International Labor & Employment Law Committee Newsletter

Issue: November 2013

Editor: Ute Krudewagen | Africa and Middle East Editor: Karen Seigel | Asia and Oceania Editor: Jason Noakes | Canada Editor: Gilles Touchette | European Editor: Paul Callaghan | Latin America Editor: Juan Carlos Varela | Law Student Editor: Liam Wood, Earle Mack School of Law at Drexel University | USA: Trent Sutton


Information Technology Sector in Karnataka to be Exempted from the Standing Orders Act

Preetha S, Veena Gopalakrishnan, and Vikram Shroff, Nishith Desai Associates, Mumbai/Bangalore/Delhi

Information technology ("IT") and IT enabled Services ("ITeS") establishments in Karnataka (which includes the city of Bangalore) are proposed to be exempted from compliance under the Industrial Employment (Standing Orders) Act of 1946 ("Standing Orders Act") for a period of five years, per recent announcements of the Karnataka State Minister for Information Technology and Biotechnology.1 An official notification bringing the exemption into effect is pending.

The Standing Orders Act requires employers in industrial establishments to define and publish uniform conditions of employment in the form of 'standing orders.' As per the statute, an employer is required to draft standing orders (in the format prescribed in the statute), have them approved by the representatives of the employees and eventually certified by the labor department. As per the enactment, the standing orders should contain terms of employment including; hours of work, wage rates, shift working, attendance and lateness, provisions for leaves and holidays, and termination, suspension or dismissal of workmen.

In 1999, the State Government of Karnataka exempted companies in the IT and ITeS sectors from the applicability of the Standing Orders Act for a period of two years. The exemption was extended every two years thereafter until August 2011. In September 2012, the Government exempted IT and ITeS establishments from the provisions of the Standing Orders Act until March 31, 2013, subject to the condition that establishments (to which the Standing Orders Act applies), submit their draft standing orders for certification with the Labor Commissioner by December 31, 2012.2

It also appears from press reports that the Karnataka State Government decided to declare the IT/ITeS industry an "essential service." That declaration effectively insulates the industry from strikes and protests because any strike initiated by the employees of an "essential services" company would be a violation of the provisions of the Industrial Disputes Act of 1957.3

This development is considered a progressive step by the IT/ITeS industry and industry bodies in Bangalore that seems to have come pursuant to representations made by the IT industry and consolidated efforts by various industry and trade organizations.4 This move is, however, facing criticism from the Labor Department, Government of Karnataka, certain women's groups, and employee organizations.5





5 and

Settlement of Employee Grievances

Sajai Singh, Partner & Chair, Employment Law Practice; and Garima Jhunjhunwala, Associate, J. Sagar Associates, Bangalore, India

If an employee wishes to seek redress of a grievance, he or she should make a representation to either the employee's immediate official superior, the head of the office, or another lower-level authority who is competent to deal with the matter, the Supreme Court held in a judgment highlighting the court's position regarding settlement procedures for employee grievances concerning service rights or conditions.1

The Supreme Court further held that if the representation is rejected by the lowest-level authority, the employee is allowed to make another representation to the next highest authority. Unless new facts come to light, further representations above and beyond those mentioned above should not be entertained.

1Vinod Kumar vs. State of Haryana & Others, decided on October 24, 2013

A Re-Look at Gratuity Calculations and Employer's Provident Fund Liability by the Gujarat High Court

Sajai Singh, Partner & Chair, Employment Law Practice; and Garima Jhunjhunwala, Associate, J. Sagar Associates, Bangalore, India

Travelling allowances cannot be excluded from the definition of wages for the purpose of calculating gratuity to be paid to a workman, the Gujarat High Court held.1 Since the definition of wages under the Payment of Gratuity Act of 1972 includes all earnings made while the workman is on duty, travelling allowances are considered part of the wages paid to a workman while calculating gratuity.

An employer's liability to contribute to an employee's provident fund under the Employees Provident Funds and Miscellaneous Provisions Act of 1952 ("PF Act") cannot exceed the current rate of 12% or monthly earnings exceeding INR 6500/-, the Gujarat High Court held.2

The Court held that the absence of an express provision limiting an employer's contribution liability cannot be interpreted to mean that an employer is liable to contribute the same amount as the employee. While an employee is free to contribute more than 12% under the PF Act, the Court held that the statutory liability of an employer is 12% of the salary of the employee, subject to the upper monthly limit of INR 6,500/-. The Court also held while the employer is also free to voluntarily contribute more, the employee cannot enforce this as a statutory obligation of the employer. Further, in the absence of an express agreement between the employer and employee to contribute a higher sum, any reduction in contribution by the employer to no less than the minimum statutory obligation should not deemed to be a change in service conditions of the employee requiring a notice of change under the Industrial Disputes Act, 1947.

1R M Engineering Works vs. Khushalbhai Manilal Chavda & Others, decided on April 15, 2013

2Jamnagar Rajkot Gramin Bank Officer's Association vs. Saurashtra Gramin Bank, decided on March 18, 2013

Andhra Pradesh High Court on Employer-Employee Relationship

Sajai Singh, Partner & Chair, Employment Law Practice; and Garima Jhunjhunwala, Associate, J. Sagar Associates, Bangalore, India

The nature or extent of control needed to establish the relationship of 'employer and employee' varies from business to business and is by its very nature incapable of a precise determination, the Andhra Pradesh High Court held in a case dealing with employee benefit entitlements for regular and temporary employees.1

The Court also held that a clear distinction must be maintained between a 'contract for service' (independent contractor relationship) and a 'contract of service' (employment relationship). The Court observed that in the case of a 'contract for service,' the employer can order or require what is to be done while in the case of a 'contract of service,' the employer can order or require not only what is to be done, but also, the manner in which it has to be done. The Court stated that there cannot be any abstract test to determine the extent of control required for establishing a "contract of service," which would vary from business to business.

1Nihal Ahmed Sidiqui vs. Bharat Heavy Electricals Limited, decided on October 29, 2012

Online System of Contribution and Filings Implemented by the Employees' State Insurance Corporation

Preetha S, Veena Gopalakrishnan, and Vikram Shroff, Nishith Desai Associates, Mumbai/Bangalore/Delhi

Employers are now allowed to register, make insurance contributions, generate receipts, submit claims and make filings under the Employees' State Insurance Act of 1948 ("ESI Act") online,1 per amendments in the Employees' State Insurance (General) (Amendment) Regulations of 2013 ("Amendment").

The Amendment introduces Regulation 110, which stipulates that all factories or establishments where a functioning 'online system' has been introduced; the registration, filing of contributions, generation of challans, payment of contributions, submission and processing of claims for benefits and all other related procedures under the ESI Act, including the rules and regulations made thereunder, maybe submitted or made online, with digital signatures required depending on the type of filing.

1 Notified on April 29, 2013, effective from June 1, 2013.


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