1. General employment and labour market and litigation trends
Following the COVID-19 pandemic, akin to global trends, India also experienced notable shifts in its employment landscape. The widespread job disruption and diversified and intermittent ways of work delivery have had a profound impact and led to discernible changes in employment dynamics.
One of the noteworthy trends characterising India's post-COVID employment scenario includes increased adoption of remote work in sectors such as IT/Information Technology Enabled Services, business process outsourcing and knowledge-based industries. Recently, many employers have exhibited a preference for a hybrid working model over a fully remote setup. Additionally, moonlighting or holding dual employment also gained momentum in post-pandemic India, with divided reactions from employers – some endorsing the practice while others reiterating contractual restrictions to deter it.
The recent 'India Employment Report 2024' published by the International Labour Organization indicates a paradoxical improvement in employment trends; long-term deterioration in unemployment rates during the pre-pandemic period and improvement thereafter. According to the report, employment in India is predominantly self-employment and casual employment with nearly 82 per cent of the workforce engaged in the informal sector (employed in enterprises that are not classifiable under the public or private sector). The report emphasises the need for larger and more targeted strategic and stronger partnerships within the private sector to address underemployment and unemployment. Further, the rapid uptake of digital technologies is leading to a perceptible change in job roles, highlighting the importance of upskilling and reskilling to align with emerging technologies. The Indian government has launched several initiatives to boost employment, including under the flagship Skill India Mission through various schemes viz. Pradhan Mantri Kaushal Vikas Yojana, the National Apprenticeship Promotion Scheme and through Industrial Training Institutes.
One of the purported objectives of the Government of India has been to upskill and train recent graduates with skills that are conducive to the present demands of the Indian economy and employers. For this purpose, the apprenticeship law requires employers to formulate structured apprenticeship programmes to ensure that first-job graduates have access to and can benefit from such programmes. In order to achieve this goal, the Ministry of Skill Development and Entrepreneurship has issued approximately 180,000 notices to establishments, directing compliance with apprenticeship law. To encourage apprenticeship engagement, the Indian Government has further specified that Corporate Social Responsibility funds available with eligible employers can be used for the purpose of engaging apprentices under the National Apprenticeship Training Scheme.
In other trends, litigation concerning wage-related issues like unpaid overtime and wages have seen an upswing in recent times. Moreover, for a certain category of employees, there is a growing adoption of alternative dispute resolution methods like arbitration for resolving employment conflicts, diverging from the traditional court adjudication approach.
Separately, there have been numerous instances of senior management exits making headlines where employers have alleged breach of non-compete and confidentiality agreements. Given the Indian legal landscape in relation to non-enforceability of post-exit restrictive covenants, it will be interesting to track the progress of such litigations.
2. Redundancies/reductions in force, business transfers and reorganisations
As a general background, India follows a quasi-federal form of governance, and the applicable employment laws are a combination of Central and State laws. Central laws provide for provisions pertaining to minimum wages, provident fund, gratuity, retrenchment and contract labour. States modify or supplement these laws and enact specific regulations. For instance, each state has its own Shops and Establishments Acts ("S&E Laws") governing work hours, wages, leave, holidays and employment terms.
Further, Indian employment laws broadly categorise employees into two categories: 'workmen'; and 'non-workmen', with workmen enjoying heightened protection. 'Workmen' are essentially employees performing non-supervisory work including any manual, unskilled, skilled, technical, operational, or clerical work for hire or reward. People who are employed in a supervisory, managerial, or administrative capacity and earning more than INR 10,000 are specifically excluded from the definition of 'workmen'. From various judicial precedents, it is now well settled that determination of whether an employee qualifies as a workman or not has to be done on a case-by-case basis. The principal nature of work performed by such employee is relevant, irrespective of his designation or emoluments.
Redundances/reductions in force
The rights of employees during termination of employment are governed by the conditions and procedures prescribed under the Industrial Disputes Act, 1947 ("ID Act") (at Central and State levels), applicable standing orders, State S&E Laws, and collective bargaining agreements.
Indian courts acknowledge the validity of an employer dismissing employees due to business-related redundancy, provided the prescribed retrenchment provisions are complied with. The ID Act outlines specific procedures for the dismissal of workers due to permanent closure or transfer of establishment.
At the time of retrenchment, in addition to statutory entitlements payable to all employees (such as notice pay, gratuity, accrued leave, etc.), workmen employees who have completed continuous service of at least one year with the employer must be provided with:
- one months'/three months' notice in writing, indicating the reasons for dismissal (or pay salary in lieu thereof); and
- retrenchment compensation at the rate of 15 days of average pay for every completed year of continuous service or any part thereof more than six months.
Notwithstanding compliance with above procedure, it may be noted that Indian courts adopt a labour welfare approach whereby if such dismissals are contested, employers are typically required to provide sufficient evidence to justify the dismissal or closure.
Business transfers and reorganisations
India follows an established principle of law that employees cannot be treated as chattel/property that can be transferred and, therefore, employees need to consent to transfer of employment pursuant to a business sale.
Under the ID Act, in the event of transfer of employment of workmen on account of transfer of ownership or management of an undertaking, any workman who has completed at least one year of continuous service with the transferor employer is entitled to prescribed notice and retrenchment compensation (a kind of severance payment) as if such workman is terminated from employment, unless the following conditions are satisfied:
- the service of the workman has not been interrupted by the transfer;
- his conditions of service are no less favourable than those applicable prior to the transfer (this will include terms of employment inclusive of any collective bargaining agreements executed with such employees); and
- the transferee employer recognises continuity of service (tenure with the transferor employer) while calculating retrenchment compensation at the time of termination of such employee.
Most business transfers will entail a contractual commitment from the buyer to offer continuity of service to incoming employees, and transfer letters are consented to by the employees in the interest of implementing an efficient transfer.
While the benefits of Section 25FF are not available to non-workmen employees, any collective bargaining agreements agreed with such employees may need to be accounted for by the new employers during the business sale.
If a business transfer results in change in terms and conditions of employment, the ID Act requires an advance notice of 21 days (longer in some States) to be issued to workmen prior to implementation of such change. A copy of the notice is required to be sent to the applicable Labour Commissioner.
It may be noted that attempts to modify the terms of employment during an ongoing transfer to the disadvantage of transferred employees, such that the transferee employer is responsible for a reduced quantum of employee benefits, may not be compliant with the applicable law.
3. Business protections and restrictive covenants
The most common forms of business protections are in the nature of restrictive covenants in employment contracts such as exclusivity, non-compete, non-solicitation and confidentiality. When enforced during the existence of employment, these covenants are usually recognised. The reasonableness of the restrictions in terms of duration, geographical scope and the nature of the business is crucial for enforceability. Courts may not accept overly broad or unreasonable restrictions. Enforcement of restrictive covenants varies based on individual circumstances and judicial interpretation, and employers must carefully draft these clauses to ensure compliance with Indian law.
On the other hand, covenants that restrain an employee from exercising a lawful profession, trade, or business 'post-termination' of employment (such as a non-compete operating post-termination), even if reasonable in nature, are void by virtue of restrictions contained under the Indian Contract Act, 1872, save for limited cases pertaining to sale of goodwill.
Confidentiality has generally been enforced by the Courts even in a post-employment context. Courts in India have also upheld non-solicitation obligations to be a reasonable restriction in limited circumstances.
4. Discrimination and retaliation protection
The Constitution of India prohibits discrimination on the grounds of religion, race, caste, sex, etc., including in the matters of public employment.
Further, there are employment laws that prohibit and address various discrimination-related issues in the public and private sector of employment. For instance, the Equal Remuneration Act, 1976, mandates equal remuneration and service conditions for men and women for the same/similar work and prohibits any form of discrimination at the time of their recruitment. Other specific laws prohibit discrimination against female employees, such as prevention of sexual harassment at the workplace, women availing maternity benefits, persons with disabilities, transgender persons, and persons with HIV/AIDS, including in matters of employment.
The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 ("POSH Act"), amongst others, requires employers to mandatorily: (i) constitute an internal committee at each branch to hear and redress grievances pertaining to sexual harassment if they have 10 or more employees in the organisation/each branch; (ii) formulate and disseminate an internal policy containing the declaration for prohibition, prevention and redressal of sexual harassment; (iii) organise periodic workshops and awareness programmes; and (iv) file annual returns, etc.
While the Indian employment laws do not specifically prescribe any anti-retaliation requirements, certain specific laws do address this issue. For instance, under the POSH Act, during the pendency of an inquiry, an aggrieved woman may request for a transfer to another workplace, restrain the counterparty from supervising/reporting on the work performance of the aggrieved, etc.
Further, the Indian Companies Act, 2013, and securities law makes it mandatory for specified classes of companies to establish vigil or whistleblower mechanisms to receive and address complaints or grievances raised by employees or directors and provides safeguards against the victimisation of persons who utilise such measures. These complaints could relate to various issues that may be classified under corporate governance, and general operations or policies of a company.
Many global and India-based employers as a matter of good practice actively prohibit retaliation in workplace through enforcement of internal code of conduct and disciplinary process.
5. Protection against dismissal
As mentioned above, the conditions and procedures prescribed under the ID Act (at Central and State levels), applicable standing orders, State S&E Laws, and collective bargaining agreements apply during termination of employment.
Under Indian law, employers can terminate employment on account of misconduct or for reasonable cause. While reasonable cause is largely not defined under these laws, it has been interpreted by judicial precedents to include redundancies, underperformance, violation of policies, loss of confidence, no longer fit to perform, etc., i.e., primarily where the cause can be demonstrated to be bona fide or is otherwise beyond the reasonable control of the employer, such as in cases of financial constraints. In case of misconduct, an employee must be granted an opportunity to be heard during a disciplinary inquiry.
Specifically for workmen, under the ID Act, termination of their employment is permitted on account of disciplinary or any other reason, provided the notice and compensation conditions are fulfilled by the employer.
In cases of dismissal of a workman for misconduct, it is essential to establish such misconduct through a disciplinary inquiry in accordance with the principles of natural justice. A non-workman employee must be granted an opportunity to be heard prior to being dismissed on grounds of misconduct.
Prior consent from the applicable labour authority is mandatory in cases of dismissal of workmen in a manufacturing unit, plantation or mine where more than 100 workmen (over 300 in some States) were employed in the preceding year. These approval processes are time consuming and can be litigious.
For non-workmen employees, applicable compensation payments at the time of termination of employment may be set out in their contracts or agreed policies.
Depending on the facts, an employee can bring claims of unlawful or wrongful termination that may include allegations that proper procedure was not followed at the time of dismissal, dismissal was unlawful or unfair, statutory payments were not paid, unfair labour practices were being undertaken and the like. Remedies/relief awarded to employees on a successful claim include reinstatement with or without back wages, payment of other employment benefits due to such employee, retrenchment compensation, compensatory damages, etc.
Independent contractors do not currently enjoy statutory protection against wrongful dismissal and their severance is governed by their contracts. However, the maternity benefits law extends protection to fixed-term employees and casual workers, and the Indian Supreme Court has recently held that discharge of fixed term employees who are on maternity leave is violative of the protection provided to them against discharge or dismissal from employment during such period. Contractors are likely to be entitled to more beneficial conditions under the proposed labour law codes pending notification by the Government of India.
6. Statutory employment protection rights
Conditions of service for leave and working hours
Generally, permissible working hours range from 8 to 12 hours including mandatory rest time. Most S&E Laws also prescribe overtime limits and payment of twice the ordinary rate of wages for overtime worked. The S&E Laws also prescribe mandatory sick leave, casual leave and earned/privilege leave, in addition to national/local holidays totalling approximately about 25 to 30 days of leave a year.
Under the Indian Maternity Benefit Act, 1961 ("MB Act"), it is mandatory to provide 20 weeks of paid maternity leave to female employees (who have worked for a minimum period of 80 days), out of which not more than eight weeks should precede the expected date of delivery. However, in case a female employee has two or more surviving children, maternity leave is available for 12 weeks, out of which not more than six weeks should precede the expected date of delivery.
Women who legally adopt a child below the age of three months or a commissioning mother are eligible for maternity leave of 12 weeks from the date of handover of the child. Separately, six weeks of maternity leave are allowed following a miscarriage or medical termination of pregnancy, two weeks following tubectomy operations, and an additional period of leave not exceeding one month for reasons of any illness, delivery, miscarriage, etc.
While India does not have statutorily recognised paternity leave yet, many organisations as a matter of internal policy allow employees who are non-carrying partners to avail such leave.
Other employee benefits
Indian law provides for mandatory provident fund contributions to be made by employers and employees, in respect of employees earning below a prescribed wage ceiling. Similarly, contribution is also required to be made by employers towards certain medical/health insurance benefits for employees earning below a prescribed wage ceiling.
There are a host of rights available to an eligible employee under the MB Act during her maternity leave, which include: (i) payment at the rate of the average daily wage for the period of her actual absence; (ii) the right to not be asked to do arduous work closer to her expected date of delivery; and (iii) the right to not be dismissed on account of absence from work while availing maternity benefit. Further, the MB Act mandates employers employing 50 or more employees (this threshold may differ across States) in an establishment to provide crèche facilities where women are allowed to visit their child four times in a day upon her return to work. The MB Act also envisages a work from home option for women depending on the nature of work and on certain mutually agreed terms and conditions between the employer and the employee.
Employers are also required to comply with prescribed accessibility requirements to enable persons with disabilities to work with dignity and be provided equality of opportunity.
Any employee who has completed five years of continuous service with an employer is required to be paid a sum in the nature of gratuity, as prescribed, at the time of their severance or earlier in the case of death.
Rights during termination
Except in case of termination due to proven misconduct, all employees must be provided with a prior notice of termination in the manner prescribed, or pay in lieu of such notice. Under the ID Act, the notice period to be provided to workmen varies from one to three months, and they are also entitled to prescribed retrenchment compensation during termination from employment. Specifically for workmen, under the ID Act, termination of their employment is permitted on account of a disciplinary or any other reason, provided the notice and compensation conditions are fulfilled by the employer.
For non-workmen employees, provision of notice will be determined by the respective State S&E Laws, unless their employment contracts prescribe an extended notice. Such employees may also be extended pay in lieu of said notice.
Lastly, as discussed above, women employees on maternity leave enjoy protection against dismissal or discharge during such period.
7. Worker consultation, trade unions and industrial action
In India, while employees have the fundamental right to unionise, the process of forming and registering a trade union is governed by the Trade Unions Act, 1926 ("TU Act"), which is a Central law.
Notably, registration of a trade union under the TU Act does not automatically make it a recognised trade union as well. Certain State laws provide for and regulate recognition of trade unions and the rules differ with State requirements. For instance, the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971, allows a registered trade union to apply to the Industrial Court for recognition of its union with respect to a particular establishment if at least 30% of the total numbers of employees in such establishment are members of the union. In States that do not have a specific law on trade union recognition, it is generally a matter of agreement between the employer and trade union.
Trade unions in India are conferred the same status as a body corporate, i.e., they enjoy perpetual succession, have a common seal, and may sue and be sued. Other rights include representing workmen in proceedings under the Industrial Disputes Act, 1947 ("ID Act"), meeting and discussing with employers regarding grievances on a member's dismissal or suspension, appearing on behalf of its members in any domestic or departmental inquiry held by the employer, and immunity from certain criminal, civil, and other legal actions in cases of acts done in furtherance of a trade dispute. In addition to this, recognised trade unions are empowered to collectively bargain with the employer on behalf of its members.
While there are no separate rules governing trade unions taking industrial action, the ID Act regulates workmen's right to strike, and the same will extend to trade unions that have workmen as their members. These requirements include, amongst others, prohibition to go on strike during pendency of legal proceedings and providing prior notice to employers before going on strike in specific circumstances.
Separately, India has the concept of 'works committees' under the ID Act. Employers are not obliged to set up works committees unless they have 100 or more workmen and if required by a specific order of the Government.
The duties of the works committee include promotion of measures for securing and preserving good relations between the employer and the workers. The works committee constitutes representatives of both the employer and workers, who are chosen in consultation with the trade union (if any). Works committees do not have co-determination rights. Having said that, employees are not statutorily entitled to representation at board level of a company under any employment law.
8. Employee privacy
Employers must comply with the extant data protection law viz. Section 43A of the Information Technology Act, 2000 ("IT Act"), and rules framed thereunder, namely the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 ("SPDI Rules"), when processing employee data. Particularly, employers must obtain written consent of the employees to process their sensitive personal data, including passwords, financial information, medical records and biometric information; such consent is not expressly mandated for processing non-sensitive personal data. There is no prohibition in transferring personal data of employees to other countries, provided the transferee follows the same level of data protection standards as of the transferor and such transfer being necessary or otherwise supported by employee consent.
As of August 11, 2023, India has enacted the Digital Personal Data Protection Act, 2023 ("DPDP Act") – which is currently pending enforcement. Once the DPDP Act is brought into force, it will replace the above data protection regime. The DPDP Act allows processing of personal data based on (i) consent (which must be free, specific, informed, unconditional and unambiguous with a clear affirmative action), or (ii) without consent, based on a 'legitimate use', which includes processing data for the 'purposes of employment', etc. The DPDP Act does not generally restrict transfer of personal data outside India, except to countries or territories to be identified by the Government vide a notification.
Under the current SPDI Rules, employees are entitled to review their data and request to update their incorrect or incomplete data. Under the DPDP Act, to the extent processing of employee personal data is not covered under 'legitimate use', the employee can exercise rights to (i) obtain a summary of data processed by the employer and the processing activities, and (ii) correct, complete and update their data.
There is no bar on employers processing personal data for carrying out pre-employment checks, provided the processing is done only to the extent it is necessary for the stated purpose and subject to compliance with applicable data protection laws, namely the IT Act.
Under the DPDP Act, in the absence of conclusive guidance on whether pre-employment checks would be considered within the 'purposes of employment', employers are advised to obtain a clear affirmative consent from prospective employees for undertaking pre-employment checks.
There is no express bar on an employer monitoring its own property, such as laptops and electronic devices provided to employees in connection with their employment, subject to compliance with applicable data protection laws.
Some employers in India do implement organisational policies around employees' use of social media at or outside of the workplace to the extent it relates to the employer's business. It is advisable to build a justifiability defence for such policies, to ensure such monitoring is related to safeguarding the employer from loss or liability.
9. Other recent developments in the field of employment and labour law
With the objective of improving 'ease of doing business' in India, the Central Government has formulated four labour codes, namely, the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health, and Working Conditions Code, 2020. Codification of the labour laws will, inter alia, reduce the multiplicity of defined terms in various legislations, authorities overseeing the compliances, and the usage of technology in the enforcement of labour laws, thereby bringing transparency and accountability in enforcement, and catalysing the creation of employment opportunities in the country by harmonising the needs of workers and industry.
According to the annual report of the Ministry of Labour and Employment for the financial year 2022–2023, out of 28 states and eight union territories, the following are the number of States and union territories that have pre-published the draft rules under each code:
- The Code on Wages, 2019 – 31 States & Union Territories.
- The Industrial Relations Code, 2020 – 28 States & Union Territories.
- The Code on Social Security, 2020 – 28 States & Union Territories.
- The Occupational Safety, Health, and Working Conditions Code, 2020 – 26 States & Union Territories.
Recognising the rise in gig economy, the Government of Rajasthan has passed the Rajasthan Platform-Based Gig Workers (Registration and Welfare) Act, 2023 and the Government of Karnataka is slated to propose the Gig Workers (Conditions of Service and Welfare) Bill, 2024 ("Gig Workers Laws"). When the Gig Workers Laws are implemented, it will be the first set of State-level laws in India that will regulate the engagement of gig workers in establishments. The proposed Codes discussed above also envisage certain statutory benefits and protections for gig workers.
Additionally, at the digital forefront, India is ready to bolster its data protection regime with the Digital Personal Data Protection Act, 2023 ("DPDP Act"). While the effective date of the DPDP Act is yet to be notified, the DPDP Act requires employers to comply with the obligations of a 'data fiduciary' with respect to their employees' personal data. For compliance preparedness, employees should map the purposes for collecting employee's personal data and identify gaps in their internal practices and policies to ensure compliance with the DPDP Act.
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