the worker category are protected from dismissal when an employee raises any industrial dispute and the matter is pending before the competent authority for adjudication.
Further, a worker who is a member or an office bearer of any registered trade union connected with the establishment and is recognised by an employer of such establishment shall not be dismissed during the pendency of any industrial dispute in which he or she is involved without the prior written approval from the authority before which the proceedings were pending.
Generally, employees in the non-worker category do not have any statutory protection in the event of retrenchment, except for protection provided under certain state-specific legislation.
Certain statutes, such as the Maternity Benefit Act 1961, prohibit the termination of an employee’s contract while on maternity leave.
Mass terminations and collective dismissals
Are there special rules for mass terminations or collective dismissals?
To dismiss workers in any establishment with fewer than 100 workers (including the service industry), the worker must be given:
The employer must notify the labour department in the relevant area of the dismissal.
To dismiss a worker in a factory (or certain other establishments) with 100 or more workers, prior approval from the relevant labour department must be sought by the employer, and the worker must be given:
In cases of mass termination of workers’ employment, employers are required to follow the last-in, first-out principle and to prepare a seniority list of the employees who are being retrenched. In the event of any subsequent employee requirements, employees (who are citizens of India) previously dismissed, based on the seniority list, are required to be given preference over other candidates.
There is no separate procedure for mass termination in the case of non-workers.
Certain state-specific compliances may also need to be adhered to.
Class and collective actions
Are class or collective actions allowed or may employees only assert labour and employment claims on an individual basis?
Class or collective actions are allowed to assert labour and employment claims in India. Labour and employment claims (industrial disputes) must be class or collective actions espoused by a union, with the exception of claims relating to discharge, dismissal or recovery of money due.
Mandatory retirement age
Does the law in your jurisdiction allow employers to impose a mandatory retirement age? If so, at what age and under what limitations?
This is not mandatory in private employment. However, generally, employers fix a retirement age of between 50 and 60 years.
Dispute resolution
May the parties agree to private arbitration of employment disputes?
Employees in the non-worker category may agree to private arbitration. Employees in the workers category, and their employer, may both agree to voluntarily refer the dispute to arbitration, any time before the dispute has been referred to a labour court or industrial tribunal, by a written agreement and as per the provisions of the Industrial Disputes Act 1947.
Employee waiver of rights
May an employee agree to waive statutory and contractual rights to potential employment claims?
An employee can agree to waive statutory claims, but the law provides the right to demand statutory dues, even if waived. However, no such right prevails in the case of contractual dues.
What are the limitation periods for bringing employment claims?
In the case of claims by employees in the worker category relating to wrongful dismissal, discharge or termination, the limitation prescribed is three years.
In the case of any other industrial disputes by employees, no limitation period is prescribed. However, the same is required to be raised within a reasonable period.
In the case of employee compensation, claims must be raised within two years of the occurrence of the accident. However, in some cases, courts have allowed or waived limitation.
In the case of any claims by employees in the non-worker category, the limitation period is three years.
Update and trends
Key developments of the past year
Are there any emerging trends or hot topics in labour and employment regulation in your jurisdiction? Are there current proposals to change the legislation?
Recently, the Supreme Court of India delivered a landmark and long-awaited judgment with regard to determination of ‘basic wage’ for the purpose of provident fund contributions. In its judgment, the Supreme Court has clarified that whatever is universally paid by the employer to its employees shall be considered as basic wages for the purpose of the provident fund contribution, whereas any variable earning that may vary from individual to individual according to their efficiency and diligence, will be excluded from the ‘basic wage’.
