Lab-our Laws for IT Industry

Recently FAPCCI conducted a Seminar on "Labour Laws for IT Industry" and questions raised by participants were answered by. Sri M Radhakrishna Murthy, Advocate. Some of them are published hereunder for the benefit of FAPCCI Review readers.

QI. The IT industry in AP, llke its global counterparts usually works on 5 days a week. However the AP Shops and Establishments Act, Iimits the working hours to 8 hours per day and max of 6 days in a week. Can the ITIITES companies demand longer working hours In lieu of 5 day week? Is there, any way to increase working hours to 48 Wile retahng 5 day week?

Ans: Yes, though Section 16(1) of APS & E Act, says no employee shall be required or allowed to work more -man 8 hours a day and 48 hours in a week, the' Government of AP vide GO Ms.Mo.53, dated 20.062007 granted exemption to Section 16(1) in respect of daily hours of work while keeping the weeJly hours of work in tact. Therefore, you can organise working hours per day as per' your convenience for 5 days. However, the weekly hours of woking should not exceed more than 48 hours. - .

Q2. Is there any law, whkh specifically prescribes the space / area to be provided to each employee working in an IT/ IES company? ; Can ihe space stipulations of fhe Factories Act, appiy to IT/ ITES employees working in AC offices? 7

Ans: Provisions of Factories Act, are not applicable as per as IT Software Industries are concerned. The Provisions of ~aioties Act are applicable for IT (Hardware Units). For IT Software it is APS &E Act, which is applicable and there is no provisidh under APS&E Act in respect of space stipulations.

10 11 ~lve# 30 September 2008

Q3. Is there any legally stipulated retirement age? Is it OK for an IT/ ITES company to employ a 65 year old person? Or to retire a 50 year old as per company policy7

Ans: Under the Shops and Establishments Act, there is no mention about the Retirement Age. Rule 24(1) of the A.P.1.E (S O), Rules, 1953, deals with the provision of retirement, but the age of retirement is not mentioned. The APS&E Act and the I.E(SO) Act applicable only to the non-managerial category, i.e., to those employees, who come under the definition of employee. For the non-employee category the retirement age is as per the terms of appointment between the employer and the employee. As there is no specific provision dealing wifh the age of retirement under the APS&E Act. The age of the retirement can be fixed by the employer. There is no restriction of age for employment.

Q4. I T/ITES companies usually offer vastly varying contracts to different employees. Is this valid in Law7 Can this be interpretd as discrimination by the employer? Can varying terms (based on experience, productive value) be potfrayed as discrimination on sex, caste, religious or other grounds? How can such situations be avoided?

i

An$: h, any contract is a valid contract only where there is free consent by the party who signs the contract. The contract is nothing but an

' offer and. acceptance. After accepting the terms there cannot be any complaint of

discrimination. No Rule or Provision of Law, that the contract of all the employees should be alike. Therefore, the contracts can differ depending upon the nature of employment and employee.

U5. Several IT companies are subsid!aries of MNCs and their engtneers are o f t e ~ required to work as per US or Europaar, t~m~ngs. Is there any legal dj#iculiy in asking engineers to work at such hours? If a wmpany requires providing 24 hours support and work in shifts, what are the provisions if has fo comply?

&.

Ans: There is no legal difficulty. The GO.Ms.No.53, dated 20.06.2007, gives liberty to the employer to fixlorganise the daily hours of working.. Even the young and women employees also can be asked to work during the night shift subject to the conditions stipulated in the said GO.

Q6. What are the minimum leaves and holidays applcable to the IT industry in AP. Spec& for Privilege Leave (Earn Leave), Casual Leave, Sick Leave, Ofher statutory leaves and Minimum m p a n y holidays?

Ans: As per & t i o n 30 of APS&E Act, every employee who serves for 240 days or more during continuous period of 12 months shall be entitld during the Gbseqiient period of 12 months one leave for every 15 days of working and such leave can be accumulated up to maximum period of 60 days. Ertcashment up to 8 days in a year, Skk leave 12 days in a year, Casual leave 12 days in a year, liafidays Section 31 of the Act says that the employee is entitled to 9 holidays in a year which includes 26th Jan, 01 st May, 1 5th Aug, 02nd Oct and 01 st Nov.

Q7. ~ r n ~ l o ~ e b s punch in and punch out their ammml #d d-re in the company. They are suppbed to do 8 hours of work and have I hour lunch- break. Since the company offers recreational facilities, employees play table tennis, use gyni, do yoga and so on in he facility and thus their time in office shows 1(1- 7 1 hours per &y Can this be used by an employee to claim over time, -lady if no ovedme was asked by ernplofle or appmvd by managefl

Ans: Wages need to be paid for the periormance but not for the mere presence without performance of duty. However, it is advisable 'to take necessary precautions in respect of record of-total hours of presence. Confine record only to he extent of hours worked.

Q8 An IT4 TES company usually recruits people with a probation period of 6 months. Is it Iegmli y permissible for the company io unda teralry extend the probation period? If yes, for how long and for how many extensions? Are there any conditions for such extension?

Ans: The company can extend the probation for such periods unilaterally. However, the company need to specify the reasons for extension of probation. The law doesn't prescribe the probationary period. It is governed by the terms of appointment. The dause in terms of probation should be drafted in the appointment to suit the management requirements in an unambiguous manner.

Q9. IT companies offer a high increment in salaries when the going is good. Similarly when a company is in financr'al crisis, can the company impose a cuf back in salaries? Can this be done unilateraIIp Does the company have to enter info fresh contracts? Does a provision to this effect have to be built into the original contract? Also can an employee claim an annual increment as a right? Does the law prewibe the periodicity of the hike? -

Ans: he statute / law guarantees only the minimum wage to the employee. Over and the above theminimum wage is always subject to fhe performance of the employee and paying capacity of the employer. The employer is at liberty to incorporate a clause to the said effect in the appointment letter and obtain the consent of the employee. i n such event, the employer can reduce the wages.

Increment is only a reward for performan= but cannot be claimed as a matter of right until unless the employer gives a scale of pay m$he employee with the component of increment.

No period is fixed for increment under law.

QIO. What are the rights of an employee at the time of his terminatLon? Can any of these

. rights be denied and under what circumstances?

Ans: No-employee who had put in 6 months of service shall be terminated without one month notice or pay in lieu of notice and

without sufficient cause. The terminal benefits like gratuity, retrenchment compensation, etc., cannot be denied and must be complied.

Q l l . An employee has disappeared without infomath, in W t i o n of his empbyment cunt,ract / employment agreement / em$oovees handbook provisions, withaid resignation or notice. period. Can the company make deductions from his outsfanding dues on account shoitfall of no& period, bond amount, excess leave availed, prqoetiy not rsiumed, eetc.. . 7

A m No recoveries can be made from provident fupd, gratuity and retrenchment

. compnsatian. The recoveries can be done fr& out of the other payable amounts other than the same.

Q 12. Wh4 is the d i f te rm~ ( m W I i t y . o f labour l a d or legal rights) between a regular employes proba&mr, trainee, msultanf, empbyee on cmhct, intern In law?

Ans: The:+p~li ty of labur I& are same to mg&r employee, probath, employee under contract, trafnes. However, certain ex~epbions can be availed depending on the ternis of appointment for the probationer / cawall trainee employees. Cowltant is not an*&~~loyee if he is not employed for full time exqtusively for that company.

, * l

~ 1 3 . Can~lhefotIowingclausesbelegellyWdh an *ptoymenf coma&?

I

i - : Noncompete

Nonsdki&tion , ., -

1: Bond for specified amount for not .', COrnpMng twnmcwperiod

'.' NoWce perfod of 3 months :J ' <

- - Compensation offered cat6rs for " privileges and r e s ~ l i t i e s of the

- p W o n and therefore no overt,-me Is

t ' &bww

Ans: M clauses like noncompete, non-payment of 'mrtime are not valid. The dauses of mm- - sokition, bond for m e d perid, notice Wriod &., am permissible.

Q 14. Can confidentialitfi non- disclosure and IPR clauses be included in the employment agreement / contract or should there be a separate agreement?

Ans: Yes,

Qi5. While appointing a contractor for contract labour, whatareWk@?/requi#tn#kwhkh we should insist on ffie contiactor following? What am fhe regbiers we have to maintain as Principal Employer under various acts and whatareihregktm undervahusacZs whM cqtrectwk wpposd to m~r'ntaln and show us on demand?

Ans: Principal employer required to register their . establishment as per Section 7, read with

Rule 17(1).

Contractor need to obtain Ibense as per Section 12 CAN Rule 2t(l).

Contractor should apply for renewal of . license as per Rule 29(2).

Principal ~ i n ~ l o ~ e r need to maintain the register stipulated under Rub 74 to 77.

Contractor-need to maintain the registers stipulated under Rule 78 and 79.

Rule 8l{j~mntractor need to submit half yearly retwms,

Rule 82($) Annual returns by Principal Employer before 15th F&.

Q16. Can an ett&loye& who has not paEd gratu& demand gratuity?

Ans: Yes

8 f 7 , ) T industry, often follows the concept of 'A f hll' employment. Is this valid in Indian Labour Law? Is an employment contract having 'a6 w1P ahuse valid?

Ans: No, for fhe'non-managerial categwy. yea, fur the managbrs.

Qla An empbyee has been employed on a 2 year contract. Due to ove-t, the contact hrss end&~renewrrlbufff ie emplop Is continuing to work in the company. What is the statvs of he employee now7 Does he

have any rights? Can the contract be backdated and renewed? Can he be terminated if he refuses the renewal of contract? Does a notice period hold in this case?

Ans: Contract cannot be back dated until and hless the employee agrees for the same. If h e employee continues to work beyond 6 months 1 240 days after the expiry of the contract, the company need to fdlow the legal provisions for termination of such employee.

Q 7 9. Is rhe Employees Handbook, which most IT/ ITES companies have, be treated as standing orders for the purpose of the Industrial ,

Employment (Standing Ordets) Act, 79467 Does the standing order have to be in the fomat of the Model Stawing Orders or can I? be different? What is the forgetting thh standing orders approved? Can the apPm'ved standing orders be posted on the wlkisite/intmnef of an IT company and these be deemed to be notice boards under the ad?

AM: ~ 6 0 hand book can be pitt of the contract I &ointment letter. Hand book cannot be a standing order. Standing orders need not always be as per the model standing orders. Tf!p company can incorporate several dauses, wch are not in the model standing orders. However such d a w s should be in consonance with the provisions of the law.Draft standing orders need to be submitted under Section 3 of IESO Act, as 4 section 5 the certifying officer shall certify th8 standing oFder after calling for objections ahd considering the same in terms of law.

I .

Section 1 2(a) Temporary Application.

Q20. qk common to have hn'able' and 'deferred" cpponents in the compensation pa&age in the IT/iTES industry. Is there any lirnhw i m b e d on this by iaw?

Ans: ione of the provisions of law deals with bifurcation of salary / compensation package. section 12 of the EPF and MP Act stipulates that the basic once fixed cannot be reduced. No limitation b imposed.

Q21. Is group insurance/ employee insurance mandatory? Can an IT 1 TES cornpa ny Iea ve ~nsurance out of its compensation package and leave the choice to employee as optional?

Ans: G m p Insurance is not mandatory. Employee insurance under ESI Scheme is mandatory, insurance for group gratuity scheme under the PG'AC~ is mandatory.

Q22. IT Company has senf papers for self- certifEcat5n under various acts and in spite of repeated reminders has got no reply from Labour department, Is the company covered by self- cettibtion if the paps were sent by registered post?

Ans: The GO Ms.No.114, dated 25.09.1889, prescribed formats for sell certification under Factodes Act (Annexure-I), Maternity Benefit Act (Annexure - II), APS&E Act (Annexure- III), Contract Labour (R&A) Act (Annexure-IV), PW A d (Annewre-V), MW Act (Annexure-VI), ~ r n ployrnennt Exchange CNV Act (Annexure- VII). You are required to submit the same before 3rlst December for the ensuring calendar year. Such submission can also be made by RPAD.

Q23. How is a m p a n y to disringuish between 'managerial' and 'non-managerial' empbye&? What are the di f ferem of each catego$bs per law?

Ans: Managerihl Functions

a) kiaGng control on overall affairs of the establishment, cheque power, appointment authority, dismissal authority, authority for performance appraisals of sub-ordinates, authority of reoommendationlsanetion of leave, authority to delegate or entrust work, ek. who ever is not discharging the said functions can be called as non- managerial employees.

024. Some IT/ lTES companies while recwiting freshers seeka 'surety bond' which speci'fies the amount an employee will pay to the company Sf he/& fails to work there for the prescribd p e M . Are such bonds valld In law? How can they be legally e n f M

30 septmber2OOB 11 m h 11 13

Ans: Yes, valid as per law but be drafted in a manner where a fair acceptance be given by the employer. Company require to justify the claim for damages.

Q25. Department of labour officials are often ' ~ n d i n g notices to IT companies in violation

.bf GO 27, even without there being any '' specific complaint and after mmpany has

sent self cettificEltion under GO 27. How can t h e ~ p n y ~ w i t h s u d , c ~ s & s w h e m f f i e labour o W s am functioning as inspector,

:- pmsecutor, judge, and jury?

Ans: Labour offciah can only question where there Is a complaint of violation against self

, ~ertification. The labour official can only be a inspector and prosecutor but mnnot be a

, judge and jury.

Q26. Can &ds htn Emp/oy@s Handbook be ,irsed by an employee to claim any rights? :Does ihe handlbodr have any irnpiicaffon as .a 'contract'? is a disclaimer to that effecf :required to be put info it7

~ns:: If the hand book is &e ,part of the terms of ., , ,empbyment, the employee can daim the ,A clauses in the hand hook as a right. If the

employer expects exceptlow the same need

a*. to,be mentioned in the hand book.

~ 2 ~ ~ C a n an ITATES company implement shift >: system of functioning unilatera!&? Are there ":ny h3p l compIiatms to be follow& while 7 doing this? SpecrpecrWly for ladies, are there -1 . - any special provisions fo be followed?

Ans: Yes, the employer can ask the employees to work in s h i and the shim timings can be fixed by the employer subject to the &mlitions hid down in GO Ms.No.53, dated

' 20.06.2007.

Q28. A group of employees in an IT company ' dt&de to form a Unlon. Can a trade union be j formed under the Trade U n h Act, 19267

What are the respnsbiliths of the company , . towards such a union, tf formed in an IT . . ccrmpany? ?

Yes, the employer required to negotiate with %such unbn In respect of grievances of the

employees.

1229. What are fhe health and safety reiafed requirements that musl 5.5 p, O J ~ I ? ~ b). IT;' 1 TES companies as per th: f : i i : i ~ j ~ : t ? ~ k t .

Ans: The Provisions of Factories Act are applicable only for IT Hardware industry. Chapter Ill and IV deals with heafth and safety of employees. Cleanliness, disposable of wastes, ventilation, dust and fume, lightning, drinking water, over crowding, latrines and urinals, spittoons, etc.

(330. As per the Shop and Establishments Act, 9 company holidays are required to be announced for a miendar year, of which May Dag State Formation Day, Matma Gandhi Birthday, Republic Day and Independ8m Day are mandatory. How can an IT/ 1lEs company swffch some other feshhl day as holiday instead of one of these days?

Ans: Yes, the GO Ms.No.53, dated 20.06.2007, clause' 3(E), stipulates every employee shall be given a compensate holiday in lieu of notified holiday with wages under the prwiso to subsection (2) of Section 31 of APS&E Act, if they work on notified holidays. Such compensatory of be notified by the employer. Section 9 is applicable only to Shops but not comrhercial establishments.