Foreign direct investment of German companies during globalization
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The Employment Law Review Law Business Research Fourth Edition Editor Erika C Collins
Transcript of Foreign direct investment of German companies during globalization
The Employment Law Review
Law Business Research
Fourth Edition
Editor
Erika C Collins
The Employment Law Review
Reproduced with permission from Law Business Research Ltd.
This article was first published in The Employment Law Review 4th edition(published in March 2013 – editor Erika C Collins).
For further information please [email protected]
The Employment
LawReview
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EditorErika C Collins
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ConTEnTs
Editor’s Preface ...................................................................................................xi Erika C Collins
Chapter 1 gLoBAL divERSiTy And inTERnATionAL EMPLoyMEnT ..................................... 1
Erika C Collins
Chapter 2 EMPLoyMEnT iSSuES in CRoSS-BoRdER M&A TRAnSACTionS .......................................................... 7
Erika C Collins and Michelle A Gyves
Chapter 3 SoCiAL MEdiA And inTERnATionAL EMPLoyMEnT ..................................................................... 14
Suzanne Horne and Eleni Konstantinou
Chapter 4 AuSTRALiA ............................................................................ 31Miles Bastick, Shivchand Jhinku and Zoë Adams-Lau
Chapter 5 AuSTRiA ................................................................................ 46Jakob Widner
Chapter 6 BELgiuM ............................................................................... 65Chris Van Olmen
Chapter 7 BRAziL ................................................................................... 81Vilma Toshie Kutomi
Chapter 8 CAnAdA ................................................................................ 99Jeffrey E Goodman and Christopher D Pigott
Chapter 9 ChiLE ................................................................................... 112Francisco della Maggiora M
Chapter 10 ChinA .................................................................................. 125Gordon Feng and Erika C Collins
Contents
v
Chapter 11 CoSTA RiCA ........................................................................ 143Carolina Soto Monge
Chapter 12 CyPRuS ................................................................................ 155George Z Georgiou, Anna Praxitelous and Natasa Aplikiotou
Chapter 13 CzECh REPuBLiC ............................................................. 170Lenka Velvarská
Chapter 14 EL SALvAdoR ..................................................................... 186Diego Martín-Menjívar and Carlos Roberto Rodríguez Salazar
Chapter 15 ESToniA .............................................................................. 201Heli Raidve
Chapter 16 FinLAnd ............................................................................. 218Petteri Uoti and Loviisa Härö
Chapter 17 FRAnCE ............................................................................... 229Deborah Sankowicz and Jérémie Gicquel
Chapter 18 gERMAny ........................................................................... 246Thomas Griebe and Jan-Ove Becker
Chapter 19 gREECE ............................................................................... 266Effie G Mitsopoulou and Ioanna C Kyriazi
Chapter 20 guATEMALA ....................................................................... 284Lionel Francisco Aguilar Salguero
Chapter 21 hong kong ..................................................................... 291Michael J Downey
Chapter 22 indiA ................................................................................... 309Manishi Pathak
Chapter 23 indonESiA ......................................................................... 327Nafis Adwani
Chapter 24 iRELAnd.............................................................................. 342John Dunne and Georgina Kabemba
Contents
Chapter 25 iTALy .................................................................................... 361Raffaella Betti Berutto
Chapter 26 jAPAn ................................................................................... 374Setsuko Ueno
Chapter 27 LATviA ................................................................................. 389Sigita Kravale
Chapter 28 LuxEMBouRg ................................................................... 405Guy Castegnaro, Ariane Claverie, Céline Defay, Christophe Domingos, Laurence Chatenier, Lorraine Chery and Evelyne Schoeser
Chapter 29 MALAySiA ............................................................................ 425Siva Kumar Kanagasabai, Selvamalar Alagaratnam and Foo Siew Li
Chapter 30 MALTA .................................................................................. 444Ron Galea Cavallazzi
Chapter 31 MExiCo ............................................................................... 454Miguel Valle, Jorge Mondragón and Rafael Vallejo
Chapter 32 nEThERLAndS ................................................................. 473Eugenie Nunes
Chapter 33 niCARAguA ....................................................................... 496Bertha Xiomara Ortega Castillo
Chapter 34 noRwAy .............................................................................. 506Gro Forsdal Helvik
Chapter 35 PERu ..................................................................................... 519José Burgos C
Chapter 36 PoLAnd .............................................................................. 535Roch Pałubicki and Karolina Nowotna
Chapter 37 PoRTugAL .......................................................................... 549Pedro Furtado Martins, Dora Joana and Nuno Pais Gomes
Contents
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Chapter 38 RoMAniA ............................................................................ 564Delia Paceagiu Ratoi, Iurie Cojocaru, Alexandru Lupu and Patricia-Sabina Macelaru
Chapter 39 RuSSiA .................................................................................. 577Irina Anyukhina
Chapter 40 SAudi ARABiA .................................................................... 596Amgad T Husein, John Balouziyeh and Fadil M Bayyari
Chapter 41 SingAPoRE ........................................................................ 608Ian Lim, Nicole Wee and Gordon Lim
Chapter 42 SLovAkiA ............................................................................ 622Katarína Matulníková
Chapter 43 SLovEniA............................................................................ 634Vesna Šafar and Martin Šafar
Chapter 44 SouTh AFRiCA .................................................................. 652Susan Stelzner, Stuart Harrison, Brian Patterson and Zahida Ebrahim
Chapter 45 SPAin .................................................................................... 673Iñigo Sagardoy de Simón
Chapter 46 SwEdEn .............................................................................. 693Erik Danhard and Jennie Lööw
Chapter 47 SwiTzERLAnd .................................................................. 705Ueli Sommer
Chapter 48 TAiwAn ............................................................................... 718Seraphim Mar
Chapter 49 TuRkEy ............................................................................... 731Serbulent Baykan and Handan Bektas
Chapter 50 ukRAinE ............................................................................. 744Svitlana Kheda
Contents
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Chapter 51 uniTEd ARAB EMiRATES ................................................ 758Ibrahim Elsadig
Chapter 52 uniTEd kingdoM .......................................................... 768Suzanne Horne
Chapter 53 uniTEd STATES ................................................................ 780Patrick Shea and Erin LaRuffa
Chapter 54 uRuguAy ............................................................................ 795Gabriel Ejgenberg
Chapter 55 viETnAM ............................................................................ 806Michael K Lee, Huong Thi Thanh Nguyen and Doan Ngoc Tran
Appendix 1 ABouT ThE AuThoRS .................................................... 819
Appendix 2 ConTRiBuTing LAw FiRMS’ ConTACT dETAiLS .. 853
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Editor’s PrEfacE
It has once again been my great pleasure to edit this most recent edition of The Employment Law Review. In reviewing chapters for inclusion in this edition, I was struck repeatedly by both the breadth and variety of laws and approaches to employment regulation across jurisdictions as well as the similarities, especially with regard to certain trends, some of which are discussed below. As with the earlier editions, this book is not meant to provide a comprehensive treatise on the law of any particular country but instead is intended to assist practitioners and human resources professionals in identifying key issues so that they may, in turn, help their clients avoid potentially troublesome (and often costly) missteps.
One of the common themes during 2012 was an increase in the promulgation of laws and regulations designed to increase flexibility and lower the costs of labour for employers while maintaining sufficient protections for employees. A prime example of this trend is the passage throughout 2012 of legislation in EU Member States implementing the EU Directive on Temporary Agency Work, which came into effect in December 2011. The Directive and related implementing legislation ensure certain minimum compensation and benefits for temporary agency workers while also increasing flexibility for employers. Both Vietnam and Mexico also adopted legislation in 2012 that sanctions, but also places limitations on, labour outsourcing arrangements. In Brazil, President Dilma Rousseff’s Greater Brazil Plan also has been aimed at increasing employment and avoiding the slowdown and economic crisis faced by other jurisdictions. Among the employment-related measures implemented pursuant to the Greater Brazil Plan are relief from payroll contributions for the information technology sector and other incentives to foster employment. Finally, in the UK, a novel idea is under consideration that would allow an employer to issue an ownership interest in the company to the employee in exchange for the employee’s agreement not to be protected by the unfair dismissal laws.
While these efforts are, of course, aimed at benefiting workers by addressing unemployment, a number of them also are by-products of another trend: the implementation of austerity measures in response to debt crises in Europe and elsewhere. Fewer unemployed citizens means lower entitlement spending for governments. Other
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Editor’s Preface
employment-related austerity measures also have been implemented or proposed that are less beneficial to employees and jobseekers. In the Netherlands, for example, the period of time during which an individual can collect unemployment benefits was reduced from three years to two. Portugal continues to consider a reduction of remuneration and benefits for civil servants and employees public enterprises.
This fourth edition once again includes several general-interest chapters – one addressing employment issues in cross-border mergers and acquisitions, one addressing social media in the workplace, and another addressing global diversity initiatives. This edition also boasts the addition of five new countries, bringing the number of covered jurisdictions to 52.
I wish once again to thank our publisher, particularly Lydia Gerges, Adam Myers and Gideon Roberton; all of our contributors; and my associate, Michelle Gyves, for their tireless efforts to bring this edition to fruition.
Erika C CollinsPaul Hastings LLPNew YorkFebruary 2013
309
Chapter 22
IndIa
Manishi Pathak1
I INTRODUCTION
Employment relations in India are governed by the Constitution of India, treaties, statutes, collective and individual contracts and judicial precedents. There are around 165 pieces of labour legislation, including 55 central (federal) and 110 state pieces of legislation. Employment legislation lies in the concurrent list of the Seventh Schedule of Article 246 under the Constitution of India, which gives both the central and state governments (up to a certain extent) the power to legislate matters that are on the list.
In India most of the labour and employment laws primarily apply only to a ‘workman’ as defined in the Industrial Disputes Act, 1947 (‘the ID Act’). The information provided in this chapter applies primarily to the ‘workman’ category of employees as defined under the Industrial Disputes Act, 1947 (discussed below). A ‘workman’ is defined as a person who is employed to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, excluding a person:a who is employed mainly in a managerial or administrative capacity; orb who is employed in a supervisory capacity and draws a salary exceeding 10,000
rupees per month or exercises functions mainly of a managerial nature.
An employee is classified as a ‘workman’ based on the nature of the duties performed and not the designation of the employee.
i Dispute resolution mechanisms
The Industrial Disputes Act, which is the primary statute dealing with labour dispute resolution, provides for the establishment of the following authorities for the resolution of labour disputes.
1 Manishi Pathak is a senior partner at Kochhar & Co.
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Conciliation officersConciliation officers are government officials appointed by the Labour Department to mediate and promote the settlement of industrial disputes between workmen and their employers. Their powers are neither judicial nor quasi-judicial but are administrative in nature.
Boards of conciliationThe appropriate government (central or state government) has the power to constitute a board of conciliation for the settlement of an industrial dispute referred to it. The board of conciliation can have either two or four members (appointed in equal numbers from the parties to a dispute, to be nominated by the parties), and a chairman, who is independent. The board of conciliation functions like an arbitral tribunal.
Labour courtsLabour courts have been set up by the government in all states for the purpose of adjudicating industrial disputes relating to matters specified in the Second Schedule of the ID Act, such as discharge or dismissal, application and interpretation of standing orders, and the legality of a strike or lockout.
Industrial tribunalsIndustrial tribunals adjudicate industrial disputes relating to the matters specified in the second or third schedule of the ID Act and for performing such matters as may be assigned to them under the ID Act. The functions and duties of the industrial tribunals are quasi-judicial in nature.
National tribunalsNational tribunals adjudicate disputes that in the opinion of the government involve questions of national importance or are of such a nature that industrial establishments situated in more than one state are likely to be affected.
Courts of inquiryIn special cases, the appropriate government (central or state government), may establish a court of inquiry to look into any matter relevant to an industrial dispute.
Apart from the authorities set up under the ID Act, state high courts and the Supreme Court of India also have jurisdiction to hear certain labour disputes under the provisions of the Constitution of India.
Every state has a high court, which has superintendence over all courts and tribunals throughout the state. The high court exercises jurisdiction with regard to employment laws, which is an original jurisdiction – Article 226 of the Constitution of India empowers the high court to issue appropriate orders and writs for enforcement of the fundamental rights guaranteed under the Constitution, where a party has been denied such a right or in the matters originating from labour court decisions.
The Supreme Court of India is a court of record and, hence, the judgments pronounced by it form judicial precedents that are to be followed by all subordinate courts in India. The Supreme Court also exercises appellate and original jurisdiction with regard to employment laws.
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Employers and employees may also agree to refer the dispute to arbitration under the ID Act.
Civil courtThe civil court also has jurisdiction to decide employment-related matters for employees in the category of non-workmen. Every award passed or order issued by the industrial court or settlement arrived before the industrial court is executed by a civil court.
ii Major employment law statutes
Certain statutes described below are only applicable to specific categories of employees or establishments.
The Industrial Disputes Act, 1947The ID Act provides for the investigation and settlement of industrial disputes through dispute resolution authorities. It also provides the conditions regulating strikes, lockouts, lay-offs and retrenchment, changes in conditions of services and prohibits unfair labour practices by the employer or employees.
The Trade Unions Act, 1926The Trade Unions Act provides for the recognition and registration of trade unions, providing legality to labour organisations and enabling collective bargaining.
The Industrial Employment (Standing Orders) Act, 1946 (‘the IESO Act’)The IESO Act regulates the conditions of employment of ‘workmen’ by providing for certification of standing orders. Standing orders are written documents dealing with terms and conditions of employment. Since standing orders are drafted by employers, the affected trade unions or workers are given an opportunity to object. The IESO Act prescribes model standing orders as a minimum standard that the employers are required to follow while preparing their own standing orders. It is primarily applicable to industrial establishments employing 100 or more workmen; however, the state government may, by notification, extend the applicability to establishments with fewer than 100 employees. For instance, the state of Maharashtra and Gujarat has extended the applicability of the IESO Act to establishments with 50 or more employees.
The Payment of Wages Act, 1936 (‘the PW Act’)The Payment of Wages Act regulates the payment of wages to workers employed in certain specified industries and provides a remedy against illegal deductions and unjustified delays in the payment of wages. It is applicable to workers employed in a factory, industrial or other establishment, whether directly or indirectly (i.e., through a contractor). The PW Act is applicable to an employed person drawing a wage of 18,000 rupees per month (earlier the wage ceiling was 10,000 rupees per month).
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The Minimum Wages Act, 1948 (‘the MW Act’)The MW Act safeguards the interests of workers by providing a minimum wage for certain jobs. It requires employers to pay their workers the minimum wages as fixed under the MW Act from time to time by the government.
The Payment of Bonus Act, 1965The Payment of Bonus Act provides for the payment of statutory bonuses to the employees, employed in certain establishments on the basis of profits or the productivity of the establishment.
The Factories Act, 1948 (‘the Factories Act’)The main objective of the Factories Act is to regulate working conditions in factories including working hours, leave, holidays, overtime and the employment of children, women and young persons, and ensure basic minimum requirements for the safety, health and welfare of the factory workers.
The Maternity Benefit Act, 1961The Maternity Benefit Act provides for maternity leave and other benefits before and after childbirth, medical termination of pregnancy or miscarriage. The employer is required to pay maternity benefits at the rate of the average daily wage for the period of her actual absence up to a maximum of 12 weeks.
The Employees’ Compensation Act, 1923The Employees’ Compensation Act applies to persons employed in factories, mines, plantations, construction works and certain other hazardous occupations. It provides for payment of compensation to workmen and their dependants in the event of an injury caused due to an accident arising out of and in the course of employment, and resulting in disability or death. The amount of compensation to be paid depends on the nature of the injury, the average monthly wage and the age of the workmen.
The salary limit for the purposes of compensation is 8,000 rupees.
The Employees’ State Insurance Act, 1948 (‘the ESI Act’) The ESI Act, wherever applicable, provides for health care and cash benefit payments in the case of sickness, maternity and employment injury. It provides for need-based social insurance schemes that protect the interest of workers in contingencies such as sickness, maternity, temporary or permanent physical disablement, or death due to employment injury.
The salary limit for eligible employees is 15,000 rupees.
The Employees’ Provident Fund & Miscellaneous Provisions Act, 1952 (‘the EPF Act’)The EPF Act provides for the institution of provident funds, family pension funds and deposit-linked insurance funds for the employees, which taken together provide old-age and survivorship benefits, long-term protection and security to the employee (and after his or her death to his family members), and advances in times of need. The salary limit for employees covered by the EFP Act is 6,500 rupees.
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The Payment of Gratuity Act, 1972The Payment of Gratuity Act provides for the payment of a gratuity to employees on termination of employment after completion of a minimum of five years of continuous service with the employer and upon his or her death. The gratuity is payable at the rate of 15 days’ average wages for every completed year of service up to a maximum of 1 million rupees. It is the duty of the relevant state labour department to ensure effective implementation of such payments. The maximum gratuity that can be paid is up to 1 million rupees (or more, if the employer wishes).
II YEAR IN REVIEW
i Privacy law
The Information and Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (‘the Rules’), has introduced privacy law regarding personal information and sensitive personal data and information.
Personal information is defined as any information that relates to a natural person which is capable of identifying such person.
Sensitive personal data or information means such personal information which consists of:a passwords;b financial information such as bank account or credit card or debit card or other
payment instrument details;c physical, physiological and mental health conditions;d sexual orientation;e medical records and history;f biometric information; andg any details relating to the above clause as provided to a body corporate for
processing or storage, under lawful contract or otherwise.
The above information would not be regarded as sensitive personal data or information for the purposes of these Rules if such data or information is freely available or accessible in the public domain, or furnished under the right to information or any other law presently in force.
The Rules provide certain obligations on bodies corporate (including employers) that collect, receive, possess, store, deal or handle the information of the information provider. These obligations include framing a policy for handling and dealing with personal information, including sensitive personal data and information, the mode of collection of information, the disclosure of information, transfer of information and security measures that are required to be undertaken by the body corporate.
ii Social security/employees’ provident fund
A foreign national, employed in India in an establishment to which the EPF Act applies, is required to become a member of the EPF Fund, unless India has entered into a social security agreement on a reciprocity basis with his or her home country and the employee
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is contributing to a social security programme in his or her home country and has obtained a detachment certificate from their respective social security authorities.
Social security agreements with Belgium, Germany, Switzerland, Denmark, Luxembourg, France, the Republic of Korea and the Netherlands have been made effective from 1 September 2009, 1 October 2009, 29 January 2011, 1 May 2011, 1 June 2011, 1 July 2011, 1 November 2011 and 1 December 2011 respectively.
III SIGNIFICANT CASES
i American Express Bank Ltd v. Ms Priya Puri
The Delhi High Court held that the right of an employee to search for better employment cannot be curbed by a court injunction on the ground that the employee is privy to the employer’s confidential data. The Court held that the employer cannot be allowed to perpetuate forced employment in the guise of confidentiality.
ii DLL (International Taxation), Mumbai v. Morgan Stanley & Co Inc
In this case Morgan Stanley & Co (‘MSCO’) outsourced some of its activities to one of its group companies in India, Morgan Stanley Advantages Services Pvt Ltd (‘MSAS’), by entering into a service agreement. The basic questions that arose before the Bombay High Court were whether MSCO had a permanent establishment (‘PE’) in India under the double taxation avoidance agreement (‘DTAA’) between India and the US, on account of the services rendered by MSAS. It was held that to decide whether a PE had been established the Court must conduct a functional and factual analysis of each activity of the establishment. Furthermore, where MSCO seconded an employee to MSAS in India, such employee did not become an employee of MSAS and he or she retained employment with MSCO. In this sense a service PE is established in India (under the DTAA, a ‘service PE’ exists or is established where an enterprise furnishes services within a contracting state, through its employees or personnel).
iii Bhilwara Dugdh Utpadak Sahakari S Ltd v. Vinod Kumar Sharma and Others
In this case the Supreme Court has held that the employees of the contractor would be deemed the employees of the principal employer if they were doing the work of regular employees and working under the direct orders of the principal employer.
iv New Delhi Municipal Corporation v. NDMC General Majdoor Union and Another
In this case the Delhi High Court held that when the nature of work to be performed by the permanent employees and that of the muster roll employees (daily-rated labourers) is different both in respect of skill and responsibilities, the demand of equal pay by muster roll employees to that of permanent employees, applying the principle of ‘equal pay for equal work’, is not sustainable. It is settled law that ‘equal pay for equal work’ is not a principle to be applied in abstract.
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v Bharat Fritz Werner Karmika Sangha v. Management of Bharat Fritz Werner Ltd
In this case the Karnataka High Court held that extending benefit of ex gratia towards payment of bonuses to certain workmen and denying others who engaged in strike action is illegal, and an act of victimisation and discrimination, because the ex gratia payment was being paid for a long time and had become a condition of service. It was further held that condition of service cannot be changed without following the procedure as specified in the Industrial Disputes Act, 1947.
vi Goa Bottling Co Pvt Ltd v. deputy Regional Director, ESI Corporation, Goa and Others
In this case the High Court of Bombay held that, in view of Circular dated 26 June 1982 issued by the ESI Corporation, the repair and maintenance of factories, including furniture and packing charges, etc., would be within the ambit of expenditure to attract ESI contribution. It was further held that in the absence of bifurcation of payment made for loading and unloading to the contractor, the whole amount will be taken as ‘wages’ for the purpose of ESI contribution.
vii Superintending Engineer, Mettur Thermal Power Station, Mettur v. Appellate Authority, Joint Commissioner of Labour, Coimbatore and Another
It has been held by the Madras High Court that when the contractor, who engages the workmen, does not pay the amount of gratuity to them, the principal employer is liable to pay gratuity to such workers as per the provisions of the Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970. The principal employer will have a right to recover the amount from the contractor.
viii The Assistant Director Employees’ State Insurance Corporation Marol v. M/s. Western Outdoor Interactive Private Limited and M/s. Reliable Software Systems Private Limited v. Employees’ State Insurance Corporation Regional Office, Marol
The Mumbai High Court in this case declared software development activity as a manufacturing process and therefore considered a software development establishment as a ‘factory’, covered under the ESI Act.
IV BASICS OF ENTERING AN EMPLOYMENT RELATIONSHIP
i Employment relationship
Except for a few state-specific laws that require documents to establish an employer–employee relationship, Indian employment laws generally do not specify for an employment contract to be in writing. It is recommended, however, that employers enter into detailed employment contracts or communicate the terms and conditions of employment to the employees through a written letter at the beginning of employment.
Employment contracts in India would generally include the following terms:a name and address of the employer and employee;
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b title of job or nature of work (or job description);c place of work;d probation period, if any, and its terms;e date of commencement of employment;f salary details;g any benefits that an employee is entitled to;h type of contract: permanent or fixed-term;i period of notice required for termination of employment;j leave entitlement;k conditions under which the employer can terminate the contract; andl restrictive covenants – non-compete, confidentiality, non-solicitation provisions,
etc.
Apart from certain state-specific statutes, the employment laws in India do not provide any provisions relating to when and how an employment contract should be executed. Such contract may be executed in writing before or after the employee has started working for the employer. It is best practice, however, to execute such contract before the commencement of employment.
In practice, the terms of employment may be amended when both the parties agree to such amendment in writing. In the case of a ‘workman’, however, the ID Act provides that an employer can change the terms of employment with respect to certain specified issues that are adverse to the employees by giving 21 days’ advance written notice. If any employee challenges the change with the labour authorities, the employer would not be able to make such change until the final resolution of the dispute.
ii Probationary periods
Under the employment laws in India, probationary periods are permissible. Pursuant to the IESO Act (in establishments to which it is applicable) a workman can be employed on a probationary basis to provisionally fill a permanent vacancy for a maximum of three months. For establishments to which the IESO Act is applicable, a probationer is not entitled to any dismissal notice or payment in lieu of notice during the period of probation.
In establishments to which the IESO Act is not applicable, employers are free to decide on the reasonable duration of probation. The notice periods would, however, depend on the applicable state-specific Shops and Establishments Act.
iii Establishing a presence
Strictly speaking, a foreign company has to have an Indian presence (i.e., branch office, liaison office, project office, joint venture, subsidiary) to carry on business in India and to hire employees. A foreign company, however, can engage a service provider in India to provide services through its manpower.
Subject to certain factors, a foreign company that is not registered in India can engage an independent contractor. An independent contractor could be deemed to have established a PE of the foreign company in accordance with the applicable DTAA between India and the relevant foreign country. Where a PE is deemed to have been
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created in India, the profits of the foreign company attributable to the PE would be liable to taxation in India.
Depending on the applicable statutes based on the nature of industry and category of the employee, the employees would be entitled to benefits under the following statutes:a the ESI Act;b the EPF Act, which provides for the setting up of the following social schemes:
• Provident Fund Scheme;• Family Pension Fund Scheme; and• Deposit-linked Insurance Scheme; and
c bonus; andd gratuity.
Where an employees’ salary is liable to be taxed in India, it is the responsibility of the employer to deduct the tax (at applicable rates) and pay it to the Indian income tax authorities.
V RESTRICTIVE COVENANTS
Under Indian law, a non-compete clause that operates during the employment relationship is valid and enforceable. Such covenants post-termination, however, are considered void. For their deterrent value, it is common practice to include non-compete clauses for both during the term and after termination of an employment contract.
VI WAGES
i Working time
Depending on the nature of establishment or industry, the employment-related statutes provide for the maximum number of hours an individual can be required or allowed to work in a day or week.
The Factories Act applies to all factories in India and the state-specific Shops and Establishments Act (‘the SEA’), which is a state legislation, applies to all shops and establishments in a state and generally provides for maximum working hours, which generally are up to nine hours a day and 48 hours a week.
The Factories Act provides that every employee is entitled to 24 hours of continuous rest in a week (i.e., a weekly day off). If a weekly day off or compensatory day off falls after a night shift, the 24 hours from the end of the shift are given to him or her as his or her weekly day off. Also under the Factories Act and SEA, women are not allowed to work at night. In some states, however, exemptions have been provided for certain businesses such as the information technology industry, etc. Specific approval may also be required.
ii Overtime
Pursuant to the Factories Act and certain state SEAs, any work done over nine hours a day or 48 hours a week is considered ‘overtime’. Compensation for overtime work must
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be in the form of a higher wage. An employee working overtime generally becomes entitled to wages at the rate of twice his or her ordinary rate of wages.
There are limits prescribed by the state-specific SEAs and the Factories Act on the amount of overtime work that can be performed by an employee. These limits vary from state to state and may be daily, monthly, quarterly or yearly.
VII FOREIGN WORKERS
There are no separate registers that an employer must maintain with respect to foreign workers. The registers that must be maintained in respect of Indian workers are also applicable to foreign workers.
Foreign nationals who wish to work in India require an employment visa. Additionally, foreign nationals who intend to stay in India for more than 180 days need to obtain a registration certificate from the relevant Foreigners Regional Registration Office (‘the FRRO’) within 14 days of arrival in India. There are no restrictions on the length of a foreign worker’s assignment; however, usually an employment visa is only granted for up to one year, after which an extension is required from the Ministry of Home Affairs. Further extensions, if required, can be granted by the state government or the relevant FRRO up to a maximum of five years from the date of issue of the visa.
The employer must deduct and pay taxes or local benefits for such foreign workers in accordance with the Income Tax Act, 1961, and applicable social security legislation, such as the EPF Act. Indian employment and labour laws do not make a distinction between national and non-national employees. However, whether foreign nationals who work in India for subsidiaries of their parent companies or work for short to long-term fixed periods avail themselves of benefits under Indian laws depends on individual choice. The obligations of the employer with regard to the statutory benefits apply equally to both these classes of employees, provided the employees meet the criteria entitling them to these benefits.
To be eligible for an employment visa, foreign workers must earn a salary of more than US$25,000 per annum and should not be appointed for a job for which qualified Indians are available.
VIII GLOBAL POLICIES
The IESOA requires industrial establishments wherein 100 or more workmen are employed or were employed on any day of the preceding 12 months to frame their own standing orders. The state governments also have powers to extend their applicability to industrial establishments with fewer than 100 employees. The standing orders are required to deal with matters that include the following:a classification of workmen (whether permanent, temporary, probationer, etc.);b the method of informing workmen of the hours of work, holidays, pay days and
wage rates;c shift working;d attendance and late arrival;
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e conditions of leave, the procedure for applying for leave and the authority that may grant leave;
f requirement to enter premises by certain entrances;g closing and reopening of sections of the industrial establishment, and temporary
stoppages of work and the rights and liabilities of the employer and workmen arising therefrom;
h termination of employment, and the notice to be given by employer and workmen;i suspension or dismissal for misconduct, and acts or omissions that constitute
misconduct;j means of redress for workmen against unfair treatment or wrongful demands by
the employer or its agents; k sexual harassment matters;l service record;m confirmation;n age of retirement;o transfer;p medical aid in case of accidents;q medical examination;r secrecy; ands exclusive service.
The standing orders must be written in English and in a language understood by the majority of the workmen. There is no need for the standing orders to be signed by the employer, and notification of the same on a special notice board near the entrance of the establishment is sufficient. They can also be posted on the intranet.
Disciplinary rules are not necessarily incorporated into an employment contract. Usually, such rules are included in the standing orders or the employees’ handbook, and a reference to the same is made in the employment contract. Once the draft standing orders are framed by the employer, they are submitted to the certifying officer, who forwards a copy of the same to the trade union or workmen along with a notice requiring such trade union or workmen to submit their objections, if any, within 15 days of such notice. The parties are given an opportunity to be heard with regard to the standing orders, and the certifying officer adjudicates upon the reasonableness of the same. The standing orders framed by the employer have to be certified by the government certifying officer.
IX TRANSLATION
There is no specific employment law that requires the translation of employment documents into local language or an employees’ native language. However, for any document, including employment documents, to be binding upon an employee, it must be understood by the employee. Therefore, if the employee or employees do not understand English, it would be appropriate to have the employment document translated into a language understood by the employee or employees concerned.
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All employment documents (i.e., offer letter, employment contract, confidentiality agreement, restrictive covenant agreement, proprietary information and assignment agreement, bonus or other incentive compensation plan, employee handbook or other policies) should be translated into the local language if the employees do not understand English. In India, generally employees other than certain levels of employees understand English.
There is no criminal penalty for not translating the employment documents into a local language or the employees’ native language.
In case of any dispute regarding the terms of employment, it may be difficult for the employer to prove the terms of such documents as part of the terms of employment if the employee does not understand English. In other words, an employee can express ignorance about the terms of his or her agreement with the employer.
X EMPLOYEE REPRESENTATION
Pursuant to the ID Act, in the case of an industrial establishment in which 100 or more workmen are employed, the appropriate government (state or central) may require the establishment of a works council with a maximum of 20 members. Representatives of the employer are nominated by the employer and the workmen elect their own representatives.
The number of representatives of the workmen should not be fewer than the number of management representatives.
The election procedures for representatives are as follows:a the employer fixes a date as the closing date for receiving nominations from
candidates for election as workmen’s representatives on the works council. This date is notified to the concerned workmen and trade unions;
b every nomination must be made and submitted to the employer on the prescribed form, signed by the candidate to whom it relates and attested by at least two other voters belonging to the group the candidate seeks to represent. Such nomination form is supplied by the employer to all the workmen requiring it;
c on the day after the closing date, the nomination papers are scrutinised by the employer in the presence of the candidates and the attesting persons. Forms that are not valid are rejected; and
d if the number of validly nominated candidates is equal to the number of seats, such candidates are declared as duly elected. If this is not the case, however, then elections are held.
The duly elected representatives hold office for a term of two years. No additional rights and protections are given to such representatives. The committee must meet at least once every three months.
The employer is responsible for all arrangements connected to the election, such as fixing the closing date, providing copies of nominations to the workmen requiring them, providing a suitable space for the committee’s meetings, and providing other necessary facilities for carrying out the work of the committee.
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Every establishment employing 20 or more workmen is required to have one or more grievance redressal committees for the resolution of disputes arising out of individual grievances in the absence of an established grievance redressal mechanism in the establishment. The grievance redressal committee consists of an equal number of employers and workmen. The chairman of the committee is selected from among the employers and the workmen, alternating on a rotation basis every year. The members of the committee cannot exceed six. As far as possible, the committee should have one female member if the committee has two members and if the numbers of members are more the number of female members should be proportionately increased. The committee should dispose of the complaint within 30 days of the application being filed by the aggrieved employee. If a workman is aggrieved by the decision of the grievance redressal committee, the aggrieved person may refer an appeal to the employer and the employer shall dispose of the same within one month from the date of receipt of the appeal. A copy of the decision should also be sent to the workman concerned.
XI DATA PROTECTION
i Requirements for registration
There is no requirement for the company to register with the data protection agency or another government body.
If the company collects, receives, possesses, stores, deals, or handles personal information or sensitive personal data or information, the company is obliged to have a privacy policy and make it available to its employees.
If the employer collects any sensitive personal data or information (described as above) from the employee, the consent of the employee is required to be obtained regarding the purpose of the use of such information before such information is collected. The consent should be in writing or by way of any electronic mode of communication.
The company is required to limit its access to the information to only the purposes for which consent has been obtained from the provider of information.
The IT Act requires reasonable security procedures to be maintained. The rules state that reasonable security procedures would be either (1) the IS/ISO/IEC 27001 on ‘Information Technology – Security Techniques – Information Security Management System – Requirements’; or (2) a code developed by an industry association and approved and notified by the government. The security procedure has to be audited on a regular basis by an independent auditor who has been approved by the government of India. Such audit should be carried out at least once a year or as and when the body corporate has undertaken a significant upgrade of its computer resources.
As per the IT Act, a company is required to implement and maintain reasonable security practices and procedures for protection of such personal data and information from unauthorised disclosure. Such practices and procedures may be in the form of an agreement between the company (transferor) and the agencies handing personal information of the employees (transferee). Failure to comply with the aforesaid provision may render the transferor company liable to pay compensation to the persons who suffer any related loss.
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ii Cross-border data transfers
There is no requirement for a company to register cross-border transfers with a protection authority.
If the company collects any sensitive personal data or information from the employee, the consent of the employee is required to be obtained regarding the purpose of the use of such information before such information is collected. The consent should be in writing or by way of any electronic mode of communication. However, if the information is transferred overseas through any other body corporate and not directly by the employee, the consent of the employee is not necessary; the overseas company must, however, ensure the same level of data protection that is adhered to by the company transferring such information, under a lawful contract.
Joint-user agreements or safe harbour registration are not necessary, but the company is required to ensure the protection of personal data and information of employees by implementing adequate security practices and procedures.
Onward transfer is allowed, subject to the transferee ensuring the same level of protection as the transferor.
iii Sensitive data
Personal information means any information that relates to a natural person, which, either directly or indirectly, in combination with other information available or likely to be available with a body corporate, is capable of identifying such person.
Sensitive personal information is defined as such personal information relating to:a password;b financial information such as bank account, credit card, debit card or other
payment instrument details;c physical, physiological and mental health conditions;d sexual orientation; e medical records and history;f biometric information; andg any detail relating to the above clause as provided to a body corporate for
processing or storage, under lawful contract or otherwise.
The above information would not be regarded as sensitive personal data or information for the purposes of these rules if such data or information is freely available or accessible in the public domain or furnished under the right to information or any other law presently in force.
iv Background checks
In India there is no prohibition on an employer carrying out a background check. It is common for employers to ask prospective employees questions regarding their background and also to request references from past employers, which is not prohibited by law in India. Credit checks may be difficult as such information is only available to members of Credit Information Bureau (India) Limited (CIBIL), which only includes banks, financial institutions, state financial corporations, non-banking financial
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companies, housing finance companies and credit card companies. Hence, a company may not have access to this information.
It is advisable to procure an employee’s written consent prior to conducting background checks.
XII DISCONTINUING EMPLOYMENT
i Dismissal
In India, there is no concept of ‘hire and fire’. Termination of service under the ID Act (applicable to ‘workmen’) is referred to as retrenchment and includes termination of service for any reason whatsoever, except the following:a as punishment imposed by way of disciplinary action;b voluntary retirement of a workman, or retirement of a workman upon reaching
the age of superannuation;c termination as a result of the non-renewal of the contract of employment or
under a stipulation thereof; ord termination on the grounds of continued ill health.
The ID Act details the procedure to be followed for retrenchment and requires an employer to serve to the concerned employees at least one month’s notice indicating the reasons for such retrenchment. In certain specified establishments with more than 100 employees, however, an employer is required to serve a notice of at least three months giving the reasons for retrenchment. The procedure and conditions as provided in the ID Act only regulate retrenchment of ‘workmen’. The services of non-workmen maybe terminated pursuant to company policy or the employment contract.
Generally, in any case of retrenchment, a notice in the prescribed form has to be served to the relevant government authority. In certain specified establishments in which not fewer than 100 workmen were employed on average per working day for the preceding 12 months, however, prior approval has to be given by the appropriate government authority. In such a case the appropriate government authority, on receipt of the application for approval, makes an inquiry and gives the parties interested in the retrenchment an opportunity to be heard, and then considering the adequacy of the reasons for the proposed retrenchment grants or refuses such approval. There is no requirement for the company to notify the relevant works council or trade union.
There is no concept of social security in India. The only support available is that provided under the EPF Act.
An employer is not required to provide any alternative employment. The retrenched employees, however, have a right of first rehire (i.e., where an employer wishes to employ workmen, it is required to first offer employment to those employees who were retrenched by it and are citizens of India). Further, in every case of retrenchment, an employer is required to follow the ‘last in first out’ rule in a particular employee category, unless there are valid reasons for not complying with the rule, such as inefficiency, unreliability and habitual irregularity of the employee. There are no categories of employees who are protected from dismissal.
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An employer is required to serve notice indicating the reasons for retrenchment. Pay in lieu of notice is permissible. Where a workman has been in continuous service for not less than one year, a compensation that is equivalent to 15 days’ average pay for every completed year of continuous service or any part thereof in excess of six months is required to be paid to the concerned workmen. An employee may also be entitled to other severance or dismissal payments pursuant to the employment contract or company policy.
The parties may enter into a settlement agreement.
ii Redundancies
Redundancy is not defined in any law. However, an employer’s inability to give employment on account of the reasons as prescribed in the ID Act, which include a shortage of coal, power or raw materials, an accumulation of stock, the breakdown of machinery and a natural disaster, is known as a ‘lay-off’ under the ID Act.
In India, there is no separate set of rules or definitions for ‘collective dismissal’ or ‘reduction in workforce’. Subject to certain exceptions, any kind of termination of service is known as retrenchment. Collective dismissal or a reduction in the workforce would generally be referred to as retrenchment of a significant number of employees.
Except in certain cases, an employer is not generally required to notify or seek approval of the relevant government authority for the purposes of a lay-off. For instance, an establishment in which no fewer than 100 workmen have been employed on an average per working day for the preceding 12 months, an employer cannot lay off any employee without the prior permission of the appropriate government authority, unless such lay-off is due to shortage of power or a natural disaster, and in the case of a mine, such lay off is due also to a fire, flooding, an excess of inflammable gas or an explosion. In such cases, the employer is required to seek approval for the continued lay-off of such employees within 30 days of such lay-off.
There is no statutory requirement to notify the works council or trade union. From a practical perspective, however, if an employer has in place any representative forums they should be notified of such redundancy.
If during a period of 12 months a workman is laid off for more than 45 days, it would be lawful for the employer to retrench such employee after the expiry of 45 days of the lay-off. In such a case, the general conditions of retrenchment with regard to compensation, approval and right of rehire would be applicable.
The company is not statutorily required to provide any notice to the employee of a lay-off. Usually, the employees are notified by a notice displayed on the notice board of the concerned department.
The ID Act provides that whenever a workman who is employed in an establishment and has rendered at least one year of continuous service is laid off, whether continuously or intermittently, he or she is entitled to be paid compensation for all days (excluding weekly days off) of 50 per cent of the total basic wage and ‘dearness allowance’ that would be payable to him, had he not been laid off. (‘Dearness allowance’ includes all cash payments made to an employee on account of a rise in the cost of living, rent allowances, overtime allowances, bonuses, commission or any other allowance payable to the employee in respect of employment or of work done during such employment.)
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The parties may enter into a settlement agreement. In the event of a dispute, the parties can enter into a settlement agreement at any time including during conciliation proceedings, and such settlement would be binding on the parties.
XIII TRANSFER OF BUSINESS
The ID Act provides protection for certain employees affected by a transfer of a business (in which they are employed) from one employer to another employer. These provisions are only applicable to employees who fall within the category of ‘workmen’ as defined under the ID Act.
As per the provisions of the ID Act, the affected employees who have worked for a period of 240 days in a year preceding such transfer of business are entitled to retrenchment benefits, including one month’s notice or salary in lieu thereof and compensation equivalent to 15 days’ salary for every completed year of service or any part thereof in excess of six months. These benefits are payable to the employees in addition to the normal terminal benefits payable by the employer such as gratuity, provident fund, etc.
One month’s notice to an affected employee regarding retrenchment, or one month’s salary in lieu of notice and the retrenchment compensation are, however, not payable to the employee if the following requirements are fulfilled:a the services of the employee have not been interrupted by such transfer of business; b the terms and conditions of services applicable to the employee after such transfer
are in no way less favourable to the employee than those applicable to him or her immediately before such transfer; and
c the new employer is, under the terms of the said transfer or otherwise, legally liable to pay the employee in the event of retrenchment compensation on the basis that the employee’s services have been continuous, and have not been interrupted by such transfer.
Employees who do not fall within the definition of ‘workman’ do not have any such protection under the ID Act. If the agreement dealing with the transfer of the business also has similar clauses for the ‘non-workman’ category of employees, such provisions would be extended to such employees.
XIV OUTLOOK
i Provident fund
Pursuant to a recent proposal, employers may be required to make mandatory provident fund contributions (under the EPF Act) to workers with a salary of up to 15,000 rupees as opposed to the current threshold of 6,500 rupees.
ii Social security agreement
India has signed a social security agreement with Hungary, Norway and the Czech Republic and these are to be made effective shortly. Negotiations are at various stages with Canada, Quebec, Sweden, Australia, the United States and Austria.
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iii Bonus
Pursuant to a recent proposal, employers may be required to extend a statutory bonus to employees with a salary of 15,000 rupees or less as opposed to the current threshold of 10,000 rupees.
The minimum bonus payable is also likely to be increased from 8.33 per cent to 11 per cent of the annual salary.
The minimum threshold for calculation of a bonus is also likely to be increased from 3,500 rupees to 5,000 rupees.
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Appendix 1
about the authors
MAnishi PAthAkKochhar & CoManishi Pathak is a senior partner in the corporate and regulatory practice of the firm. His practice encompasses strategic corporate investments, mergers and acquisitions, winding up, joint ventures, foreign collaborations, technology transfers, private equity and venture capital transactions and various other types of commercial transactions.
Manishi also co-chairs the employment law practice of the firm. His employment law experience includes drafting and advising on employment documentation for employee handbooks, stock option schemes, termination of employees, closures of undertakings, transfers of employees and various litigation pending before conciliation officers, tribunals and courts including high courts and the Supreme Court. He is an officer of the employment and industrial relations committee of the International Bar Association (‘IBA’) and also on the executive committee of Ius Laboris. Manishi has authored many articles in publications of international repute on corporate governance, employment laws, foreign investment laws and M&A, etc., and has also been a speaker at many IBA conferences on various topics such as employment law, employee relations, vendor finance, etc.
About the Authors
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kochhAr & co11th Floor, Tower ADLF Towers JasolaJasola District CentreNew Delhi 110 025IndiaTel: +91 11 4111 5222Fax: +91 11 4056 [email protected]@kochhar.comwww.kochhar.com
