04/11/2017

Contract labour accounts for 55% of public sector jobs and 45% of those in the private sector.

NEW DELHI: In yet another initiative towards improving the ease of doing business in the country, Bandaru Dattatreya-led labour ministry has notified draft rule that would allow principal employer or contractor hiring contract labour to file a unified annual return under the Contract Labour (Regulation & Abolition) Act, 1970.

Under the rules, to be called as the Contract Labour (Regulation & Abolition) Central (Amendment) Rules, 2017, every contractor or principal employer shall upload a unified annual return in the Form XXIV specified in these rules on or before the February 1 following the close of the year to which it relates. The draft rules expires on April 14, 2017 after which the said rules will apply from the date of notification in the absence of any objections raised.

Besides, the employer or the principal contractor also have the option of filing the return manually or online. The principal employer or contractor shall also file a Unified Annual Return to the concerned authorities manually. In case, if, an employer maintains registers or records or reports in electronic form, such registers or records or reports shall also be taken into consideration," the draft notification of the labour ministry said. 

Indian Employment Law Compliances Reformed

• Employers can now maintain consolidated registers in place of the registers required under 9 national labour laws.
• These consolidated registers can be maintained either in hard-copy or electronically.

The Indian government has allowed employers to maintain consolidated registers under 9 national level labour laws.

In a move to streamline compliances required under certain labour laws and with a view to improve to the ease of doing business in India, the Indian Ministry of Labour and Employment has notified the Ease of Compliance to Maintain Registers under various Labour Laws Rules, 2017 ("Ease of Compliance Rules").

Laws covered

The Ease of Compliance Rules covers compliances in relation to the following labour laws:

Consolidated registers

The Ease of Compliance Rules prescribe the following consolidated registers that are to be maintained by employers:

1. Employee Register
2. Wage Register
3. Register of Loans and Recoveries
4. Attendance Register
5. Register of Rest/Leave/Leave Wages (to be maintained under the Mines Act, 1952, Sales Promotion Employees (Conditions of Service) Act, 1976 and Working Journalists and Other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955).

As a result of the Ease of Compliance Rules, 56 registers have been merged into 5 registers. Additionally and based on news reports¹ the new registers have 144 data fields as against the 933 filed under the previous set of registers.

Employers are also allowed to maintain the requisite consolidated registers in either hard-copy or in electronic form so long as the integrity, serial number and contents of the columns of the consolidated registers are not modified.

Analysis

The Ease of Compliance Rules is not just a welcome step for employers but also a huge stride towards making India business friendly. Given the plethora of labour laws in the country, such a proactive step by the government shall significantly reduce the number of registers that employers were required to maintain. Additionally, the option to maintain registers in electronic format will go a long way to make compliance more manageable, both for employers and labour inspectors.

In sum, this is a positive step to improving the labour compliance landscape in India and to reduce compliance costs for employers. The Ease of Compliance Rules is likely to significantly improve India's competitiveness and rankings in the Ease of Doing Business global survey. And not to mention the amount of paper that will be saved by the country due to the reduced compliances, a positive gesture by the government to protect our environment!

New Rules For Maintaining Combined Registers Under Various Specified Labour Laws

Introduction

On 21 February 2017, the Ministry of Labour and Employment, Government of India (Ministry) has notified the Ease of Compliance to Maintain Registers under various Specified Labour Laws Rules 2017 (Ease of Compliance Rules). The Ease of Compliance Rules have come into force with effect from the date of its notification in the Official Gazette.

Amendment of Central Rules under certain Labour Laws

The Ease of Compliance Rules enable an employer to maintain 5 (five) types of combined registers under the following labour laws:

1. Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act 1996;
2. Contract Labour (Regulation and Abolition) Act 1970;
3. Equal Remuneration Act 1976;
4. Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act 1979;
5. Mines Act 1952;
6. Minimum Wages Act 1948;
7. Payment of Wages Act 1936;
8. Sales Promotion Employees (Conditions of Service) Act 1976; and
9. Working Journalists and Other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act 1955,

(collectively referred to as the Specified Labour Laws).

The 5 (five) types of combined registers required to be maintained under the Specified Labour Laws, include:

1. Employee Register;
2. Wage Register;
3. Register of Loan / Recoveries;
4. Attendance Register; and
5. Register of Rest Days / Leave account of employees / Leave with Wages.

Accordingly, pursuant to the Ease of Compliance Rules, the relevant central rules enacted under the Specified Labour Laws have been amended to replace existing forms of registers with the combined registers notified under the Ease of Compliance Rules. Consequently, the various different forms of registers required to be maintained under the Specified Labour Laws have been reduced to the combined registers under the Ease of Compliance Rules.

The Ease of Compliance Rules allow an employer to maintain the combined registers in electronic form. It is understood that the Ministry is simultaneously developing a software for these 5 (five) combined registers to enable maintaining such registers in digitised form. After development of the software, it is contemplated that the software will be uploaded on the 'Shram Suvidha Portal' of the Ministry to enable establishments to download such software for free.

Rationale

The Central Government has notified the Ease of Compliance Rules with a view to

address

the concerns foreign investors have in relation to observing bulky compliances under the various labour laws. By reducing the number of registers required to be maintained under certain labour laws, the Central Government hopes to reduce the compliance burden of establishments in their day-to-day business and to improve the ease of doing business in India.

Khaitan Comment

Labour is a subject which falls in the 'Concurrent List' of the Constitution of India, where both the Central and State Governments are competent to legislate, and many States have enacted their own rules under the Specified Labour Laws. While these amendments will help in substantially reducing the number of registers that are required to be maintained by establishments regulated by the Specified Labour Laws, such amendments under the Ease of Compliance Rules address only the relevant central rules enacted under the Specified Labour Laws, and not the State specific rules. Other than those Specified Labour Laws which have no State specific rules enacted, for eg. the Equal Remuneration Act 1976, the amendments proposed by the Ease of Compliance Rules shall become applicable to an establishment only when the State in which the establishment is located adopts such proposed amendments. The appropriate State Governments will be required to amend the rules enacted under the Specified Labour Laws in consonance with the Ease of Compliance Rules. Accordingly, it may take some more time before the scheme of simplification contemplated in the Ease of Compliance Rules is adopted by State Governments.

It is important to note that several States, including the States of Maharashtra, Gujarat, Telangana and Karnataka, have enacted voluntary 'Self-Certification Schemes' (Schemes) with a view to simplify and bring about transparency in labour law compliances. Under certain Schemes, upon registration, the specified establishments shall have the option of filing combined returns under certain labour laws specified in the particular Scheme. Some of the Schemes, such as the Scheme enacted by the State of Telangana, also provide an option of filing combined registers under certain labour laws. While adopting the amendments proposed by the Ease of Compliance Rules, the State will have to ensure that there is no inconsistency between the extant Scheme and the Ease of Compliance Rules.

The Central Government has made several efforts in trying to streamline and simplify the number of compliances required to be adhered to under the various labour laws, including introducing bills such as the Model Shops and Establishments (Regulation of Employment and Conditions of Service) Bill 2016. However, until the State Governments adopt the relevant initiatives being introduced by the Central Government, employers may still have to endure bulky compliances under the relevant labour laws.

The notification of the Ease of Compliance Rules is definitely a step in the right direction to help establishments cut costs and efforts and ensure better compliance with labour laws. The key to the success of the Ease of Compliance Rules shall, however, lie in the effective adoption of amendments by the State Governments at the earliest. It is to be seen whether any further clarifications, or any instructions to the State Governments, will be notified by the Central Government in this regard.

Reformation Of The Labour Laws Compliance Rules

 On February 21, 2017 the Ministry of Labour and Employment notified the Ease of Compliance to Maintain Registers under various Labour Laws Rules, 2017 (hereinafter known as "Maintenance of Register Rules").These rules have been framed for the expedient compliance of the requirement of the various Labour related laws and for the purpose of maintaining combined registers for all such laws. Earlier the employers were supposed to maintain 56 registers, but now as per the Maintenance of Register Rules the employers have to maintain only 5 registers. Under this easier compliance regime, new registers have only 144 data fields as against 933 data fields earlier.1 The Maintenance of Register Rules covers compliances in relation to the following labour laws:

1. Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996;
2. Contract Labour (Regulation and Abolition) Act, 1970;
3. Equal Remuneration Act, 1976;
4. Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979;
5. Mines Act, 1952;
6. Minimum Wages Act, 1948;
7. Payment of Wages Act, 1936;
8. Sales Promotion Employees (Conditions of Service) Act, 1976; and
9. Working Journalists and Other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955.

Consolidated Register

Under the Maintenance of Register Rules the employers have to maintain consolidated register under the 9 aforesaid labour law acts. These register can be maintained either electronically or in hard copy. The Maintenance of Register Rules will facilitate ease of compliance, maintenance and inspection, and will make the information provided there under easily accessible to the public through electronic means thereby increasing transparency.

The following registers are now to be maintained by the Employers under the 9 aforesaid labour law acts vis-à-vis 56 registers-

1. Employer Register (FORM A)
2. Wage Register (FORM B)
3. Register of Loans and Recoveries (FORM C)
4. Attendance Register (FORM D)
5. Register of rest/leave/leave wages under the Mines Act, 1952, the Sales Promotion Employees (Conditions of Service) Act, 1976 and the Working Journalists(Conditions of Service) and Miscellaneous Provisions Act, 1957 (FORM E)

The formats of the aforesaid 5 forms can be accessed here.

New compliances for Companies

1 Under Minimum Wages Act, 1948 and Minimum Wages (Central) Rules, 1950

2. Under Contract Labour (Regulation and Abolition) Act, 1970 and the Contract Labour (Regulation and Abolition) Central Rules, 1971

Conclusion

The Maintenance of Register Rules have reduced the number of registers the employers were required to maintain earlier. The initiative taken by the Ministry of Labour and Employment will help in ease of compliance, maintenance and inspection. The Maintenance of Register Rules will significantly reduce the cost for employers. Electronic maintenance of registers will improve efficiency and will help in easing business activities as maintaining registers in electronic form will make compliance more feasible for both employers and the concerned authorities.

The Ministry of Labour and Employment issues a Draft Labour Code on Social Security and Welfare, 2017

 The Ministry of Labour and Employment (“Ministry”) has recently issued the Draft Labour Code on Social Security and Welfare, 2017 (“Draft Code”) thereby amalgamating the existing Labour Laws related to social security.

Pursuant to this, the Ministry has invited comments on the Draft Code, by 16th April, 2017. The comments / suggestions can be sent to S.K. Tripathi, Under Secretary (LRC), at Ministry of Labour and Employment, Room No. 17, Shram Shakti Bhavan, Rafi Marg, New Delhi – 110001 and can also be e-mailed toThis email address is being protected from spambots. You need JavaScript enabled to view it..

Background

The Draft Code has been framed pursuant to the recommendations of the 2nd National Commission on Labour. With a view to simplify, rationalize, consolidate, and amend the laws relating to social security of workforce and make them easier for comprehension, implementation and enforcement, the Draft Code is issued.

Currently there are total fifteen Labour Laws including Employees’ Provident Fund Act, Employees’ State Insurance Act, Maternity Benefit Act, Payment of Gratuity Act, Employees Compensation Act, Unorganised Social Security Act, and various Welfare Cess/ Fund Acts. Therefore, the Ministry had proposed to replace these Labour laws with the following four codes:

-Code on Wages,

-Code on Industrial Relations,

-Code on Social Security & Welfare, and

-Code on Occupational Safety, Health & Working Conditions.

Out of the four Codes, Code on Wages and Code on Industrial Relations were earlier drafted and put on the Ministry’s website.

By virtue of the present notification, the Ministry has now issued the Draft Code to amalgamate the existing labour laws on social security.

The key highlights of the Drafts are as follows:

1. Under the Draft Code, an Employer in its grammatical connotations used means the employer of any entity that employs an employee oremployees, either directly or through contractors.

[Please refer to the attached document named “Employer” for complete definition of Employer]

2. Under the Draft Code, an Employee means person who is employed for wages by the entity in accordance with the terms of contract of employment, whether written or oral and whether expressed or implied, in or in connection with the work of the entity.

[Please refer to the Document named “Employee” for complete definition of Employee].

3. The Draft Code is applicable to all the entities except for the entities specified in Part – I of the First Schedule. These entities include any establishment of the Central Government or State Government including departments of Central Government or State Government as the case may be. The Part-I of First Schedule is attached along with this mail.
4. The code applies to the following persons:

(a) Workers that are employed by any entity;

(b) Worker who may also be the owner or the proprietor of an entity or a self-employed unit;

(c) International workers; and

(d) Indian citizen, working outside the territory of India, who opts to become a member of social security schemes under this Code.

However, the Draft Code is not applicable to such class of workers that has been specified in Part – II of the First Schedule subject to the restrictions as mentioned in that schedule. The class of workers in Part -II of the First Schedule will be specified shortly.

5. The Draft code covers the workers from Organised as well as Unorganized Sectors of Employment.

[Note: The Organised sector contains the establishments where the number of such workers employed is equal to or more than the threshold].

6. The Draft Code proposes toconstitute a National Social Security Council of Indiato for reviewing and monitoring the implementation of the Draft Code, advising the central and the State Governments in the matter of Social Security Administration etc.
7. The Draft Code proposes to invite claims and objections for theunclaimed amount of the preceding financial yearwithin a period of minimum six months, following which the amount will be confiscated.

(Note: “Unclaimed Amount” means-

1. a) Any amount credited to State Social Security Fund under suspense account (or any other account) which can-not be associated with any contribution made by or on account of any particular worker in a period of three years from the date of its credit.
2. b) Any amount of claim due to any worker, but not claimed by him within a period of five years from the date it became due.)
3. The Draft Code proposes to provide a unique Aadhar-based registration service for registration of workers and provide a portable Social Security account, to be named as Vishwakarma Karmik Suraksha Khata (VIKAS), which will be linked to Aadhar Number of the worker.
4. The Draft Code proposes for the registration of the establishments and entities if the establishment or entity:
5. a) Has, at any point of time during the year preceding the commencement of this Code, employed number of workers more than or equal to threshold.
6. b) Has, at any point of time during the current year employed number of workers more than or equal to threshold.
7. c) Is required to deduct contribution at source.
8. d) Is a contractor or placement agency.
9. The Draft Code proposes allowing the benefits even when the Employer (including Principal Employer) fails or neglects to pay any contribution which under this Code he is liable to pay in respect of any employee.
10. The Draft code proposes that if an employer has entered into a contract with any insurers in respect of any liability to any employee, then, in the event of the employer becoming insolvent or making a composition or scheme of arrangement with his creditors or, if the employer is a company, in the event of the company having commenced to be wound up, the rights of the employer against the insurers as respects that liability shall, notwithstanding anything in any law for the time being in force relating to insolvency or the winding up of companies, be transferred to and vest in the employee and upon any such transfer the insurers shall have the same rights and remedies and be subject to the same liabilities as if they were the employer.
11. The Draft Code provides that unless an employer is registered under the Draft Code, once enforced, it cannot employ any workers, after the expiry of such period as may be stipulated from the date on which the entity was liable to be registered.

For a detailed read on the Draft Code, please click on the link below.

Amendment To The Payment Of Bonus Act, 1965

The Payment of Bonus (Amendment) Act, 2015 received Presidential assent on December 31, 2015, thereby amending certain key aspects of the Payment of Bonus Act, 1965 ("PB Act").

The PB Act applies to factories and establishments which employ 20 or more persons. This law provides for payment of a statutory bonus to eligible employees, which bonus is determined on the basis of profits or on the basis of production or productivity of the establishment.

The eligibility limit of an "employee" has been amended under the PB Act, whereby an employee who now earns a salary or wages of Rs. 21,000 (approx. US$ 323) per month will be eligible for payment of statutory bonus under the PB Act. This is a steep increase for the earlier salary/wage cap of Rs. 10,000 (approx. US$ 153) per month, thereby widely increasing the extent of coverage of the PB Act. Thus, assuming that an employee's salary/wage is about 40% of his total compensation, this would cover all employees earning a total compensation of approximately Rs. 52,500 per month or less.

Under the PB Act, if an eligible employee's salary/wage exceeded Rs. 3,500 per month, the minimum or maximum statutory bonus payable was calculated as if the salary/wage were Rs. 3,500 (approx. US$ 54) per month. The 2015 amendment has now increased this ceiling from Rs. 3,500 per month to Rs. 7,000 (approx. US$ 107) per month (double the previous amount) or the minimum wage notified for the concerned employment as fixed by the Government (as per the Minimum Wages Act, 1948), whichever is higher.

It may be noted that there is no change in definition of "salary" or "wage" under the PB Act and an employer will continue to factor in the same components which are currently being considered for eligibility and calculation of bonus.

The amendments will lead to a greater financial implication on an employer, as it will need to account for this greater payout amount for eligible employees. It is important to note that the amendments have retrospective effect from April 1, 2014. Thus, employers across all sectors will need to have the financial aspects of the amendments factored into their books of account for their employees from April 1, 2014.

Roundup Of Recent Changes To Indian Employment Laws

1. State Amendments to the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA)

The CLRA is a central statute that regulates engagement of contract labour/agency workers in India. It imposes various obligations in relation to registration, health and safety, etc., on both the service provider and the service recipient. Even though the CLRA is a central statute, State governments have the ability to amend certain provisions of this statute. On this basis, the Maharashtra and Karnataka State governments have recently introduced/proposed certain amendments to the CLRA.

2. New legislation providing rights for persons with disabilities enacted

The Central government has enacted the Rights of Persons with Disabilities Act, 2016 (Disabilities Act) which received the assent of the President on 27 December 2016. The Disabilities Act is not yet in force and will come into effect on the date notified by the Central government in the Official Gazette.

The primary purpose of the Disabilities Act is to give effect to the United Nations Convention on the Rights of Persons with Disabilities. The Disabilities Act imposes an obligation on the government to take steps towards ensuring equality of opportunity for persons with disabilities and preventing discrimination on the basis of disabilities. The Disabilities Act replaces the existing Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (PWD Act), which will be repealed once the Disabilities Act is brought into force.

The PWD Act was limited in its scope, and did not impose any specific obligations on private employers. The Disabilities Act, however, has a wider scope and imposes the following obligations in relation to private employers:

Every establishment must notify an equal opportunity policy, detailing measures proposed to be taken by it for skill development and employment of persons with disabilities;

A copy of the establishment's equal opportunity policy must be registered with the authority appointed under the Disabilities Act; and

Every establishment must maintain records of persons with disabilities in relation to their matters of employment, facilities provided and other necessary information as prescribed.

All private employers are expected to comply with these conditions, in accordance with rules that are yet to be prescribed by the Central government. Based on one's discussions with relevant authorities, we understand that they are in the process of drafting rules for the implementation of the Disabilities Act. The Disabilities Act will only be notified once these rules are ready.

3. Amendments to the Industrial Disputes Act, 1947 and Payment of Wages Act, 1936 in Haryana

Applicability of Chapter V-B of Industrial Disputes Act, 1947 (ID Act) in Haryana increased to 300 or more workmen

Chapter V-A and V-B of the ID Act deal with conditions for retrenchment of workmen and closure of establishments. Establishments that are covered under Chapter V-B are required to seek permission from the government before giving effect to any retrenchment or closure. However, Chapter V-B applies only to factories, mines and plantations (Covered Establishments) that employ more than the prescribed threshold number of workmen. The Haryana State Government has increased the threshold for applicability of Chapter V-B of the ID Act from 100 to 300 workmen. Therefore, Covered Establishments with less than 300 workmen on an average over the last 12 months will now be covered by Chapter V-A of the ID Act, and not by Chapter V-B. The amendment has been brought into effect from 3 November 2016.

The impact of this amendment is twofold:

(a) Relaxed retrenchment norms: Covered Establishments engaging between 100 to 300 workmen are no longer required to seek prior government permission or give 3 months' notice to retrench workmen. Instead, the requirement to give 1 months' notice of retrenchment and only intimate the government under Chapter V-A of the ID Act would apply.

(b) Relaxed norms around closure of establishment: The requirement to seek prior government permission at least 90 days before the closure of the establishment would no longer be applicable to Covered Establishments engaging 100 to 300 workmen. Instead, such establishments would only need to provide 60 days' notice of closure to the government under Chapter V-A of the ID Act.

Threshold for applicability of Payment of Wages Act, 1936 (PW Act) removed in Haryana

The PW Act is a central statute that prescribes obligations around the mode and timeline for payment of wages, and imposes restrictions on an employer's ability to make deductions from an employee's wages. The PW Act, in the first instance, only applies to employees working in factories, railways, mines, plantations, motor transport services, air transport services, etc. and earning wages up to INR 18,000 per month. While this is a central statute, State governments have the ability to amend this legislation in relation to its applicability. Accordingly, the Haryana government has recently deleted the wage threshold for applicability of the PW Act to employees in Haryana. This amendment has been brought into effect from 15 September 2016.

Further, in some States, the PW Act has also been extended and made applicable to shops and commercial establishments. In Haryana, the Shops and Commercial Establishments Act (Haryana S&E Act) specifically states that restrictions relating to deductions from wages under the PW Act would be applicable to commercial establishments. Since the Haryana S&E Act does not prescribe any wage threshold for its applicability, it remained unclear whether all employees working in a commercial establishment, even if they earned more than INR 18,000 per month, would benefit from the provisions prohibiting/limiting wage deductions under the PW Act. Haryana's recent amendment deleting the wage threshold has helped clear this confusion, as it is now clear that an employer's obligations as well as limitations on deductions from wages under the PW Act would apply to all employees of commercial establishments in Haryana irrespective of their wages.

5. Amendment to the time period for filing returns under the Payment of Bonus Act, 1965 (Bonus Act)

The timeline for uploading annual returns under the Payment of Bonus Rules, 1975 has been amended. All employers are now required to upload annual returns in respect of the preceding year on the web portal of the Ministry of Labour and Employment before 1 February of each year. Prior to this amendment, employers were required to upload the returns within the time period specified for payment of bonus under Section 19 of the Bonus Act, i.e. within a period of 8 months from the close of the accounting year (30 November).

This amendment has been brought into effect from 6 December 2016.

6. Department of Personnel Training issues Guidelines on Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (SH Act)

The Department of Personnel Training (DoPT) has issued fresh guidelines on certain processes that are required to be complied with by government ministries and departments in connection with the SH Act. These guidelines recommend that an inquiry by the Internal Complaints Committee be completed within 30 days and in any case, within a maximum of 90 days from the date of the complaint. In addition to this, government ministries and departments are now required to submit monthly progress reports on the implementation of the SH Act to the Ministry of Women and Child Development. The guidelines also recommend including brief details of the implementation of the SH Act by the department/ministry in the Annual Report prepared under the SH Act. These guidelines are only applicable to ministries and departments of the government and not to private employers.

Fixed Term Employment Contracts In India

In any industry there may arise a situation where it becomes necessary for the employers to reduce the surplus work force due to the deteriorating profit margins, shortage of raw materials, accumulation of stocks, break-down of machinery etc. The reduction in work force is generally in the form of retrenchment. However, in order to protect workers against dismissals in the garb of retrenchment due process and conditions have been laid down under the Industrial Dispute Act, 1947 ("Act"). Further, the Act prohibits retrenchment of worker who has been in continuous service of one year unless the employer pays retrenchment compensation as well as fulfills other obligations stipulated in the Act.

However, the said protection granted to the workmen made it difficult for the seasonal industries or other industries which are involved in fixed term projects to hire employees for a specific duration for a particular season or project. Therefore, the legislature keeping aforesaid aspect in mind amended the Act in 1984 by introducing Sub-clause (bb) under Section 2(oo) of the Act which excluded from the purview of retrenchment employees employed on a fixed term basis.

However, such appointment was made during the paddy season only and that too for a specific duration. After termination of his service the workman raised an industrial dispute. The Hon'ble Supreme Court noted the fact that appointments of the workman were made on contract basis. The court also noted that it was not a case where the workman is continuously appointed with artificial gaps of one or two days only as the gaps were of considerable periods. In view of the same, the court observed that the termination of the service of the workman does not amount to retrenchment under the Act since the same is covered under the exception contained in Sub-clause (bb) of Section 2(oo) of the Act.

Therefore, in view of the foregoing, where a workman is employed on fixed duration and the same is successively renewed on a gap of one or two days, then such practice on the part of the employer may be considered a camouflage for regular employment with a view to defeat the law and provisions regarding the termination of service of the workmen.

Enforceability Of Employment Bonds In India

Over the last decade, change in business environment due to globalization has resulted in greater business competition. To survive this competition, organizations have been competing for skilled employees to ensure better products and services. The increase in demand for skilled workers together with their limited availability has created a war of talent amongst these organizations.

To cope up with this competition, organizations often invest huge amount of time and money on imparting training and skills to their employees. Unfortunately, several of them after acquiring these valuable skills, move out of the organization for better prospects thereby causing huge loss to the employer, which , from the perspective of an employer, cannot be compensated merely by money. The employer in order to safeguard its interest often makes its employee sign an employment bond. These bonds are contracts / undertakings given by the employee wherein employee agrees to serve the employer compulsorily for a certain minimum fixed period of time failing which the employee promises to furnish / pay the amount as specified in the bond. Such promise not to leave the employment for a specified period is usually a negative covenant. Often, along with the bonds, the employers also obtain some kind of security, such as signed undated cheques. The purpose is to deter the employee from leaving the employment before the specified time period.

However, in the current scenario, the most pertinent issue that comes to our mind is whether such method to retain employees is effectual, acceptable and enforceable under the law. Such contracts, in appropriate circumstance, can be challenged on the ground that they restrict the fundamental right of the employee to profess his or her trade or profession. Further, the validity of such bonds would also depend on whether the bond is in fact a valid contract under the Indian Contract Act, 1872 or not. A contract is valid only if it has been made with free consent of the parties, i.e. without force, undue influence, misrepresentation and mistake.

As far as validity of the contracts with respect to the negative covenant is concerned, these contracts have been held to be valid if the organization has invested resources on personnel training or skill enhancement of the employee. Thus, the employer is entitled to recover damages only if money has actually been spent in providing training to the employee, such training being such that the employee otherwise would not have received as a result of his employment or the work that he undertakes. The amount spent has to enhance or impart new skills, over and above what an employee would otherwise be expected to know or learn in the position that he holds in the company.

Therefore, if the employer has actually spent money in training the employee as aforesaid, and there is a breach of contract by the employee, liquidity damages, as stipulated in the contract or the bond may become payable by the employee to compensate the organization for the time and money spent on the training. In Toshnial Brothers (Pvt.) Ltd. v. E. Eswarprasad & Ors (MANU/TN/0511/1996), the Madras High Court held that a legal injury to the employer can be presumed where the employer establishes that the employee was the beneficiary of any special favour or training or concession at the expense of the employer and there has been breach of contract by the beneficiary of the same. In such cases, the breach would per se constitute the required legal injury. However, it is to be noted that compensation should not exceed the amount, if any, stipulated in the contract and should not be imposed by way of a penalty. Generally courts in India do not grant damages automatically merely because the employment contract executed says so. In order to ensure that liquidated damages or compensation are granted by the court, the organization may have to prove the loss incurred because of the employee's early departure from the services.

While granting liquidated damages under the employment bond, Courts apart from going into the legal injury caused to the employer also take into consideration factors like actual loss suffered by the employer, period of service already completed by the employee under the contract and other conditions, if any, stipulated under the contract. Only after going into these factors, courts determine the loss suffered by the employer to reach a reasonable compensation figure. For instance, in the case of Sicpa India Limited vs Shri Manas Pratim Deb (MANU/DE/6554/2011), the employer incurred expenses, while imparting training to the employee for which an employment bond was executed. According to the bond, the employee was to serve the employer for period of three years or to make payment of rupees two lakhs to the employer. The employee left the employment within two year of signing the bond. To enforce the agreement the employer went to the court, which awarded sum of only Rs 22,532 to the employer as against the compensation amount of Rupess two lakhs stipulated in the contract. While coming to such conclusion, the Court relied upon the law laid down by Supreme Court regarding liquidated damages. The law with respect to liquidated damages have been crystallized by the Supreme Court vide two landmark decisions. First is the decision in case of Sir Chunilal V. Mehta And Sons, Ltd vs The Century Spinning (1962 AIR 1314), wherein it was held that liquidated damages are not in the nature of penalty and can be awarded as mentioned in the contract if loss from the breach of contract cannot be calculated for the remaining period of the contract. Whereas, in the case of Fateh Chand vs. Balkishan Das (AIR 1963 SC 1405), the provision of liquidated damages in the nature of penalty was held to be void, since the actual damages could be calculated and, thus the liquidated damages were held as the upper limit which are to be paid once the actual damages are proved. Since in the present case the damages could be calculated, Court considered the total expenses borne by the employer and the period of service completed by the employee under the contract and thus, divided the total expenses incurred into three parts for three years and awarded the damages for the remaining one year of the employment due to the breach of contract.

Therefore, from the above discussion, it is evident that employment bond stipulating a specified sum as payable by the employee in case of breach of contract is enforceable only if employer has actually spent money on the employee against a promise from the employee that he or she would not leave the employment for the specified duration and has consequently suffered a loss on account of the employee having received the training and leaving the employment before the stipulated period in breach of the employment bond / contract. With the employees in our country free to decide their employment these bonds play an important role to protect the interest of the employer and enable the employer, in appropriate circumstances, to recover the money spent or incurred by the employer in case of an early resignation by the employee.

IT Professionals "Workmen" Under The Industrial Disputes Act (ID Act, 1947)?

The government of Tamil Nadu in India has recently issued a circular clarifying that employees of the IT Sector are covered under the ID Act, 1947 and have the right to form trade unions. This development has caused consternation in industry circles which believed that the IT Sector was outside the ambit of this Act. Obviously, for some reason, the IT Sector has been misinformed of the correct position under the law.

In the current state of the controversy it is necessary to illumine the rights of the employees and correct legal position. Except for supervisory or managerial level employees, all other employees are considered as "workmen" under the ID Act if they perform any manual, skilled, unskilled, technical, operational and clerical work. Even as recently as 2016 the Supreme Court in Raj Kumar Vs Director of Education re-iterated that its leading judgement in H.R Adyanthaya Vs. Sandoz (India) Ltd. in 1994 is decisive on the issue of who is a "workman", and succinctly re-stated the ratio that "a person to be workman under ID Act must be employed to do the work of any of the categories, viz., manual, unskilled, skilled, technical, operational, clerical or supervisory. It is not enough that he is not covered by any of the four exceptions to the definition. We reiterate the said interpretation."

Clearly, no detailed argument is necessary to establish the proposition that an IT Professional performs a skilled function and is a workman. Only IT employees employed in supervisory or managerial roles would be exempt from the application of this Act. No doubt there are decisions of the Supreme Court which were decided on the unique facts of the case and have caused some confusion on the issue, hence the need to re-state the Court's latest reiteration of the law to dispel any doubt that the IT Sector enjoys no exemption from the law. Therefore, to avoid litigation and much acrimony with employees, lay-offs, retrenchments and terminations of employees must be in compliance with the requirements of the ID Act.