15 January, 2020
The year 2019 can be said to be a watershed year in relation to the employment law regime in India. The Indian government took various steps to simplify and streamline the dated employment legislations, veritably in a bid to rise up in the index of Ease of Doing Business in India. The courts in India too played their part in interpretation of the existing legal regime. Here, we not only look at some of the key, impactful developments, but also look forward to what 2020 may have in store for India Inc., in relation to the same:
A. Computation of Provident Fund (“PF”) Contribution:
In February, 2019, the Supreme Court (“SC”) in its judgment Regional Provident Fund Commissioner (II) West Bengal vs. Vivekananda Vidyamandir and Others[1] (“PF Judgment”) reaffirmed the principles laid down by the SC in the landmark decision of Bridge and Roof Co. (India) Limited vs. Union of India[2], and held that allowances which are universally, necessarily and ordinarily paid to employees across the board would be considered as part of ‘basic wages’ (“Basic Wages”) under the EPF Act on which PF contribution has to be calculated. While this Judgment did not establish any new principle, in view of the stay orders passed by various courts, it nonetheless offered clarity on the components that must be included to calculate PF contributions.
This PF judgment did force employers to revisit the manner of calculation of PF contributions. The authorities also became vigilant and conducted suo moto inspections on employers. However, the Employees Provident Fund Organisation (EPFO) issued a notification[3] to quell the aggressiveness from the department by requiring prior permission of the appropriate authority, i.e. the Central Analysis Intelligence Unit and prohibiting roving inquiries just on the surmise that certain allowances may have been omitted in the calculation of PF contributions.
It is recommend that employers regularize the manner of calculation of PF contributions in the coming year to avoid running into regulatory issues or issues with the employees who are increasingly becoming aware of the nuances in this regard.
B. Labour Codes:
The Ministry of Labour and Employment (“Ministry”) proposed the following four codes to consolidate and restructure the existing labour law framework in India:
(i.) Code on Wages, 2019 (“Wage Code”) and corresponding rules
This code (which consolidates the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976) received Presidential assent on August 8, 2019. However, the Central Government is yet to notify the provisions of the said code. Some of the key changes introduced under the Wage Code are set out below:
(a.) Uniform definition of the term ‘wages’: The term ‘wages’ is defined to include all remuneration that can be expressed in monetary terms and lists down specific exclusions. In this regard, the Wage Code introduces a unique concept under which certain excluded components may be considered as wages if the aggregate value of such exclusions exceeds the prescribed threshold. This may have implications in the manner in which salary for employees, especially for key managerial employees, is structured.
(b.) Broad definition of the term “employer” and “employee”: The Wage Code broadens the definition of the term ‘employer’ to also include principal employers and contractors. This essentially entitles contract workers to proceed against both, the principal employer and contractor to enforce their rights.
The term ‘employee’ also includes persons employed at the supervisory and managerial level. Therefore, going forward, service conditions of senior level employees will be regulated by the provisions under the Wage Code. Given the Wage Code regulates deductions made to an employee’s salary, this will also impact the salary structuring of such employees especially with regard to their deferred compensation and clawback provisions.
(c.) Floor Wage: The Minimum Wages Act, 1948, applies only to specified employments and certain categories of employees. The Wage Code and the minimum wages related provisions would apply to all types of employment/industries and employees. Under the Wage Code, the Central Government is empowered to fix the national minimum wages which will act as a floor for minimum wages to be fixed by the concerned state government.
The draft rules to the Wage Code was published on the Ministry website on November 1, 2019 inviting feedback from the public until December 1, 2019.
Some traction is anticipated in relation to this Wage Code in the first half of 2020. The first step would be to formalize the rules. Once done, we can expect the Wage Code to be brought into force. It is noteworthy that the Government has the power to notify the Wage Code in a staggered manner.
(ii) Occupational Safety, Health and Working Conditions Code, 2019 (“OSH Code”)
The OSH Code seeks to regulate health and safety conditions of workers in inter alia establishments with 10 or more workers and replace labour laws relating to safety, health and working conditions, such as the Factories Act, 1948, and the Contract Labour (Regulation and Abolition) Act, 1970. This code was introduced in the Lok Sabha on July 23, 2019 and is currently pending.
Trade unions across industries are extremely dissatisfied and distressed with this new code and are insistent on it being reviewed by department-related parliamentary standing committee in consultation with them. Some of the issues that the trade unions have raised pertain to limited applicability of the code which does not take into consideration workers in the unorganised sector, on contracts or in home-based production and selective picking up of provisions advantageous to employers.
(iii) The Industrial Relations Code, 2019 (“IR Code”)
The IR Code was introduced in the Lok Sabha on November 28, 2019 and is currently pending. This code seeks to replace three labour laws, namely, the Industrial Disputes Act, 1947, the Trade Unions Act, 1926 and the Industrial Employment (Standing Orders) Act, 1946.
The Ministry is of the view that with the introduction of the concept of “fixed term employment” the proposed IR Code will make it easier for an employer to engage/disengage workers based on requirement. Also, the concept of‘recognition of negotiating union’ has been introduced under which a trade union will be recognized as sole ‘negotiating union’ if it has the support of 75% or more of the workers on the rolls of an establishment.
(iv) The Code on Social Security, 2019 (“SocialSecurity Code”)
This code which intends to consolidate and amend the social security laws has been re-introduced in the Lok Sabha on December 11, 2019 and is currently pending. It seeks to replace nine social security laws, including the EPF Act, the Employees State Insurance Act, 1948, and the Maternity Benefit Act, 1961. The Social Security Code, amongst other provisions also recognizes “gig workers[4]” and “platform workers[5]”. While the Ministry aims to make provisions regarding PF in the Social Security Code, it has also proposed the Employees’ Provident Fund and Miscellaneous Provisions (Amendment) Bill, 2019 which was circulated on August 23, 2019, seeking comments from the public until September 22, 2019. There is no clarity as to how these will be reconciled and what the approach will be to address the ambiguities.
C. Introduction of “Fixed Term Employment” Concept:
Prior to the amendment to the Industrial Employment (Standing Orders) Central Rules, 1946, fixed term employment was limited only to the apparel manufacturing sector. Subsequently, in March 2018, these rules were amended to extend “fixed term employment” to all sectors. Taking a cue from these rules, the IR Code and the Social Security Code have made provisions to allow companies to hire fixed-term employees for any duration, as required. It is noteworthy that depending on the period of service rendered, fixed-term workers will be entitled to same benefits as permanent workers, including working hours, allowances, wages and other statutory benefits on a proportionate basis
D. Karnataka Maternity Benefit Rules, 2019:
The Karnataka Government notified the Maternity Benefit (Amendment) Rules, 2019 on July 17, 2019 w.e.f August 8, 2019. These rules lay down the framework for implementation of crèche facility by employers, in establishments with more than 50 employees.
However, there are certain implementation issues from a practical and administrative perspective. For example, these rules prescribe that the crèche should be built within the establishment or within 500 meters from the entrance of the establishment. This may not be feasible for most establishments given the limited availability of real estate in most urban areas. It would have been desirable for the rules to have provided for outsourcing of the crèche facilities, making it administratively simpler for employers to comply with this condition.
E. Changes under Local Shops and Establishments Acts (“SEA”):
- States like Karnataka, Kerala, Madhya Pradesh, Andhra Pradesh and Telangana have exempted establishments from renewal of registration under the relevant SEA.
- Tamil Nadu has permitted all shops and establishments to be open for 24 hours on all days of the year for a period of three years from the date of the notification (i.e. May 28, 2019) subject to certain conditions.
- Telangana has granted an exemption to establishments engaged in Information Technology and Information Technology Enabled Services for a period of five years w.e.f. May 30, 2018 from certain provisions of the SEA, such as (a) opening and closing times; (b) daily and weekly hours of work, subject to certain conditions.
- Punjab and Telangana have extended the permission granted to all establishments covered under the concerned SEA to remain open on all 365 days subject to compliance with various conditions.
These are progressive changes and we anticipate more states to follow suit in the coming year.
F. The Transgender Persons (Protection of Rights) Act, 2019 (“Trans Act”):
The Trans Act has received presidential assent and the provisions of the Trans Act are effective from December 10, 2019. The Trans Act, amongst other provisions, prohibits discrimination against a transgender person[6], including unfair treatment in relation to employment, discrimination in employment matters (recruitment and promotion) etc. Employers have to inter alia designate a complaint officer responsible for dealing with violations of the legislation. The employers will have toensure that the Trans Act is complied with in additionto other labour law compliances.
The proposed changes in the labour law regime could be a welcome development for India Inc., given that it would lead to simplification in compliances resulting in smoother business operations.
However, it would be important clarify ambiguities and resolve practical implementation challenges. With multiple changes on the anvil, human resources professionals and teams can definitely expect a busy year ahead.
For further information, please contact:
Rashmi Pradeep, Partner, Cyril Amarchand Mangaldas
rashmi.pradeep@cyrilshroff.com
[1] 2019 SCC Online SC 291.
[2] (1963) 3 SCR 978.
[3] Dated August 28, 2019, available at https://www.epfindia.gov.in/site_docs/PDFs/Circulars/Y2019-2020/Vivekanand_Vidyamandir_717.pdf.
[4] A person who performs work and earns from such activities outside of the traditional employer-employee relationship.
[5] A person engaged in an employment form where the organisation uses an online platform to access other organisations or individuals to solve specific problems or to provide specific services in exchange for payment.
[6] Transgender person is one whose gender does not match the gender assigned at birth and includes: (a) transmen and transwomen, (b) persons with intersex variations, (c) genderqueers, and (d) persons with socio-cultural identities, such as kinnar and hijra.
