Category Archives: Labor and Industrial Law

Bureau of Indian standards- Electronics and Information Technology goods (requirement for compulsory registration) order, 2012

Bureau of Indian standards,(BIS)  a statutory body formed by an Act of Parliament is the nodal agency to set standards on various consumer products. This authority provides quality certification of goods and ensures certain standards. 90 products are under mandatory certification. It allows the licensees to use the popular ISI mark on their product, which is synonymous with quality products.

Government of India introduced Electronics and Information Technology goods( requirement for   compulsory registration)  order 2012 making it mandatory that all Indian and Foreign manufacturers to register before the BIS.  As per this order, already some 722 companies, including all major computer, and electronics product manufacturing companies have registered. As per this Electronics and IT goods (requirement for the compulsory registration) order 2012 no person shall manufacture or store for sale, import, sell, or distribute electronics & IT goods which do not confirm to the specified  standard and do not  bear registration number  for the product. It also mandates all substandard on defective goods, which do not confirm to the specified standard, should be disposed of scraped. This order is applicable to all electronics gods like electronic games(IS13616:2010), laptop, notebook(IS 30252:2010), plasma LCD, LED TV screens of screen size 32 inch and above (IS 6016:2010), optical displays with multiple amplifiers(IS 616:2010), micro wave ovens(IS 302-02-25:1994), video monitors(IS 13252:2010), set top boxes and automatic data processing machines,(13252:2010) etc.

The IT and Electronics product manufacturers were consistently opposing the implementation of this order. In order to accommodate and give them adequate time to follow the BIS standards and compulsory registration, Government of India granted an extension of implementation of this order up to 03/10/2013. There after it was again extended up to January 2014 and further extender up to 03/04/2014. The Bureau of Indian Standards has issued detailed guidelines with regard to the electronic goods in order to enable them to get registration.

Manufacturers Association of Information Technology (MAIT), the apex body of IT product manufacturers are not very happy with this order. MAIT has of view that the labeling requirements are very complex and are unworkable. According to them the labeling requirements are not in accordance to international practices. Embossing or engraving is particularly not feasible due to many reasons: a) The size of the many electronics goods are very small and form size requirements stipulated cannot be applied on them, b) Many IT products are multiple factories in multiple territories and thus embossing and engraving the marking may not be feasible. And they are demanding the government to allow them to use stickers. According to MAIT ,  the BIS  should have given sufficient time for IT manufacturers before implementation  of this requirement.

It is true that introducing BIS standards on electronics and IT goods  will make some inconvenience to the industry at the beginning. However on long term, perspective this will definitely ensure more standardized products  in the market and eliminate the dominance of spurious and sub-standard products.

Rajesh Vellakkat

Software companies fall within the ambit of “Industry” as per Industrial Disputes Act and Procedure for dismissal of an employee mentioned in ID Act to be followed.

The employees of software companies have a general impression that none of the labour laws and workmen welfare legal measures are available to them as they are in the category of white collar jobs.  It is prevalent among software companies to terminate services of employees by giving one or two months’ notice or salary in lieu of notice that might have been mentioned in the respective employment contract that they might have signed with the employer.  Employees, assuming that they have no other legal remedy or special protection available under Industrial Disputes Act, Factories Act, and other labour welfare legislations, quietly discontinue the employment without raising any demands.  There are some instances where a loyal employee who has contributed all his youth and energy for the company are forced to discontinue the job without providing any benefits.  Here is an attempt to know where the law stands in this regard:

Section 2(j) of the Industrial Disputes Act 1947 defines “Industry” as

Industry” means any business, trade, undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or a vocation of workmen;

Using this definition, the word Industry is connected with the work workmen.  The workmen is defined in Section 2(s) of the Industrial Disputes Act as hereunder:

 

workman” means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with. or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person-

(i) who is subject to the Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of 1950), or the Navy Act, 1957 (62 of 1957); or

(ii) who is employed in the police service or as an officer or other employee of a prison ; or

(iii) who is employed mainly in a managerial or administrative capacity; or

(iv) who, being employed in a supervisory capacity, draws wages exceeding one thousand six hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.

From the two definitions above it is clear that a skilled worker ( software engineer) comes under the definition workmen and a software company is an Industry whereby Industrial Disputes Act is applicable.

However, the  questions to be looked at is what should be the procedure to be followed in case of dismissal of an employee.  Dismissal, retrenchment, layoff, etc. of a workman and the remedies available are discussed in Chapter V-A and Chapter V-B of Industrial Disputes Act.  Chapter V-A Especillay Section 25 C-E are for Industrial establishments where 50 to 100 employees are working.  For these Section, a separate definition of industrial establishment is provided.  The industrial establishment is defined under S 25-A as hereunder.

industrial establishment” means

 (i) a factory as defined in clause (m) of Section 2 of the Factories Act, 1948 (63 of 1948); or

(ii) a mine as defined in clause (f) of Section 2 of the Mines Act, 1952 (35 of 1952); or

(iii) a plantation as defined in clause (f) of Section 2 of the Plantations Labour Act, 1951 (69 of 1951).

Hence to qualify the application of Chapter V-A and provisions relating to layoff the Industrial Establishment should be a factory under Factories Act.  Section 2(m) of the Factories Act 1948 defines what is a factory.

m) “factory” means any premises including the precincts thereof-

(i) whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or

(ii) whereon twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on,- but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952), or a mobile unit belonging to the armed forces of the Union, a railway running shed or a hotel, restaurant or eating place.

Explanation. I–For computing the number of workers for the purposes of this clause all the workers in different groups and relays in a day shall be taken into account;

Explanation. II.–For the purposes of this clause, the mere fact that an Electronic Data Processing Unit or a Computer Unit is installed in any premises or part thereof, shall not be construed to make it a factory if no manufacturing process is being carried on in such premises or part thereof;

The explanation 2 of the said definition makes it clear that a mere electronic data processing unit or computer unit installed in a premises shall not be construed to make it a factory.  If no manufacturing process is being carried out in such premises.  Most of the software companies are not doing any manufacturing activities.  It mainly provides services.  Manufacturing process is defined in Factories Act 1948.  S 2(k) of the Factories Act is reproduce below:

Manufacturing Process” means any process for-

(i)     making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use sale, transport, delivery or disposal, or

(ii)   pumping oil, water, sewage or any other substance; or

(iii) generating, transforming or transmitting power; or

(iv)  composing types for printing, printing by letter press, lithography, photogravure or other similar process or bookbinding; or

(v)    constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels; or

(vi)  preserving or storing any article in cold storage;

The High Court of Bombay in The Assistant Director Employees’ State Insurance Corporation & Another v M/S Western Outdoor Interactive Pvt. Ltd. & Another First Appeal No. 143/2012 interpreting whether a software company is covered under ESI Act made some interesting observation relating to manufacturing process as defined in Section 2(k) of Factories Act mentioned above and concluded that even software service companies come under the definition of manufacturing process and ESI Act is applicable to them.  Despite all these definition and judgment referred above, it is not very clear whether software companies will come under Industrial Disputes Act, Factories Act, and whether provisions relating to layoff, retrenchment, and whether V-A and V-B of Industrial Disputes Act is applicable to software companies.  In this context, it is pertinent to mention a Madras High Court judgment Seelan Raj R. And 14 Others vs P. O., I Addl. Labour Court and others on 14 August, 1997.  In this case, relying on the explanation II of the Factories Act defining what is a factory, court  concluded that a software development activity or software service company even if doing a manufacturing process is not a factory under the Factories Act and thus it is not an Industrial Establishment.  Hence Section 25C to 25E and Chapter V-B of Industrial Disputes Act is not applicable to software company, and accordingly, dismissed the writ appeal filed by the employer.  This judgment is challenged in the Supreme Court.  However, to our understanding Supreme Court has not pronounced any final judgment on this so far. 

From the above discussions, it is clear that the prevailing position of law is that a software company is an industry as defined under Industrial Disputes Act but it is not a factory under the Factories Act.  However, it should be considered as a factory for the purpose of ESI Act.  A software establishment is thus not an industrial establishment as defined in Section 25A or 25C of Industrial Disputes Act.  The provisions relating to layoff or retrenchment is not applicable to them.  Hence, the question arises what should be the procedure to be followed to terminate employee working in software companies and what are the remedies available to employees in cases of termination.

Termination of an employee other than by way of a disciplinary proceedings is legally termed as retrenchment.  Retrenchment is defined in section 2(oo) of Industrial Disputes Act and is reproduced hereunder:

Retrenchment” means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include 

(a) voluntary retirement of the workman ; or 

(b) retirement of the workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf; or 

(bb) termination of the service of the workman as a result of the non-removal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation in that behalf contained therein; or 

(c) termination of the service of a workman on the ground of continued ill- health; 

Section 25F. Conditions precedent to retrenchment of workmen.- No workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until—

(a) the workman has been given one month’ s notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice:

(b) the workman has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days’ average pay 2[ for every completed year of continuous service] or any part thereof in excess of six months; and

(c) notice in the prescribed manner is served on the appropriate Government 3[ or such authority as may be specified by the appropriate Government by notification in the Official Gazette].

The procedure to be followed for retrenchment is provided in section 25G and 25H.

25G Procedure for retrenchment.

Where any workman in an industrial establishment, who is a citizen of India, is to be retrenched and he belongs to a particular category of workmen in that establishment, in the absence of any agreement between the employer and the workman in this behalf, the employer shall ordinarily retrench the workman who was the last person to be employed in that category, unless for reasons to be recorded the employer retrenches any other workman.

25H. Re-employment of retrenched workmen.

Where any workmen are retrenched and the employer proposes to take into his employ any persons, he shall, in such manner as may be prescribed, give an opportunity to the retrenched workmen who are citizens of India to offer themselves for re-employment, and such retrenched workmen] who offer themselves for re-employment shall have preference over other persons

For larger establishments with more than 100 employees, the procedure for retrenchment is defined in section 25M.  It is reproduced below:

Conditions precedent to retrenchment of workmen.

(1) No workman employed in any industrial establishment to which this Chapter applies, who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until,-

(a) the workman has been given three months’ notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of notice; and

(b) the prior permission of the appropriate Government or such authority as may be specified by that Government by notification in the Official Gazette (hereafter in this section referred to as the specified authority) has been obtained on an application made in this behalf.

(2) An application for permission under sub-section (1) shall be made by the

employer in the prescribed manner stating clearly the reasons for the intended retrenchment and a copy of such application shall also be served simultaneously on the workmen concerned in the prescribed manner.

(3) Where an application for permission under sub-section (1) has been made, the appropriate Government or the specified authority, after making such enquiry as it thinks fit and after giving a reasonable opportunity of being heard to the employer, the workmen concerned and the person interested in such retrenchment, may, having regard to the genuineness and adequacy of the reasons stated by the employer, the interests of the workmen and all other relevant factors, by order and for reasons to be recorded in writing, grant or refuse to grant such permission and a copy of such order shall be communicated to the employer and the workmen.

(4) Where an application for permission has been made under sub-section

(1) and the appropriate Government or the specified authority does not communicate the order granting or refusing to grant permission to the employer within a period of sixty days from the date on which such application is made, the permission applied for shall be deemed to have been granted on the expiration of the said period of sixty days.

(5) An order of the appropriate Government or the specified authority granting or refusing to grant permission shall, subject to the provisions of sub-section (6), be final and binding on all the parties concerned and shall remain in force for one year from the date of such order.

(6) The appropriate Government or the specified authority may, either on its own motion or on the application made by the employer or any workman, review its order granting or refusing to grant permission under sub-section (3) or refer the matter or, as the case may be, cause it to be referred, to a Tribunal for adjudication:

Provided that where a reference has been made to a Tribunal under this sub-section, it shall pass an award within a period of thirty days from the date of such reference.

(7) Where no application for permission under sub-section (1) is made, or where the permission for any retrenchment has been refused, such retrenchment shall be deemed to be illegal from the date on which the notice of retrenchment was given to the workman and the workman shall be entitled to all the benefits under any law for the time being in force as if no notice had been given to him.

(8) Notwithstanding anything contained in the foregoing provisions of this section, the appropriate Government may, if it is satisfied that owing to such exceptional circumstances as accident in the establishment or death of the employer or the like, it is necessary so to do, by order, direct that the provisions

of sub-section (1) shall not apply in relation to such establishment for such period as may be specified in the order.

(9) Where permission for retrenchment has been granted under sub-section (3) or where permission for retrenchment is deemed to be granted under sub-section (4), every workman who is employed in that establishment immediately before the date of application for permission under this section shall be entitled to receive, at the time of retrenchment, compensation which shall be equivalent to fifteen days’ average pay for every completed year of continuous service or any part thereof in excess of six months.

From the reading of the above sections, for all industry, it is mandatory that before retrenching or terminating services of employee, the management should give 1 month notice or salary in lieu of notice, a retrenchment compensation which is equivalent to 15 days average pay for any completed year and a notice is issued to the appropriate government (labour commissioner) intimating such retrenchment.  Section 25G mentioned above further mandates that if retrenchment is carried out in an industrial establishment in order to reduce the workforce, then it should be the last person employed who should be retrenched.  The law further mandates that in case of recruitment of similar category jobs, the retrenched employee should get preference over other candidates.

In the larger establishments, the procedure for retrenchment is more stringent and requires prior permission from labour commissioner.  The failure of large establishment to do so prescribes even penalties including imprisonment to the employer.  The above discussions abundantly makes it clear that Indian Law is not permitting any hire and fire in any industry.

The misconceived understanding of software company employees that none of the labour laws are applicable to software companies/ employees is wrong.  The above referred legal provisions establishes otherwise.

Rajesh Vellakkat

EMPLOYMENT CONTRACTS ARE NOT SPECIFICALLY ENFORCEABLE

It is prevalent in the industry when an employee joins an organization to sign employment contract.  Such employment contract generally contains all terms of employment including work hours, duration; whether permanent, temporary, or contractual; the perquisites and benefits, leaves and holidays, condition of service, duties and responsibilities, etc.  Can such an employment contract be specifically enforced is what is discussed below.

The word “specifically enforced” means whether an aggrieved party can approach the court of law seeking an injunction order against the other asking the other party to perform the terms of the contract.

The law relating to such specific reliefs (relief in the form of injunction both mandatory and preventive) is contained in the Specific Relief Act of 1963.  The relevant section of this enactment addressing or answering to the above question is Section 14.  The same is reproduced below.

Contracts not specifically enforceable.

14. Contracts not specifically enforceable.-(1) The following contracts cannot be specifically enforced, namely:–

(a) a contract for the non-performance of which compensation in money is an adequate relief;

(b) a contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms;

(c) a contract which is in its nature determinable;

(d) a contract the performance of which involves the performance of a continuous duty which the court cannot supervise.

(2) Save as provided by the Arbitration Act, 1940 (10 of 1940), no contract to refer present or future differences to arbitration shall be specifically enforced; but if any person who has made such a contract (other than an arbitration agreement to which the provisions of the said Act apply) and has refused to perform it, sues in respect of any subject which he has contracted to refer, the existence of such contract shall bar the suit.

(3) Notwithstanding anything contained in clause (a) or clause (c) or clause (d) of sub-section (1), the court may enforce specific performance in the following cases:-

(a) where the suit is for the enforcement of a contract,-

(i) to execute a mortgage or furnish any other security for security for securing the repayment of any loan which the borrower is not willing to repay at once:

Provided that where only a part of the loan has been advanced the lender is willing to advance the remaining part of the loan in terms of the contract; or

(ii) to take up and pay for any debentures of a company;

(b) where the suit is for,-

(i) the execution of a formal deed of partnership, the parties having commenced to carry on the business of the partnership; or

(ii) the purchase of a share of a partner in a firm,

(c) where the suit is for the enforcement of a contract for the construction of any building or the execution of any other work on land:

Provided that the following conditions are fulfilled, namely:-

(i) the building or other work is described in the contract in terms sufficiently precise to enable the court to determine the exact nature of the building or work;

(ii) the plaintiff has a substantial interest in the performance of the contract and the interest is of such a nature that compensation in money for non-performance of the contract is not an adequate relief; and

(iii) the defendant has, in pursuance of the contract, obtained possession of the whole or any part of the land on which the building is to be constructed or other work is to be executed.

 

The Supreme Court of India in “Nandganj Sihori Sugar Company Limited, Rae Bareli & Another Versus Badri Nath Dixit & Others, 1991 AIR(SC) 1525” has explained this legal provision succinctly.  In the said case, the question that was addressed was “whether a suit for mandatory injunction can be allowed in relation to a contract of employment against the company asking the company to retain him as an employee.”  Justice Thommen T.K. delivering the judgment beautifully summarized the legal provision.  The court held that

“A contract of employment cannot ordinarily be enforced by or against an employer.  The remedy is to sue for damages.  The grant of specific performance is purely discretionary and must be refused when not warranted by the ends of justice.  In the absence of any statutory requirement, courts do not ordinarily force an employer to recruit or retain service of employment required by an employer.  There are of course certain exceptions to this rule such as i) In the case of a public servant dismissed for service in contravention of Article 311.  ii) reinstatement of a dismissed worker under the Industrial Law; and (iii) a statutory body acting in breach of statutory obligations.”

 

The above judgment is in tune to the internationally accepted concept. Halsbury’s Laws of England, Fourth Edn., Volume 44, paragraphs 405 to 420, was quoted in the judgment.  The relevant portions of the quoted reference is as below.

“Courts do not ordinarily enforce performance of contracts of a personal character, such as a contract of employment. Subject to certain well defined categories of exceptions, law does not permit, and the Specific Relief Act does not contemplate, the enforcement of a contract of a personal nature by a decree for specific performance.”

 

The above judgment clarifies the legal recourse in cases of dispute between an employer and employee for the alleged or threatened breach of contract between employer and employee.  Nobody can be forced to work.  Nobody can be asked to retain a person as employee.  If one of the parties wanted to get out of the contractual relationship, the only remedy available to the aggrieved party is to sue for damages.  The rule narrated above is equally applicable in relation to all contracts of personal nature.

 

Forgetting this fundamental legal concept, there are thousands of pending litigations in various Indian courts seeking specific relief of mandatory injunction based on employment contracts.  Can our justice administration collectively address to the cases and dispose of the same expeditiously in the interest of justice?

By: Rajesh Vellakkat & Indran MB

IT COMPANIES SHOULD HAVE AN EMPLOYEE STANDING ORDER (DEFINED CONDITIONS OF EMPLOYMENT)

In India the conditions of employment in an industry is regulated by THE INDUSTRIAL EMPLOYMENT (STANDING ORDERS) ACT, 1946. As per this enactment the management of an industry is mandated to define with sufficient precision the conditions of employment under them and to make the said conditions known to workmen employed by them. It is mandated that every industry wherein one hundred or more workmen are employed, should comply with this law. However, IT industry in Karnataka was exempted from the provisions of this legislation. Recently the Karnataka Labour Department has decided not to renew exemption from the Act..

The law mandates that the employer should define work conditions relating to working hours and shifts, wages, leave attendance etc (the document defining the work conditions are called Standing Orders). The declared standing orders have to be approved by the Labour Department. -

IT and IT-enabled service (ITeS) companies in the State have been asked to submit drafts of their Industrial Employment Standing Orders by December 31,2012 according to a government notification. The notification, however, extends the exemption for IT and biotechnology companies from the general provisions of labour legislation that govern workplaces employing more than 50 workers, to March 31, 2013.

Employers covered under this Act must create Standing Order around these issues and share the same with workers and obtain approval by the Labour Commissioner. ( this process is called Certification). Once certified, the certified standing orders should govern the employee employer relationship. The law mandates that the text of the standing orders as finally certified shall be prominently posted by the employer in English and in the language understood by the majority of his workmen on special boards to be maintained for the purpose at or near the entrance through which the majority of the workmen enter and in all departments thereof where the workmen are employed.

The law says where any workman is suspended by the employer pending investigation or inquiry into complaints or charges of misconduct against him, the employer shall pay to such workman subsistence allowance (a) at the rate of fifty per cent. of the wages which the workman was entitled to immediately preceding the date of such suspensions, for the first ninety days of suspension; and (b) at the rate of seventy- five per cent of such wages for the remaining period of suspension if the delay in the completion of disciplinary proceedings against such workman is not directly attributable to the conduct of such workman.

As per the law, an employer who fails to submit draft standing orders as required shall be punishable with fine which may extend to five thousand rupees, and in the case of a continuing offence with a further fine which may extend to two hundred rupees for every day during which the offence continues.

Matters to be provided in standing orders are briefly the following:

1. Classification of workmen, e.g., whether permanent, temporary, apprentices, probationers, or badlis.
2. Manner of intimating to workmen periods and hours of work, holidays, pay-days and wage rates.
3. Shift working.
4. Attendance and late coming.
5. Conditions of, procedure in applying for, and the authority which may grant leave and holidays.
6. Requirement to enter premises by certain gates, and liability to search.
7. Closing and reopening of sections of the industrial establishment, temporary stoppages of work and the rights and liabilities of the employer and workmen arising there from.
8. Termination of employment, and the notice thereof to be given by employer and workmen.
9. Suspension or dismissal for misconduct, and acts or omissions which constitute misconduct. .
10. Means of redress for workmen against unfair treatment or wrongful exactions by the employer or his agents or servants.

Though, IT industry employees are paid better in comparison to employees in other industry, their long work hours, night shifts etc., are negatively impacting their health and personal life; resulting in increased occupational deceases and family disputes among them. A good work-life balance is important from a social perspective. It is expected now that IT companies will follow this Government notification with a positive mindset.