This practice guide provides an overview of the Indian employment law landscape, including the terms and conditions of employment, dispute resolution mechanism between employers and employees, termination process, restrictive covenants, trade secrets, taxation and social security measures, data protection, retirement benefits, etc.
Primary and secondary legislation
What are the main statutes and regulations relating to employment?
Indian employment laws comprise laws enacted by the central government and state governments, and notifications, regulations and orders issued thereunder. Indian employment laws, among other things, prescribe the terms and conditions of employment, mechanism of resolution of disputes between employers and employees, process of termination of employment, closure of the establishment, social security and retirement benefits. The applicability of employment laws depends on various factors including the nature of the industry, number of employees, nature of work done by employees, seniority and duration of employment.
The key Indian employment laws are:
- the Industrial Disputes Act 1947;
- the Factories Act 1948;
- the Contract Labour (Regulation and Abolition) Act 1970;
- the Payment of Wages Act 1936;
- the Minimum Wages Act 1948;
- the Payment of Bonus Act 1965;
- the Maternity Benefit Act 1961;
- the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013;
- the Equal Remuneration Act 1976;
- the Employees’ Provident Funds and Miscellaneous Provisions Act 1952;
- the Payment of Gratuity Act 1972;
- the Employees’ State Insurance Act 1948;
- the Rights of Persons with Disabilities Act 2016; and
- state-specific statutes relating to shops and commercial establishments.
Protected employee categories
Is there any law prohibiting discrimination or harassment in employment? If so, what categories are regulated under the law?
The Constitution of India prohibits discrimination on the grounds of religion, race, caste, sex and place of birth.
In the context of private-sector employers, Indian employment laws (key statutes of which are set out below) prohibit discrimination and harassment based on gender, disability and HIV status in relation to employment.
Equal Remuneration Act 1936
This statute mandates equal remuneration and service conditions for men and women, and prohibits discrimination at the time of recruitment and with respect to terms of employment on the basis of gender.
Rights of Persons with Disabilities Act 2016
This statute prohibits discrimination on the grounds of disability. It mandates every establishment to implement an equal opportunities policy detailing the measures to be taken by the organisation to provide opportunities to develop the skills of and employ persons with disabilities. The equal opportunities policy must be published on the company’s website and registered with the local disabilities commissioner.
Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013
This statute prohibits the sexual harassment of women in the workplace. It is intended to protect all women at all workplaces, including non-employees and visitors, and also extends the concept of ‘workplace’ to employer-provided transportation and work-related travel, among others. Employers with 10 or more employees are required to constitute a committee to receive, investigate and redress complaints of sexual harassment in a confidential and time-bound manner. Employees who work for employers who have fewer than 10 employees are permitted to raise complaints with a local committee that is to be established by the government in each district.
Transgender Persons (Protection of Rights) Act, 2019
The Transgender Persons (Protection of Rights) Act 2019 prohibits discrimination against transgender persons in matters relating to employment, including but not limited to recruitment and promotion. Every establishment must designate a person to be a compliance officer who deals with complaints relating to violations of this statute.
Human Immunodeficiency Virus and Acquired Immune Deficiency Syndrome (Prevention and Control) Act 2017
The Human Immunodeficiency Virus and Acquired Immune Deficiency Syndrome (Prevention and Control) Act 2017 prohibits discrimination against a person based on their HIV status in relation to, among other things, employment, including denial or termination of employment based on HIV status.
What are the primary government agencies or other entities responsible for the enforcement of employment statutes and regulations?
An overview of employment law enforcement agencies is set out below. However, there is no unified redressal and enforcement authority in India responsible for the enforcement of all labour statutes and regulations. Those holding these responsibilities vary between states and specific employment statutes.
Ministry of Labour and Employment
This branch of the government of India is also a state-level ministry tasked with the preparation of employment statutes and policies as well as their implementation, including formulating the procedural rules under various employment statutes.
Statutory enforcement bodies
Employment law statutes typically provide for a specific enforcement authority that is tasked with ensuring compliance with the statute and investigating non-compliance. The officers of the Central Labour Department and state-level labour departments are generally appointed as enforcement officers under employment statutes. These officers include the Labour Commissioner, the Deputy Labour Commissioner and inspectors. Further, certain employment statutes also create or appoint specific agencies responsible for their implementation and enforcement. For instance, the Employees’ Provident Funds and Miscellaneous Provisions Act 1952 created the Employees’ Provident Fund Organisation to implement the statute, create and manage the provident fund, and ensure compliance.
Labour courts and industrial tribunals
Certain employment law statutes also confer labour courts and industrial tribunals with the responsibilities of enforcement and implementation. However, the primary role of these bodies is to adjudicate and settle disputes.
Is there any legislation mandating or allowing the establishment of employees’ representatives in the workplace?
In India, the right to form a trade union flows from the Constitution and all employees have a right to unionise. Further, certain employment laws mandate that works committees, employee organisations and similar bodies be formed in the workplace. The Industrial Disputes Act 1947 requires that certain notified industries and establishments that employ 100 or more workers constitute works committees that comprise employee and employer representatives to discuss conditions of work such as safety, amenities and benefits.
While employees have the fundamental right to unionise, the process of forming a trade union is governed by the Trade Unions Act 1926. This statute prescribes the process of forming a trade union and the employee thresholds required to form a trade union (ie, seven or more persons may form a union and apply to have the union registered). A trade union can be formed by workers (the term ‘workmen’ is used in the relevant statutes) from the same establishment or from different establishments that belong to the same industry.
Powers of representatives
What are their powers?
The powers of employee representative bodies vary based on the type of employee representative body. For instance, registered trade unions in India are conferred the same status as bodies corporate (ie, they enjoy perpetual succession, have a common seal, and may sue and be sued). Trade unions are empowered to collectively bargain with the employer or industry on behalf of their members. Such bargaining typically relates to conditions of service, benefits, pay and leave. Other statutory employee representative bodies – such as the works council formed under the Industrial Disputes Act 1947 – have limited powers, which are typically limited to dealing with routine issues pertaining to conditions of work such as ventilation, lighting, sanitation and safety, among others.
Are there any restrictions or prohibitions against background checks on applicants? Does it make a difference if an employer conducts its own checks or hires a third party?
There is no legal prohibition on conducting background checks in India provided that the entity conducting the background check adheres to applicable data protection laws. The storage, transfer and processing of sensitive personal data or information belonging to persons located in India are regulated by the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 (the Sensitive Information Rules) enacted under the Information Technology Act 2000 . The Sensitive Information Rules require that the information processor adheres to certain requirements in relation to the collection, storage and transfer of electronic data that is classified as sensitive personal data or information, including:
- financial information, such as bank accounts and details of payment instruments (eg, credit and debit cards);
- physical, physiological and mental health conditions;
- sexual orientation;
- medical records and history; and
- biometric information.
The Sensitive Information Rules require that the information processor obtain the consent of the information provider regarding the purpose of usage of the information that is collected, the intended recipients of the information, and the name and address of the entity storing the information. The Sensitive Information Rules also require the company to formulate and publish policies regarding privacy and the disclosure of information.
There is no difference between the employer conducting a background check or a third party doing so. In practice, however, organisations typically outsource background checks to organisations that are experienced in conducting such tests.
Are there any restrictions or prohibitions against requiring a medical examination as a condition of employment?
An employer is permitted to conduct a medical examination as a precondition to employment and can choose not to hire persons who refuse to submit to such tests, subject to adhering to applicable anti-discriminatory laws. In this regard, the Human Immunodeficiency Virus and Acquired Immune Deficiency Syndrome (Prevention and Control) Act 2017 prohibits conducting HIV tests on persons without their informed consent.
As best practice, it is advisable that employers undertake medical examinations for recruitment only in cases where there is a direct correlation between the medical fitness of an employee and the work that is to be performed.
Drug and alcohol testing
Are there any restrictions or prohibitions against drug and alcohol testing of applicants?
Indian law does not prohibit the testing of employees for drug or alcohol consumption, subject to adhering to applicable data privacy requirements. The employer can also formulate relevant policies to prohibit the use of drugs or alcohol during working hours.
HIRING OF EMPLOYEES
Preference and discrimination
Are there any legal requirements to give preference in hiring to, or not to discriminate against, particular people or groups of people?
There is no general requirement under Indian employment law for organisations in the private sector to give preference in hiring to a particular category or set of persons. That said, in 2020, the government of Haryana passed the Haryana State Employment of Local Candidates Act 2020 , which mandates every employer in Haryana to employ local candidates (ie, candidates who are domiciled in the state of Haryana) in at least 75 per cent of the posts or roles in which employees are paid gross monthly salaries of less than or equal to 30,000 rupees. Further, there may be instances where organisations have been given certain concessions by the government – such as the acquisition of property at subsidised rates – that would require the organisation to provide employment to certain identified categories of persons.
Employers in the private sector are prohibited from discriminating on the basis of gender, disability and HIV status.
Must there be a written employment contract? If yes, what essential terms are required to be evidenced in writing?
There is no mandatory requirement for organisations to issue employment contracts to employees, although it is highly recommended. Employment contracts should essentially cover terms related to terms of employment and termination, designations, duties and responsibilities, probationary periods, salary and benefits, work hours and terms of work, restrictive covenants, confidentiality obligations, and the assignment and ownership of intellectual property.
It is important to note that, while there is no statutory requirement for a written employment contract, certain state- specific statutes require employers to issue appointment letters and orders to employees. These documents are simpliciter documents that, among other things, provide the designation of the employee, wages and period of employment.
To what extent are fixed-term employment contracts permissible?
Fixed-term employment contracts are permissible in India and there are no prescribed maximum durations for fixed- term contracts or restrictions on the type of work that can be performed by employees who are employed under such contracts. That said, it is important to ensure that there are bona fide reasons for employing persons through fixed- term contracts.
What is the maximum probationary period permitted by law?
The duration of any probationary period is determined by the contract of employment or by the standing orders applicable to the establishment. Standing orders are statutory consolidations of the terms of service that are to be certified by a statutory authority under the Industrial Employment (Standing Orders) Act 1946 , which generally prescribe a probationary period of three months.
Typically, probation periods are structured such that they end prior to any statutory termination protections kick in. Accordingly, based on the state in which the employee is employed, the work performed by the employee and the industry of the employer, employees are required to serve a probationary period of three to six months.
Classification as contractor or employee
What are the primary factors that distinguish an independent contractor from an employee?
The primary factors that distinguish an independent contractor from an employee are the amount of supervision and control that the employer is able to exercise on the individual and the type of work performed by the individual.
Indian courts usually consider various factors to determine whether an individual can be deemed to be an employee of an organisation, such as:
- the nature of services provided (including whether such services are in relation to a core activity of the organisation or are specialised services);
- whether the nature of work is perennial;
- the ability of the organisation to monitor the individual’s work from time to time;
- the extent of scrutiny into the work and the organisation’s ability to provide instructions;
- the duration of the engagement;
- the exclusivity of the relationship; and
- whether the worker is being engaged as an independent contractor solely for the organisation to avoid liability.
Temporary agency staffing
Is there any legislation governing temporary staffing through recruitment agencies?
The Contract Labour (Regulation and Abolition) Act 1970 governs the engagement of workers (contract workers) through third-party organisations (contractors) to perform work at an organisation’s establishment. Specifically, it applies to establishments in which 20 or more workers are, or were, engaged on any day in the preceding 12 months as contract workers and to contractors that deploy 20 or more contract workers. This applicability threshold varies in certain states. The Contract Labour (Regulation and Abolition) Act 1970 requires that the organisation engaging the contract workers (the principal employer) and the contractors obtain registrations and licences, and ensure that the payment of wages and benefits to the contractors is timely and adequate.
Are there any numerical limitations on short-term visas? Are visas available for employees transferring from one corporate entity in one jurisdiction to a related entity in another jurisdiction?
The government of India issues various types of visas for expatriates visiting India. A person who is not an Indian citizen and wishes to undertake any work in India must obtain a valid visa. There are two key work-related visas: the business visa and the employment visa. The duration of such visas depends on the purpose of the visit and is granted at the discretion of the government. Business visas are usually granted to foreigners coming to India on short visits for training or business meetings. Employment visas are granted to foreigners who come to India for the purpose of employment.
Foreign nationals, including those who are transferring from a related entity in a different country, are required to obtain Indian employment visas. Employment visas in India are generally granted only to highly skilled or qualified professionals and are not granted for jobs for which qualified Indians are ordinarily available. Further, the wages paid to foreign nationals should be more than US$25,000 per annum. Additionally, in certain cases, employers may be required to provide an undertaking along with proof that they have tried but were unable to identify a suitable Indian candidate for roles.
Are spouses of authorised workers entitled to work?
Family members and spouses of workers who have obtained an Indian employment visa are not permitted to work in India unless they make the necessary applications to have their visas converted to Indian employment visas. The discretion to permit such persons to work in India is with the Indian government and no foreigner may undertake employment in India without a valid employment visa.
What are the rules for employing foreign workers and what are the sanctions for employing a foreign worker who does not have a right to work in India?
Organisations that employ foreign workers are required to adhere to applicable immigration, employment and taxation laws.
Indian immigration laws prohibit foreign nationals from undertaking any activity that is outside the scope of their visas. Any person who violates the conditions of their visa is liable to be punished with imprisonment and fines. Further, any person (including employers) facilitating (abetting) such offences is liable for the same punishment. There are caps on the number of foreign nationals who can be employed in certain sectors (eg, banking).
In terms of employment law, an employer is required to make social security contributions at the rates applicable to the foreign worker. The foreign worker is also eligible to receive the statutory benefits and protections available to other workers of the organisation unless they are from a country with which India has a social security arrangement and they obtain a certificate of exemption in relation to the same. Further, appropriate tax deductions at source must be made on salaries paid to foreign workers based on a worker’s home country, duration of stay and quantum of wages.
Resident labour market test
Is a labour market test required as a precursor to a short or long-term visa?
While a labour market test is not a prerequisite for employment visas, it is often recommended. Indian visa authorities may require the employer to provide an undertaking that there were no Indian workers who were suitable or qualified for the role, so the employer had no option but to hire a foreign national.
Are there any restrictions or limitations on working hours and may an employee opt out of such restrictions or limitations?
There are statutory restrictions on working hours and overtime payment requirements. The permissible number of working hours and overtime vary based on the state in which the establishment is located, the nature of the establishment (ie, whether it is a commercial establishment, a factory or a shop) and the work performed by the employee. Generally, employees are permitted to work for eight to nine hours a day and 48 hours a week, beyond which they are entitled to be paid overtime at twice the rate of their usual wage.
If an employee’s work hours are statutorily governed, the employee cannot opt out of such restrictions or limitations, including in lieu of additional consideration.
Overtime pay – entitlement and calculation
What categories of workers are entitled to overtime pay and how is it calculated?
All employees, except for employees in positions of management, are generally entitled to overtime pay. However, these rules vary from state to state and depend on the nature of the establishment in which the employee is working.
Overtime pay – contractual waiver
Can employees contractually waive the right to overtime pay?
Employees who are statutorily eligible to receive overtime wages cannot contractually waive this right, even in return for additional consideration by the employer.
Vacation and holidays
Is there any legislation establishing the right to annual vacation and holidays?
Annual leave entitlements are dependent on the state in which the establishment is located and the nature of the establishment. The terms and conditions for employees working in shops and commercial establishments (such as offices, storehouses, etc) are governed by state-specific statutes. The leave entitlements prescribed under the state- specific shops and establishment statutes vary, although employees are generally entitled to between 12 and 18 days of annual and privileged leave that can be accumulated or carried forward up to a statutory cap, and to sick and casual (ad hoc) leave that cannot be accumulated or carried forward.
The terms and conditions of employees working in factories is governed by the Factories Act 1948. This statute entitles every worker who has worked for a period of 240 days or more in a factory during a calendar year to leave with wages in the subsequent calendar year at the rate of one day for every 20 days of work performed during the previous calendar year.
Employees in India are also entitled to leave for national and festival holidays, but such entitlements vary between states.
Sick leave and sick pay
Is there any legislation establishing the right to sick leave or sick pay?
Sick leave is provided for under the state-specific shops and establishment statutes, and the number of days of sick leave that an employee is entitled to varies. Further, employees are also entitled to certain sickness benefits and pay under the Employees’ State Insurance Act 1948, subject to fulfilling criteria that are prescribed from time to time. Sick leave entitlement typically ranges between 12 and 15 days.
Leave of absence
In what circumstances may an employee take a leave of absence? What is the maximum duration of such leave and does an employee receive pay during the leave?
Employees are permitted to utilise sick and casual leave as and when required, as these leave allowances are granted to employees for contingencies. However, employers may require employees to seek approval to use the various types of annual leave.
Employers also sometimes require employees to produce medical certificates if more than a few days of sick leave is used. Employees are not limited to a maximum duration of leave but such a duration may be prescribed by the employer, subject to applicable laws.
All forms of leave that are statutorily provided for are paid by employers. Employees may, with the consent of their employer, take unpaid leave in excess of the statutorily mandated leave entitlements. However, the employer is not obligated to allow the employee to do this.
Mandatory employee benefits
What employee benefits are prescribed by law?
The benefits that employees are statutorily entitled to include:
-annual, sick and casual leave;
-social security (ie, provident fund and insurance);
-end-of-service payments (gratuities);
-and statutory severance pay.
The exact benefits that an employee is entitled to depend on a number of factors, including the work performed by the employee, seniority, wages received and the total number of employees employed by the employer.
Part-time and fixed-term employees
Are there any special rules relating to part-time or fixed-term employees?
There are currently no rules that specifically govern part-time or fixed-term workers. Such workers are generally entitled to the benefits that permanent employees are entitled to, subject to fulfilling requisite conditions.
Must employers publish information on pay or other details about employees or the general workforce?
There are currently no requirements for employers to publish reports on employee pay, including pay gaps. However, an employer may be required to make certain corporate filings in relation to the pay of key employees and directors. Further, certain employment laws require employers maintain registers at their establishment containing information on wages and periodically file returns to a labour department that, among other things, could include wage details.
Validity and enforceability
To what extent are post-termination covenants not to compete, solicit or deal valid and enforceable?
Post-employment non-compete obligations are unenforceable in India, regardless of the duration of the restriction. An agreement to not deal with customers is likely to be interpreted as a non-compete obligation. However, in certain instances, post-employment non-solicitation obligations have been upheld by courts after being assessed on a case-by- case basis. However, even where non-solicitation obligations have been upheld, courts typically only award damages to the aggrieved party and do not issue protective orders prohibiting employees, customers or suppliers from moving to the soliciting party.
Must an employer continue to pay the former employee while they are subject to post-employment restrictive covenants?
Post-employment non-compete restrictions are unenforceable in India. Post-employment non-solicitation obligations may be upheld only in certain instances. Accordingly, there is no requirement for an employer to continue to pay a former employee for the duration of a restrictive covenant.
LIABILITY FOR ACTS OF EMPLOYEES
Extent of liability
In which circumstances may an employer be held liable for the acts or conduct of its employees?
An employer can be held vicariously liable for the acts done by an employee, provided that such acts were done during the course of their employment, under the specific instructions of the employer or using the employer’s resources.
TAXATION OF EMPLOYEES
What employment-related taxes are prescribed by law?
The employer is required to deduct income tax at source from the salaries paid to employees, subject to the tax rates prescribed from time to time. Further, certain states have also enacted taxation statutes that levy tax on persons practising any profession, trade or calling. These taxes are deducted by the employer and periodically deposited with relevant tax authorities.
EMPLOYEE-CREATED IP AND CONFIDENTIAL BUSINESS INFORMATION
Is there any legislation addressing the parties’ rights with respect to employee inventions?
There is no statute that specifically governs an employer’s rights in relation to intellectual property created by its employees; the rules in this regard vary based on the type of intellectual property that is created. For instance, the employer is considered to be the owner of any copyright in literary works created by an employee further to their employment, whereas the employee would have to assign other forms of intellectual property (eg. patents) to their employer.
TRADE SECRETS & CONFIDENTIAL INFORMATION
Is there any legislation protecting trade secrets and other confidential business information?
There is no statute or legislation that protects trade secrets or confidential business information in India. Trade secrets and confidential business information are governed by the terms of employment contracts and the principles of common law established by Indian courts.
Rules and employer obligations
Is there any legislation protecting employee privacy or personnel data? If so, what are an employer’s obligations under the legislation?
The storage, transfer and processing of sensitive personal data or information belonging to persons located in India is regulated by the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 (the Sensitive Information Rules) enacted under the Information Technology Act 2000.
The Sensitive Information Rules require that an information processor adheres to certain requirements in relation to the collection, storage and transfer of electronic data that is classified as sensitive personal data or information, including:
-financial information, such as bank accounts and details of payment instruments (eg, credit and debit cards);
-physical, physiological and mental health conditions;
-medical records and history; and
The Sensitive Information Rules also require that an information processor obtain the consent of the information provider regarding the purpose of usage of the information that is collected, the intended recipients of the information, and the name and address of the entity storing the information, and formulate and publish policies regarding privacy and the disclosure of information.
Do employers need to provide privacy notices or similar information notices to employees and candidates?
Employee data privacy rights
What data privacy rights can employees exercise against employers?
The Supreme Court of India has ruled that the right to privacy is a fundamental right under the right to life and is therefore guaranteed under the Constitution. While fundamental rights cannot be enforced directly against private organisations, employees will have recourse under the Sensitive Information Rules for any breaches by employers. Further, an employee would be able to make claims of tort against their employer in the event that their privacy is breached due to an act of the employer.
Is there any legislation to protect employees in the event of a business transfer?
Employees in India are largely categorised into ‘workers’ and ‘non-workers’ (the term ‘workmen’ is used in the relevant statutes). The Industrial Disputes Act 1947 only applies to employees categorised as workers and , among other things , provides certain protections regarding termination. A worker, for the purpose of this act, is a person employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward. This definition excludes persons mainly employed in managerial or administrative capacities and those who are employed in supervisory capacities drawing monthly wages in excess of 10,000 rupees.
The Industrial Disputes Act 1947 provides that, where there is a transfer of ownership or management of an undertaking from one employer to a new employer (such as a business sale), every worker who has been in continuous service for a minimum of one year (240 days) immediately before the transfer shall be entitled to notice and compensation as if the worker has been retrenched (terminated), unless the following conditions are fulfilled:
- the workers are being transferred under terms and conditions that are not less favourable than the terms and conditions of service applicable immediately before the transfer;
- the term of employment is not being interrupted by the transfer;
- the transferee (under the terms of transfer or otherwise) is legally liable to pay the workers, in the event of termination of their service, compensation on the basis that their service had been continuous and not affected by the transfer; and
- the workers consent to their transfer.
If all of the above conditions mentioned are not met, then the workers who have been in continuous service for one year (240 days) or more are entitled to the following from the transferor entity:
- one month’s notice or wages in lieu thereof; and
- retrenchment compensation calculated at a rate of 15 days of average pay for every year of continuous service or part thereof in excess of six months.
The above protections do not apply to persons who are not workers or workers who have not completed a minimum period of employment.
Grounds for termination
May an employer dismiss an employee for any reason or must there be ‘cause’? How is cause defined under the applicable statute or regulation?
There is largely no concept of at-will employment in India and employment may only be terminated for reasonable cause, except for persons in management positions in certain states. Procedures for termination of employment vary based on the reason that an employee is terminated and the category of the employee. While ‘reasonable cause’ for termination of employment has not been statutorily defined, an employment relationship may be terminated on the grounds of redundancy, underperformance, misconduct, superannuation, ill health or any other legitimate reason.
Must notice of termination be given prior to dismissal? May an employer provide pay in lieu of notice?
Notice or pay in lieu of notice should be provided to employees in the case of termination from employment, except if the employee’s employment is being terminated for misconduct. There is no requirement to provide notice or pay in lieu of notice in cases of termination of employment for misconduct.
Dismissal without notice
In which circumstances may an employer dismiss an employee without notice or payment in lieu of notice?
An employee can only be terminated without notice or salary in lieu of notice in cases of misconduct. To terminate employment for misconduct, it is essential to establish the misconduct through a disciplinary enquiry that is held for this purpose in accordance with the principles of natural justice.
Is there any legislation establishing the right to severance pay upon termination of employment? How is severance pay calculated?
The Industrial Disputes Act 1947 provides that, in the case of retrenchment, every worker who has been in continuous service for at least one year (240 days) is entitled, among other things , to retrenchment compensation at the rate of 15 days of average pay for every completed year of continuous service or any part thereof in excess of six months. For non-workers, severance payments are set out in mutual agreements between employers and employees.
Are there any procedural requirements for dismissing an employee?
There are no procedural requirements when terminating employees for poor performance or misconduct, apart from allowing the employee the opportunity to correct or establish the misconduct in accordance with the principles of natural justice. However, in relation to the retrenchment of workers, certain establishments (eg, factories, mines and plantations) that employ 100 (or 300 in some states) or more workers are required to obtain the approval of the jurisdictional labour authority. In this regard, before retrenching workers who have been in continuous service for at least one year (240 days), such establishments are required to meet the following conditions:
- The worker has been given three months’ notice in writing indicating the reasons for retrenchment or is to be paid salary in lieu
- The employer is required to make an application to the appropriate authority in the manner prescribed, seeking permission to retrench the
- Once the employer has received permission for retrenchment in accordance with point (2), every worker who is employed in such an industrial establishment shall be entitled to retrenchment compensation at the rate of 15 days of average pay for every completed year of continuous service or any part thereof in excess of six
Establishments other than the factories, mines and plantations referred to above are required to provide the retrenched workers who have been in continuous service for at least one year (240 days) with:
- one month’s notice in writing indicating the reasons for retrenchment or pay salary in lieu thereof; and
- retrenchment compensation at a rate of 15 days of average pay for every completed year of continuous service or any part thereof in excess of six months.
Additionally, all establishments including are required to follow the ‘last in, first out’ rule or record reasons for deviating from this rule when retrenching workers.
In what circumstances are employees protected from dismissal?
Employees who are on maternity leave cannot be terminated from employment during their maternity leave in accordance with the Maternity Benefits Act 1961. Further, employees categorised as ‘workers’ cannot be terminated from employment during the adjudication of an industrial dispute, in accordance with the Industrial Disputes Act 1947.
Mass terminations and collective dismissals
Are there special rules for mass terminations or collective dismissals?
There are no special rules in relation to mass termination or collective dismissals. However, the Industrial Disputes Act 1947 prescribes a specific process that has to be adhered to when an establishment is permanently closed down and the workers are being terminated.
Class and collective actions
Are class or collective actions allowed or may employees only assert labour and employment claims on an individual basis?
Typically, class or collective actions are asserted through trade unions on behalf of a category of employees and not by individual employees.
Mandatory retirement age
Does the law in India allow employers to impose a mandatory retirement age? If so, at what age and under what limitations?
Employers are permitted to contractually agree to a mandatory retirement age with employees. However, there is no statutory retirement age that has been prescribed. Typically, the retirement age is between 58 and 60 years of age.
May the parties agree to private arbitration of employment disputes?
Settling employment-related disputes by arbitration depends on the nature of the dispute and the category of employee involved. Employment disputes that have recourse under specific employment statutes may not be settled through arbitration and the specific process prescribed under the relevant statute must be adopted. Additionally, arbitration clauses are typically included in key and senior managerial employment agreements.
Employee waiver of rights
May an employee agree to waive statutory and contractual rights to potential employment claims?
While an employee can agree to waive contractual employment claims, any waiver of statutory rights will not be enforceable, unless such a waiver is further to a settlement that is presided over by a court.
What are the limitation periods for bringing employment claims?
The limitation period for employment claims varies based on the type of claim that is sought to be enforced, but is typically between one and three years. That said, courts generally have the ability to condone delays and also tend to do so if there is a valid reason.
UPDATE AND TRENDS
Key developments and emerging trends
Are there any emerging trends or hot topics in labour and employment regulation in India? Are there current proposals to change the legislation?
No updates at this time.