Amarchand & Mangaldas & Suresh A. Shroff & Co. India

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1 LABOR AND EMPLOYMENT DESK BOOK Amarchand & Mangaldas & Suresh A. Shroff & Co. India CONTACT INFORMATION Shardul S. Shroff Amarchand & Mangaldas & Suresh A. Shroff & Co Do you have a plant closing law in your jurisdiction and if so, what does it require? (For U.S. jurisdictions, please answer: Is there a Baby WARN Act in your state and if so, what does it require?) The Industrial Disputes Act, 1947 ( IDA ) lays down the law regarding closing of an undertaking in India. Closure of an undertaking includes the closure or stoppage of a part of the business or activities of an industry. The rules with respect to closure are different for (a) an industrial establishment which is a factory where a manufacturing process is being carried on with or without the aid of power, a mine or a plantation ( Industrial Establishments ); and (b) other establishments and Industrial Establishments where less than 50 workmen are employed. a) in case an employer intends to close down an Industrial Establishment where 100 or more workmen are employed the employer should apply for prior permission to the appropriate Government at least 90 days before the date on which the intended closure is to become effective stating the reasons for the closure with a copy to the workmen. In case permission is granted for closure of undertaking, compensation shall be payable to the workmen. Compensation shall be paid at the rate of 15 days average pay for every completed year of continuous service or any part thereof in excess of 6 months. b) employers intending to close other establishments or Industrial Establishments where less than 50 workmen are employed will have to pay compensation. Every workman who has been in continuous service for not less than 1 year immediately before the closure shall

2 be entitled to 1 month s notice for termination of his services or payment in lieu thereof and compensation equivalent to 15 days average pay for every completed year of continuous service or any part thereof in excess of 6 months. However, in case of unavoidable circumstances beyond the control of the employer the compensation payable to the workmen shall not exceed the average pay for 3 months. Further, an employer intending to close an undertaking shall be required to serve a notice at least 60 days before the date of the closure upon the appropriate Government providing the reasons for the closure. However no such notice is required in case of an undertaking employing less than 50 workmen. The compensation payable under the paragraphs above is applicable only to employees who fall within the category of workmen. A workman is an employee employed in an industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work. Any employee who is employed in a managerial or administrative capacity; or who is employed in a supervisory capacity and draws wages in excess of Rs. 1600/- per month will not be considered to be a workman. The employment relationship of employees who are not workmen and are therefore not governed by the Act, is strictly governed by the terms and conditions of their employment contracts. Please note that the above response is generic in nature and may vary with specific reference to the industry and State in question. 2. Are there special rules on releases/waivers in your jurisdiction? There are no special rules on releases/waivers in India. However, the employer and employees entering into an employment contract are not entitled to waive any statutory right by way of a contractual arrangement. Certain employment legislations like the Contract Labour (Regulation and Abolition) Act, 1970, the Maternity Benefit Act, 1961and the Payment of Bonus Act, 1965 have specific provisions which state that the provisions of the respective legislations shall supersede anything contained in any agreement or contract of service which is inconsistent with the provisions of the specific enactment. Further, an employment contract waiving the statutory rights of the employee may be considered to be voidable on the grounds that the consent of the employee for the said contract has been obtained by way of coercion due to the disparity in the bargaining position of the employer and the employee. Thus, the employer and the employee cannot contract out of the statutory entitlements of the employee. 3. What are the equal employment opportunity/ non-discrimination categories in your jurisdiction (For U.S. jurisdictions, please answer: Are there protected categories beyond Title VII in your state?) The Constitution of India provides for equality of opportunity for all citizens in matters relating to employment or appointment to any office under the State. It further states that there shall be no discrimination on the grounds of religion, race, caste, sex, descent, place of birth

3 or residence with respect to employment or appointment to any office under the state. However the directive principles of state policy provide for affirmative state action for minorities based on religion, caste, region, gender, etc. Please note that such policies on affirmative action are not applicable to the private sector. Reservations are provided to the minorities in State organizations/institutions. Similarly, the rights of equality enshrined in the Constitution can only be enforced against the State and instrumentalities of the State and not private sector enterprises. The Equal Remuneration Act, 1976 prohibits discrimination between workers on grounds of gender. The said Act is applicable to both private and public sector employees. It seeks to prevent discrimination on the ground of sex against women in the matters of employment and remuneration. The Act seeks to ensure that employers do not discriminate on the basis of gender, in matters of wage fixing, transfers, training and promotion. It provides for payment of equal remuneration to men and women workers, for same work or work of similar nature. The question as to whether the concerned employees are performing work of same or similar nature would depend on various factors like responsibility, skill, effort and condition of work. The Act only extends to situations where a relationship of an employer and an employee exist. There are no other legislations relating to equal employment opportunities or nondiscrimination in India that are applicable to private sector enterprises. 4. What are the minimum wage and overtime rules (and exemptions) in your jurisdiction? The Minimum Wages Act, 1948 ( MWA ) provides for fixation of minimum wages by the appropriate Government for employees employed in scheduled employment (i.e. in the industries which are specified in the schedule of the MWA). Different minimum wages may be fixed for different scheduled employments, different classes of work in the same scheduled employment, different categories of employees (adults, adolescents etc.) and different localities. The MWA also provides the components of minimum wages and the procedure for fixing and revising minimum wages. An employer shall be liable to pay wages as per the stipulated minimum rate of wages to the employees engaged in a scheduled employment. The rate of overtime wages can also be determined under the MWA. However, in case the overtime wages payable under the Factories Act, 1948 ( Factories Act ) are higher, then the provisions of the latter legislation shall be applicable. The appropriate Government is also entitled to exempt disabled employees and any scheduled employment from the purview of the MWA. The Factories Act applies to any premises where more than ten workers are employed and manufacturing process is being carried on with the aid of power and where more than twenty workers are employed and manufacturing process is being carried on without the aid of power. The Factories Act provides that any worker working for more than nine hours in any day or for more than forty-eight hours in any week shall be entitled to overtime wages at the rate of twice his ordinary rate of wages. The State Government is authorized to grant an exemption to a factory with respect to the number of working hours and any worker working in excess of such stipulated working hours shall be entitled to overtime wages.

4 It may be noted that state specific rules are formulated under the Factories Act. These rules will also have to be considered with respect to provisions regarding overtime and minimum wages depending on the state in which the particular factory is situated. Further, the Shops and Establishments Acts of the respective states may also contain specific provisions with respect to payment of overtime wages. The applicability of the said Acts will have to be determined on the basis of the nature of activity being undertaken by the organization under consideration and the state in which it is situated. 5. Is there employment-at-will, or some other rule, in your jurisdiction? What are the exceptions? The Constitution of India provides every citizen the right to practice the profession of his choice or to carry on any occupation, trade or business. As stated earlier, Constitutional guarantees are generally limited to State entities. However, the said principle has been incorporated into the Indian Contract Act, Section 27 of the said Act provides that any contract that is in restraint of any lawful profession/trade or business shall be void. The exception to this rule is when a person sells the goodwill of a business and agrees to refrain from carrying on a similar business, within the specified local limits as long as the buyer carries on a like business within the said local limits. However, such limits should be reasonable with regard to the nature of the business. An agreement in restraint of trade has been interpreted by the courts as one in which a party agrees with any other party to restrict his liberty in the future to carry on trade with other persons not parties to the contract in such manner as he chooses. Negative covenants operative during the period of the contract of employment when the employee is bound to serve his employer exclusively are generally not regarded as restraint of trade. It may however be noted that any covenant restraining an employee from joining or engaging in any other business including that of a competitor after termination of the period of employment would be considered to be restraint of trade unless it protects a legitimate interest of the employer, such as trade secrets and business connections. All other terms of employment are subject to contract between the parties and the employees are free to carry on any profession of their choice on terms which are mutually agreeable to the contracting parties. 6. What are the legal obligations upon terminating an employee in your jurisdiction? As stated in the earlier response, the employees of an organization can broadly be divided into the category of workmen and non-workmen.the provisions of the Industrial Disputes Act, 1947 ( IDA ) will be applicable in case of termination of services of workmen. Services of workmen can be terminated by way of retrenchment which means termination of services of a workman for any reason whatsoever, but does not include voluntary retirement of the workmen, retirement of the workman as per the terms of the employment contract,

5 termination as a result of non-renewal of a fixed term employment contract or termination of such employment contract under a stipulation in that behalf and termination on ground of continued ill-health. The rules with respect to termination of services of workmen are different for (a) industrial establishment which is a factory where a manufacturing process is being carried on with or without the aid of power, a mine or a plantation ( Industrial Establishments ); and (b) other establishments and Industrial Establishments where less than 50 workmen are employed. a) In case of workmen employed in Industrial Establishments where more than 100 workmen are employed the workmen who have been in continuous service for more than 1 year cannot be retrenched without prior notice of 3 months or wages in lieu thereof. The prior permission of the appropriate Government should also be obtained. A copy of the application should simultaneously be served on the workmen also. All the retrenched workmen shall be entitled to retrenchment compensation equivalent to 15 days average pay for every completed year of continuous service or any part thereof in excess of 6 months. b) In case of workmen employed in other establishments and Industrial Establishments employing less than 50 workmen the retrenched workmen who have been in continuous service for more than 1 year shall be entitled to 1 month s notice or payment in lieu thereof. The workmen will also be entitled to retrenchment compensation equivalent to 15 days average pay for every completed year of continuous service or any part thereof in excess of 6 months. Further, notice of retrenchment should also be provided to the appropriate government. Ordinarily the workmen who were employed last should be the first to be retrenched. Apart from the legal requirements prescribed under the IDA, the relevant provisions of the Shops and Establishments Acts (which are state specific legislations) in respect of termination will also be applicable in case the unit in question qualifies to be a shop or commercial establishment under the respective legislations. For the employees who do not come within the category of workmen the rights and entitlements of the employees at the time of termination of services will be governed by their respective employment contracts and also the provisions of the relevant Shops and Establishments Acts. 7. Are there any family and/or medical leave laws in your jurisdiction, and if so, what do they require? (For U.S. jurisdictions, please answer: Are there family and/or medical leave laws in your state beyond FMLA and if so, what do they require?) Employees working in shops and establishments are entitled to medical leave under the Shops and Establishments Acts which are state specific legislations. There are no equivalent provisions on medical leave for employees working in industries as industrial workers are entitled to annual leave. No specific distinction is made for medical leave for industrial workers. There is no exclusive legislation on family laws in India. However, female employees in shops and establishments in which 10 or more persons are employed, factories, mines, plants,

6 establishments where persons are employed for the exhibition of equestrian, acrobatic and other performances are entitled to maternity leave and benefits under the Maternity Benefit Act, 1961 ( MBA ). Such employees should have worked for 80 days in the 12 months preceding the date of their expected delivery. The benefit to be provided to the employees by the employer is leave with full wages for a total of 12 weeks before, at the time of, and after the delivery of which not more than 6 weeks shall precede the expected date of delivery. However, those female employees who are eligible for maternity benefits under the Employees State Insurance Act, 1948 ( ESIA ) will not be governed by the MBA. The ESIA is applicable to employees whose wages do not exceed Rs per month and who are employed in all establishments as may be notified by the appropriate government and factories other than seasonal factories. Further, family members of employees are entitled to various benefits under several legislations. While the definition of family varies across legislations; typically family includes spouse, dependent parents, minor legitimate or adopted child dependent upon the employee, infirm child wholly dependent upon the earnings of the employee and unmarried daughters. Under the ESIA; family members of the insured employees are entitled to claim dependant benefits which arise only upon death of an insured employee from an employment injury, medical benefits and funeral expenses. 8. Please list any miscellaneous, interesting or oddball laws in your jurisdiction, and state under what circumstances they pertain. a) Contract Labour (Regulation and Abolition) Act, 1970 ( CLRA ) The CLRA has been enacted to regulate the employment of contract labour in certain establishments and to provide for its abolition in certain circumstances. The CLRA inter alia applies to every establishment in which 20 or more workmen are employed or were employed on any day of the preceding 12 months as contract labour. b) Factories Act, 1948 ( FA ) The FA applies to premises in which manufacturing process as defined under the FA is carried out with employment of 10 or more workers with use of power in the manufacturing process or with 20 or more workers employed without use of power in the manufacturing process. It inter alia provides for safety, health and welfare measures to be adopted by employers. c) Industrial Disputes Act, 1947 ( IDA ) The IDA applies only to workmen and regulates many aspects of employer- workmen relations. It inter alia provides for the conditions under which workmen may be laid-off or retrenched, transferred in case of transfer of an undertaking and circumstances under which an establishment may be closed down and compensation to be paid in each of these events. d) Industrial Employment (Standing Orders) Act, 1946 ( IEA ) The IEA applies to every industrial establishment (including a factory) employing 100 or more workmen on any day in the preceding 12 months. The IEA requires the employer to have Standing Orders which define with sufficient precision the conditions of employment and which should be made known to the workmen employed. e) Payment of Wages Act, 1936 ( PWA ) The PWA deals with the modalities of payment of wages to all employees (whether workmen or not) employed in any factory and certain

7 other specified establishments, and having an average wage of less than Rs per month. It prescribes the period within which wages must be paid and also specifies the items that may be lawfully deducted from wages. f) Trade Unions Act, 1926 ( TUA ) The TUA provides for the registration of trade unions and defines the rights and liabilities of registered trade unions. A trade union can be formed by any 7 or more members (being workmen/employees) but will not be registered unless at least 10% (subject to a minimum of 7 workmen) or 100 workmen, whichever is less, employed in the establishment or industry with which the trade union is connected are members of such trade union as on the date of filing of the registration application. g) Workmen s Compensation Act, 1923 ( WCA ) - The WCA provides for compensation payable to workmen who suffer accidents arising out of and in the course of employment. This is applicable to workmen employed. 9. Does your jurisdiction have a law requiring employers to give employees access to, or a copy of, their personnel records? There is no specific legislation in India which requires employers to give access to or a copy of their personnel records. This is a purely contractual arrangement between the employer and the employees. 10. Does your jurisdiction outlaw or restrict drug tests, alcohol tests, genetic tests or any other kind of testing? There is no specific legislation in India which outlaws drug tests, alcohol tests or genetic tests. Typically, employees may be expected to undertake the above mentioned tests, subject to there being an express stipulation in this regard in their employment contracts. Where however, employees are volunteers for clinical trials or tests involving human volunteers; the same will have to be conducted in accordance with Schedule Y of the Drugs and Cosmetics Act, 1940 and Good Clinical Practice Guidelines issued by the Directorate General Health Services, India. 11. Does your jurisdiction have any special rules on the payment of sales commissions? There are no special rules in India on the payment of sales commission. 12. What are the basic rules on enforcing non-competes and related agreements in your jurisdiction? Section 27 of the Indian Contract Act, 1872 provides for the doctrine of restraint of trade. As per Section 27 of the said Act, an agreement in restraint of trade is void subject to certain specified exceptions. The provisions of Section 27 of the said Act are therefore attracted to non compete provisions of an agreement. However, Section 27 is only applicable to non compete provisions that operate after the termination of employment. Therefore, any (negative) covenant restraining an employee from joining or engaging in any other business including that of a competitor after termination of employment will be hit by Section 27 and

8 will be void to that extent. Thus, an employee, subsequent to his termination of employment, cannot be prevented by his previous employer from joining a competitive organization or starting a competitive business. However, any non compete provision by which an employee binds himself during the term of the agreement, to not compete with his employer directly or indirectly, is not in restraint of trade. In fact, during the period of employment, the employer has the exclusive right to the service of the employee. A restraint operating during the term of the contract fulfills the purpose of the contract. Further, Indian law recognises the validity of restraint of trade if it protects a legitimate interest of the employer, such as trade secrets and business connections. Such a restrictive covenant for the protection of proprietary interest owned by the employer is valid and enforceable both during the course of employment and post employment. The employer however needs to prove definitely that the employee has acquired substantial knowledge of some secret processes or confidential information in the course of business. Therefore courts have recognized that a company is entitled to protect its goodwill, confidential information and other legitimate interests both during and subsequent to the tenure of the employment agreements. Finally, non compete restrictions will be enforced by a court only upon examination of the reasonableness of such restrictions with respect to its extent, the list of potential competitors with whom the employee is restricted from working with and other surrounding facts and circumstances of the case.

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