1. GENERAL ISSUES CONCERNING EMPLOYMENT LAWS IN INDIA & RECENT DEVELOPMENTS Paris, France October 21, 2010 by Manishi Pathak Senior Partner Kochhar & Co., India 1

2. 1.APPLICABILITY 1.EMPLOYMENT CONTRACTS 2.CHANGE IN SERVICE CONDITIONS 3.TERMINATION OF EMPLOYEES 4.DISMISSAL FOR MISCONDUCT 5.OVERTIME AND LEAVE 6.CONTRACT LABOUR 7.RESTRICTIVE COVENANTS 8.TRADE UNIONS 9.SEXUAL HARASSMENT 10.RECENT DEVELOPMENTS 2 EMPLOYMENT LAWS

3. EMPLOYMENT LAWS-APPLICABILITY 3

4. The matrix of Indian employment laws appear to be a bit complex to foreign employers due to the applicability of multiple legislations and the requirement to maintain various records and fulfil compliances there under –The employment legislations which may be applicable to an employer depends upon the activities to be undertaken, nature of work performed by the employees, their class, number of employees to be employed and the location of offices/factories in India –Initially, expert help may be required to establish system (s), which can later be managed internally –There should be detailed and clearly laid down policies / hand book concerning the employees 4 Employment Laws-Applicability

5. 5 EMPLOYMENT CONTRACTS GENERAL ISSUES CONCERNING EMPLOYMENT LAWS IN INDIA

6.  Except for certain State laws, there is no requirement to provide any written proof of employment  No standard format for an employment contract exists in India  Generally, Indian companies either issue standard employment letter and/or sign an employment contract with their employees, which they are asked to acknowledge in writing  Detailed employment contracts are usually signed with the senior level employees 6 EMPLOYMENT CONTRACTS

7. The employment contracts generally used in India have the following information: –Name and address of the employer and employee –Title of job or nature of work (or job description) –Place of work –Probation, if any, and its terms –Date of commencement of employment. –Wages/salary details –Any benefits that an employee is entitled to –Type of contract: permanent or fixed term –Period of notice required for termination of employment –Hours of work, Leave –Conditions under which the employer can terminate the contract –Non-compete/Confidentiality/Non-solicitation provisions, etc. 7 EMPLOYMENT CONTRACTS

8. 8 GENERAL ISSUES CONCERNING EMPLOYMENT LAWS IN INDIA CHANGE IN SERVICE CONDITIONS OF EMPLOYMENT

9. The conditions of service of workmen can only be changed in accordance with the prescribed procedure under the IDA What could constitute a change in the condition of services is outlined in Schedule IV of the IDA, which inter-alia include matters relating to change in the wages, compensatory allowances, hours of work, leave, rules of discipline, etc. The IDA lays down that an employer is required to serve at-least 21 days notice in a prescribed manner on a workman prior to making any change in the conditions of service In the event the concerned workman raises an industrial dispute in this regard, the employer may not be able to effect the proposed change until final resolution thereof 9 CHANGE IN SERVICE CONDITIONS

10. 10 TERMINATION OF EMPLOYEES GENERAL ISSUES CONCERNING EMPLOYMENT LAWS IN INDIA

11. 11 TERMINATION OF NON-WORKMEN Generally governed by the provisions of contract of employment Not governed by the IDA May be governed by the State specific shops and establishments Act TERMINATION (RETRENCHMENT) OF WORKMEN Besides the employment contract, the following statues / documents inter alia need to be examined, depending upon applicability IDA State specific Shops and Establishments Act Industrial Employment (Standing Orders) Act (IESO Act) Collective Bargaining Agreement Termination of Employees

12. 12 TERMINATION OF ‘WORKMEN’  Referred to as ‘retrenchment’ under the IDA  The following are not covered within the definition of retrenchment:  Termination as a measure of punishment, inflicted by way of disciplinary action  Voluntary retirement of workman  Retirement, on reaching the age of superannuation  Termination due to non-renewal of fixed term contract  Termination on grounds of continued ill-health Termination of Employees

13. TERMINATION OF ‘WORKMEN’  Termination of employment, particularly of workmen may be a legally complex and time consuming exercise, especially where there are more than one hundred (100) workmen  Termination of non-workmen can be affected in accordance with the terms and conditions of their employment contracts  Termination (retrenchment) by an employer of a workmen is regulated by the IDA. In applicable cases, termination of a workman requires notification to or approval of the State government 13 Termination of Employees

14. TERMINATION OF ‘WORKMEN’  IDA requires application of the ‘last in first out’ principle in retrenchment unless otherwise provided in an agreement with the employee or there are justified reasons. Failure to comply with the principle of ‘last in first out’ may render the retrenchment invalid  Even the closure of an undertaking by an employer requires the employer to follow the prescribed procedure under the IDA, which may again be cumbersome and time consuming  It is advisable that at the first stage an endeavour is made to consider altrenate steps 14 Termination of Employees

15. 15 CONDITIONS FOR RETRENCHMENT (‘WORKMEN’)  If the number of employees is less than 100  1 months’ notice in writing indicating reasons for retrenchment or wages in lieu of such notice is to be given to workmen  Payment of compensation equal to 15 days average pay for every completed year of continuous service or any part in excess of 6 months  Only intimation to be given to Government  If number of employees is more than 100 (in case of specified establishments)  3 months’ notice in writing indicating reasons for retrenchment or wages in lieu of such notice to be given to workmen  Prior permission of appropriate Government is required  Contravention of the abovementioned mandatory requirements would invalidate the retrenchment and render it void ab initio Termination of Employees

16. 16 DISMISSAL FOR MISCONDUCT GENERAL ISSUES CONCERNING EMPLOYMENT LAWS IN INDIA

17. 17 Refers to termination of workman by way of punishment due to misconduct In such cases, services of a workman can be terminated only after conducting domestic enquiry Disciplinary proceedings to be conducted by following principles of natural justice No compensation is required to be paid in case of termination on grounds of misconduct DISMISSAL FOR MISCONDUCT

18. 18 DISMISSAL FOR MISCONDUCT WHAT CONSTITUES ‘MISCONDUCT’, INCLUDING ……. Employee making false and defamatory statements against the management – Workmen v. Mysore Lamp Works [1970] II LLJ 617 (Mys). Dishonest Employee – Regional Manager, Rajasthan State Road Transport Corporation v. Sohan Lal 2004 SCC (L&S) 1078. Continued unauthorized absenteeism – NWKRTC v. S.J. Fernandes. ILR 2001 Kant 1264 Assault on superior officer even if outside the premises or beyond hours of duty – A. Venkatesham v. A.P.S.R.T.C (2000) 1 ALD 645 Sleeping at workplace during working hours – Uttam Manohar Nakate v. Bharat Forge Co. Ltd. 2002 FLR 293

19. DISMISSAL FOR MISCONDUCT - DISCIPLINARY PROCEEDINGS Broadly, the following steps must be followed : A charge sheet must be issued to the workman detailing the nature of charges against him A domestic enquiry must be held in which the workman must be given an opportunity to present his case A show-cause notice must be issued to the workman containing the findings of the domestic enquiry and the employee must be given an opportunity to respond An order of dismissal must be issued giving the reasons for dismissal If the employee is suspended during the proceedings, then subsistence allowance, as per the IESO Act, should be provided 19 DISMISSAL FOR MISCONDUCT

20. 20 DISMISSAL FOR MISCONDUCT Where termination of service is on account of ‘misconduct’, concerned employee is not entitled to retrenchment notice and / or compensation Termination on account of failure to perform / achieve certain targets etc., does not amount to misconduct – retrenchment notice & compensation has to be given Misconduct generally includes inter alia Acts of violence Theft Sexual harassment Habitual late attendance, etc. To bring awareness, acts which amount to misconduct should be mentioned expressly in the employment contract and / or employee handbook, as the case may be

21. 21 OVERTIME / LEAVE GENERAL ISSUES CONCERNING EMPLOYMENT LAWS IN INDIA

22. OVERTIME  Mostly, all employees could be eligible to receive overtime wages in case of overtime work done by them, with an exception to a limited number of managerial persons in some States  Generally, employers do not pay overtime to all employees, specially managerial level employees. In such s case, there is a possible risk of eligible employees raising a claim LEAVES  The number of leaves vary from State to State. Therefore, in case a company has offices in different States it is advisable to have a common employee handbook taking into account the information of different States and common leaves (if employees transferred from one State to another, as a routine) 22 Employment Law Issues

23. 23 CONTRACT LABOR GENERAL ISSUES CONCERNING EMPLOYMENT LAWS IN INDIA

24. 24 CONTRACT LABOUR CLR Act applies To every establishment in which 20 or more workmen are employed on any day in the preceding 12 months To every contractor who employs or employed 20 or more workmen in the preceding 12 months Where CLR Act applies Principal employer is required to obtain registration of the establishment under the CLR Act Contractor is required to obtain license Who is a ‘contractor’ A person who undertakes to produce a given result for an establishment, other than a mere supply of goods or articles of manufacture to such establishment through contract labour or who supplies contract labour for any work of the establishment and includes a sub – contractor.

25. Employment of contract labour has been adopted in India as it is an effective tool to reduce labour related compliances and liability Contract labour arrangements are regulated by Contract Labour (Regulation and Abolition) Act 1970 (“CLR Act”). Accordingly, compliance issues must be considered and addressed when employing contract labour Caution must be exercised while employing / managing contract labour and entering into agreements with 25 CONTRACT LABOUR

26. 26 CONTRACT LABOUR CONTRACT FOR SERVICE Agreement between contractor and principal employer should be in place Factors which a Court could take into consideration in order to determine whether the arrangement is a sham: Supervision and Control Payment of wages / sanctioning of leaves, etc. Monitoring of attendance and time sheets, etc.

27. 27 RESTRICTIVE COVENANTS GENERAL ISSUES CONCERNING EMPLOYMENT LAWS IN INDIA

28. CONFIDENTIALITY It is imperative for an employer to protect confidential information which falls in the hands of its employees as a necessary consequence of employment Employees should be made to sign a tightly worded Non-Disclosure Agreements At the time of termination, employees must be asked to return all the confidential information they have in their possession. Also, they should be reminded to comply with these provisions, post termination of their employment Remedies Available – Compensatory Damages and / or Injunction 28 RESTRICTIVE COVENANTS

29. 29 What is ‘Confidential Information’ and ‘Trade Secret’ No straight jacket definition provided in statute or case law – It would depend on facts and circumstances. Courts in India primarily rely on English judgments and at times on American judgments CONFIDENTIAL INFORMATION: In American Express Bank Ltd. v. Ms. Priya Puri (2006 ) III LLJ 540 Del – Customer List and other details does not prima facie amount to ‘confidential information’. “Freedom of changing employment for improving service conditions is a vital and important right of an employee which cannot be restricted or curtailed on the ground that the employee has employer’s data and confidential information of customers which is capable of ascertainment on behalf of any person by an independent canvass at a small expense and in a very limited period of time” TRADE SECRET: In Ambiance India Pvt. Ltd. v. Shri Naveen Jain 122 (2005) DLT 421 – “A trade secret is some protected and confidential information which the employee has acquired in the course of his employment and which should not reach others in the interest of the employer. However, routine day-to-day affairs of the employer which are in the knowledge of many and are commonly known to others cannot be called trade secrets. A trade secret can be a formulae, technical know-how or a peculiar mode or method of business adopted by an employer which is unknown to others Restrictive Covenants

30. NON-COMPETE  As a general rule, post-employment restraints are void and unenforceable under Indian law. Section 27 of the (Indian) Contract Act, 1872  Indian courts do not look favourably upon the post-employment restraints  It is a common practice to include such a clause in employment contracts, especially in case of senior employees, due to their deterrent value NON SOLICITATION  Such clauses are also usually not looked upon favourably by Indian courts and may not be enforceable, as it restricts the future employment opportunities  Such restrictions may be enforceable between two employers inter-se if it is a condition of a contract 30 Restrictive Covenants

31. 31 GENERAL ISSUES CONCERNING EMPLOYMENT LAWS IN INDIA TRADE UNIONS

32. 32 Trade Unions The labour unions are recognized and regulated by the Trade Unions Act, 1926 (“TU Act”) The TU Act recognizes all trade unions, registered and/or otherwise with a view to providing legality to labour organizations and to enable collective bargaining Trade Unions often provide an effective tool for collective bargaining A trade union is entitled to enter into binding contracts and settlements with an employer on behalf of employees

33. 33 TU Act does not impose any obligation on an employer to afford ‘recognition’ to a particular trade union It is advisable to afford recognition to the trade union having maximum number of workmen employed in the concerned industrial establishment Refusal by an employer to bargain collectively in good faith is deemed to be an unfair labour practice and is prohibited Interference by an employer to restrain employees in being a part of trade union or concerted activity for the purposes of collective bargaining is deemed as an unfair labour practice and is prohibited Trade Unions

34. 34 GENERAL ISSUES CONCERNING EMPLOYMENT LAWS IN INDIA SEXUAL HARASSMENT

35. The Hon’ble Supreme Court of India has laid down guidelines for prevention of sexual harassment in Vishaka and Others v. State of Rajasthan and Others AIR 1997 SC 3011 These guidelines are mandatorily to be followed by employers (both public and private) to ensure the prevention of sexual harassment of women at workplace In the said case, the Supreme Court also defined sexual harassment 35 SEXUAL HARASSMENT

36. DUTY OF THE EMPLOYER/IN-CHARGE OF THE WORKPLACE To provide procedures for resolution, settlement or prosecution of acts of sexual harassment To create awareness about the rights of female employees in cases of sexual harassment, in particular by prominently notifying the guidelines in a suitable manner To set up a Complaints Committee to deal with complaints of sexual harassment or provide a special counselor or other support service, where necessary To maintain confidentiality while dealing with the complaints of sexual harassment To initiate appropriate disciplinary action in accordance with service rules/standing orders where the conduct of an employee (allegation of sexual harassment) amounts to misconduct 36 SEXUAL HARASSMENT

37. 37 RECENT DEVELOPMENTS

38. Industrial Disputes (Amendment) Act, 2010 (ID Act) Immigration Laws – Work Visas – Foreign Worker Quota Social Security and International Workers 38 …RECENT DEVELOPMENTS

39. 39 …RECENT DEVELOPMENTS ID Act INDUSTRIAL DISPUTES (AMENDMENT) ACT, 2010 ID Act The wage limit for coverage of supervisors as ‘workman’ has been raised to INR 10,000 ($ 225 approx.) Supervisors earning more than INR 10,000 ($ 250) per month or more would not be covered under the definition of ‘workman’ IDA The wage limit for coverage of supervisors as ‘workman’ was INR 1600 ($ 40 approx.)

40. 40 The ID Act allows a workman to directly approach the concerned Industrial Tribunal or Labour Court after expiry of forty five (45) days from date of filing grievance before the concerned conciliation officer / authority ID Act requires industrial establishments employing twenty (20) or more workmen to set up a Grievance Redressal Committee consisting of equal number of members from an employer and workmen, for resolution of disputes arising out of individual grievances. This amendment provides a workman with an alternative grievant redressal mechanism for the resolution of his dispute within the organization itself, with minimum necessity for adjudication …RECENT DEVELOPMENTS ID Act At present, any dispute pertaining to retrenchment, discharge, dismissal or termination of services is adjudicated upon by the Industrial Tribunal – cum - Labour Court only if a reference is made by the ‘appropriate Government’ after conciliation proceedings No internal Grievance Redressal Mechanism

41. 41 …RECENT DEVELOPMENTS Immigration The Ministry of Home Affairs, Government of India has made the requisites regarding work related visas (i.e., employment visa and business visa) more stringent Earlier foreign nationals who came to India for a short period of time on assignments or projects were able to do so under a Business Visa. However, after the clarifications issued by the ministry, they would require to procure an Employment Visa

42. 42 BUSINESS VISA A business visa can only be granted to a foreign national who wants to visit India for the activities such as: o Foreign nationals who wish to visit India to establish industrial/ business venture or to explore possibilities to set up industrial/ business venture in India o Foreign nationals coming to India to purchase/ sell industrial products or commercial products or consumer durables o Foreign nationals coming to India for technical meetings/ discussions, attending Board meetings or general meetings for providing business services support o Foreign nationals who are partners in the business and/ or functioning as Directors of the company …………………… …RECENT DEVELOPMENTS Immigration

43. 43 …RECENT DEVELOPMENTS Immigration EMPLOYMENT VISA Employment visas are now not available for routine, ordinary or secretarial/clerical jobs or jobs for which a large number of qualified Indians are available Applicant of an employment visa must be a skilled and qualified professional Employment Visas may be granted for the activities which include inter alia:  Foreign nationals coming to India as consultant on contract for whom the Indian company pays a fixed remuneration (this may not be in the form of a monthly salary)  Foreign artists engaged to conduct regular performances for the duration of the employment contract given by Hotels, Clubs, other organizations  Foreign nationals who are coming to India to take up employment as coaches of national/ state level teams or reputed sports clubs  Self-employed foreign nationals coming to India for providing engineering, medical, accounting, legal or such other highly skilled services in their capacity as independent consultants provided the provision of such services by foreign nationals is permitted under law………………………

44. 44 FOREIGN WORKER QUOTA Foreign personnel coming to India for execution of projects/contracts can be granted employment visas only to the extent of one percent (1%) of the total persons employed on the project subject to a maximum of twenty (20). Further, irsrespective of the strength of the total workforce, a minimum of five (5) employment visas can be granted to such foreign personnel This quota has been raised to a one percent (1%) or maximum of forty (40) for power and steel sector projects till June 2010 If an Indian company requires to sponsor foreign nationals on employment visas over the prescribed limits, clearance would be required from the Ministry of Labour …RECENT DEVELOPMENTS Immigration

45. 45 An International worker may be an Indian worker or a foreign national International Worker means:- An Indian employee ……………… An employee other than an Indian employee, holding other than an Indian passport, working for an establishment in India to which the Act applies As per a government notification, International Workers, except for exempted employees, working in an establishment in India to which the Provident Fund Scheme and the Pension Scheme applies have been mandated to make contributions (12% of salary) to the said Schemes in India Contributions are required to be made on the total salary, payable in India or overseas EPF ACT – WHO IS AN ‘INTERNATIONAL WORKER’ …RECENT DEVELOPMENTS Social Security and International Workers

46. 46 …RECENT DEVELOPMENTS Social Security and International Workers Expats from countries with which India has a Totalization Agreement are exempted from making the mandatory contributions under the EPF Act Presently, Totalization Agreements with Belgium and Germany are in force India has entered into Totalization Agreements with Denmark, France, Czech Republic, Netherlands, Hungary, Switzerland and Australia There is a reciprocal arrangement between India and Korea to settle the claims of the employees on completion of employment in the host country SOCIAL SECURITY / TOTALISATION AGREEMENTS

47. 47 Thank you © Manishi Pathak 2010 This is not a legal advice and not meant for public distribution or distribution to press / media