ICLG - Employment & Labour Laws and Regulations - India Chapter covers common issues in employment and labour laws and regulations – terms and conditions of employment, employee representation and industrial relations, discrimination, maternity and family leave rights and business sales.
1.1 What are the main sources of employment law?
India follows a federal form of governance and the applicable employment laws are a combination of Central and State laws.
The Central laws regulate, amongst others, payment of minimum wages and employee benefits, such as provident fund, gratuity and bonus, retrenchment and layoffs, hiring of contract labour, etc. The States, on the other hand, either expand upon or amend provisions of Central laws or enact other specific laws or rules for the protection of employees. For instance, each State and Union Territory has a separate Shops and Establishments Act (“S&E Laws”) that typically regulate hours of work, payment of wages, leave, holiday, terms of service and the like.
In addition to the laws, internal policies of organisations may regulate the employee conduct and conditions of work. However, these policies cannot contravene the applicable laws.
The Indian Government has proposed codification of various employment laws under four Codes – the Code on Wages, 2019, the Code on Social Security, 2019, the Industrial Relations Code, 2019 and the Occupational Safety, Health and Working Conditions Code, 2020. While these Codes have been enacted, the Government is yet to enforce most of their provisions.
1.2 What types of worker are protected by employment law? How are different types of worker distinguished?
Various employment laws in India broadly classify employees in India into the following two categories:
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.
1.3 Do contracts of employment have to be in writing? If not, do employees have to be provided with specific information in writing?
Generally, there is no express requirement for contracts of employment to be in writing. However, it is a standard industry practice to sign a written employment contract at all levels. Having said that, few States’ S&E Laws, such as in Karnataka, Kerala, Telangana and Delhi, mandate issuance of appointment letters to the employee.
1.4 Are any terms implied into contracts of employment?
Courts in India have held that principles of fidelity and good faith, including confidentiality, are ordinarily implied in contracts of employment. Terms can also be implied by practice or usage if an employer consistently follows a particular practice over time.
Please also see our response under question 1.5 for minimum employment terms and conditions that an employer has to observe under applicable laws.
1.5 Are any minimum employment terms and conditions set down by law that employers have to observe?
Yes, various Central and State laws, depending upon the nature of establishment, category of employees (workmen v. non-workmen), the number of employees working in such establishment, etc., provide for certain minimum employment terms to be observed by employers. Please see our response under question 1.1 above for examples of minimum terms and conditions of employment laid down under Central and State laws.
1.6 To what extent are terms and conditions of employment agreed through collective bargaining? Does bargaining usually take place at company or industry level?
Collective bargaining is predominant in core industries and sectors where unionisation is more prevalent, such as mining, manufacturing, construction and plantation. Basic wage rates, other benefits and conditions of employment are usually decided through collective bargaining. Bargaining often takes place at company/establishment level; however, depending on the sector, bargaining can take place at an industry level as well, such as in textile, copper and banking industries.
1.7 Can employers require employees to split their working time between home and the workplace on a hybrid basis and if so, do they need to change employees’ terms and conditions of employment?
Yes, there are no express restrictions in this regard. Usually, employment contracts in India identify the employee’s location of work and, in the event a new working arrangement is introduced, such employment contracts can be amended to capture these changes.
1.8 Do employees have a right to work remotely, either from home or elsewhere?
The extant employment laws do not expressly contemplate a work-from-home option for employees, unless they are temporally allowed by specific Government orders due to reasonable factors (such as the recent COVID-19 lockdown orders). However, under the Industrial Relations Code, 2019, the Government has proposed (still under draft stage and not yet enforced) to allow the employer and the workers to agree on work-from-home terms inter se. Please also see our response to question 4.3 for cases of maternity.
2.1 What are the rules relating to trade union recognition?
In India, while employees have the fundamental right to unionise, the process of forming and registering trade union is governed by the Trade Unions Act, 1926 (“TU Act”), which is a Central law.
But registration of a trade union under the TU Act does not automatically make it a recognised one 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.
2.2 What rights do trade unions have?
Trade unions in India are conferred the same status as 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.
2.3 Are there any rules governing a trade union’s right to take industrial action?
While there are no separate rules governing trade unions taking industrial action, the ID Act regulates workmen rights to go on 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.
2.4 Are employers required to set up works councils? If so, what are the main rights and responsibilities of such bodies? How are works council representatives chosen/appointed?
While India does not have works councils, the concept of ‘works committees’ does exist under the ID Act. Employers are not obliged to set up works committees unless they have 100 or more workmen and if so 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 employer and workers. The works committee constitutes representatives of both the employer and workers, who are chosen in consultation with the trade union (if any).
2.5 In what circumstances will a works council have co-determination rights, so that an employer is unable to proceed until it has obtained works council agreement to proposals?
Works committees do not have co-determination rights.
2.6 How do the rights of trade unions and works councils interact?
While the applicable statutes do not specifically prescribe any interaction between works committees and trade unions, the rights of trade unions and works committees have potential overlaps, such as when mediating disputes between workmen and employers. Compared to the works committee, trade unions have greater rights under the law, which have been discussed in our response to question 2.2.
2.7 Are employees entitled to representation at board level?
Employees are not statutorily entitled to representation at board level of a company under any employment law.
3.1 Are employees protected against discrimination? If so, on what grounds is discrimination prohibited?
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. 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 sexual harassment at the workplace, women availing maternity benefits, persons with disabilities, transgender persons and persons with HIV/AIDS, including in matters of employment.
3.2 What types of discrimination are unlawful and in what circumstances?
Please see our response under question 3.1.
3.3 Are there any special rules relating to sexual harassment (such as mandatory training requirements)?
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.
3.4 Are there any defences to a discrimination claim?
The employment laws do not expressly prescribe available defences and the same will depend upon the nature of discrimination claim.
3.5 How do employees enforce their discrimination rights? Can employers settle claims before or after they are initiated?
There is no singular authority in India responsible for the enforcement of discrimination rights, and those holding these responsibilities vary between States and specific employment statutes. For instance, under the POSH Act, the aggrieved employee may approach the internal committee constituted thereunder and, under the Maternity Benefit Act, 1961 (“MB Act”), the aggrieved employee may approach the jurisdictional court.
Employers can settle claims by employees before or after they are initiated, subject to prescribed conditions. Certain legislation, such as the POSH Act, also provide for alternate dispute resolution mechanisms, such as conciliation prior to initiation of inquiry.
3.6 What remedies are available to employees in successful discrimination claims?
Depending on the nature of the claim, the remedies available to employees vary, such as compensation and reinstatement (with or without back pay, in case of arbitrary/unlawful dismissals). For instance, under the POSH Act, the successful claimant may be provided compensation. Under certain statutes, sanctions and penalties may also be imposed upon the employer for contravention of the provisions of the statute.
3.7 Do “atypical” workers (such as those working part-time, on a fixed-term contract or as a temporary agency worker) have any additional protection?
No, ‘atypical’ workers do not have any additional protection.
3.8 Are there any specific rules or requirements in relation to whistleblowing/employees who raise concerns about corporate malpractice?
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.
3.9 Are employers required to publish information about their gender, ethnicity or disability pay gap, or salary or other diversity information?
No, there are no such express requirements.
4.1 How long does maternity leave last?
It is mandatory to provide 26 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.
4.2 What rights, including rights to pay and benefits, does a woman have during maternity leave?
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.
4.3 What rights does a woman have upon her return to work from maternity leave?
The MB Act mandates employers employing 50 or more employees (this threshold may differ in few 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.
4.4 Do fathers have the right to take paternity leave?
India’s employment laws do not provide for paternity leave. However, increasingly, most companies in practice have started to provide for paternity leave in their leave policies.
4.5 Are there any other parental leave rights that employers have to observe?
Few States (under their S&E Laws) allow for employees to take casual leave that is usually taken for personal matters, including to attend their child’s matters.
4.6 Are employees entitled to work flexibly if they have responsibility for caring for dependants?
There is no such work flexibility formally provided under law.
5.1 On a business sale (either a share sale or asset transfer), do employees automatically transfer to the buyer?
India follows an established principle of law, that employees cannot be treated as chattel that can be transferred from one person to another like goods or property. Therefore, employees need to consent to the transfer.
Under Section 25FF of 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 notice and retrenchment compensation as if such workman is terminated from employment, unless the following conditions are satisfied:
Most business transfers will entail a contractual commitment from the buyer to offer continuity of service to incoming employees, and employment/transfer letters are consented to by the employees in the interest of implementing an efficient transfer.
5.2 What employee rights transfer on a business sale? How does a business sale affect collective agreements?
As discussed above, employees and their rights are not automatically transferred upon a business sale. Pursuant to Section 25FF of the ID Act, most business transfers will include a contractual commitment from the buyer to offer continuity of service and terms of employment that are no less favourable than provided by the transferor employer to incoming workmen employees.
While the benefits of Section 25FF of the ID Act 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 business sale.
5.3 Are there any information and consultation rights on a business sale? How long does the process typically take and what are the sanctions for failing to inform and consult?
There are no express consultation requirements under Indian law unless the employer has recognised any trade union in its establishment or has entered into a collective bargaining agreement. Practically, given that employee consent is taken for transfer of employment, communications around the business sale are made to the employees in advance.
5.4 Can employees be dismissed in connection with a business sale?
While redundancy of a role on account of a business sale may be justified as a permitted reason for termination, in our experience, courts do delve into the bona fides of the business reasons that contributed to such redundancies, should employees file a suit against such terminations.
Further, in cases where conditions of Section 25FF of the ID Act are not met or where the workman does not consent to being transferred, then he will be deemed dismissed by the seller. The seller will have to pay all statutory entitlements, including the retrenchment compensation to such workman.
5.5 Are employers free to change terms and conditions of employment in connection with a business sale?
For non-workmen employees, amendment of terms and conditions of employment will be governed by their employment contracts and State-specific S&E Laws.
For workmen, the ID Act requires an advance notice of 21 days (longer in some States) to be issued to workmen for changing certain terms and conditions of employment. A copy of notice is required to be sent to the applicable Labour Commissioner.
It may be noted, however, that attempts to modify the terms of employment during a 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.
6.1 Do employees have to be given notice of termination of their employment? How is the notice period determined?
Yes, except in case of termination due to proven misconduct, all employees must be provided with a prior notice of termination in the manner prescribed. Under the ID Act, the notice period to be provided to workmen varies from one to three months, and for others, provision of notice will be determined by the respective State S&E Laws, unless their employment contracts prescribe an extended notice.
6.2 Can employers require employees to serve a period of “garden leave” during their notice period when the employee remains employed but does not have to attend for work?
While the concept of garden leave is not expressly recognised under Indian law, in our experience, many employers impose garden leave as a matter of contractual right in the interest of protecting confidential information of the employer, where they can require employees to not attend work during their notice period.
6.3 What protection do employees have against dismissal? In what circumstances is an employee treated as being dismissed? Is consent from a third party required before an employer can dismiss?
The rights of employees during termination of employment are governed by 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.
Under Indian law, employers can terminate employment on account of misconduct or for reasonable cause. While reasonable cause is not defined, 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 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 of being 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.
Third-party consent is not required for a dismissal, though 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.
6.4 Are there any categories of employees who enjoy special protection against dismissal?
Yes, please see our response to question 6.3 above.
6.5 When will an employer be entitled to dismiss for: 1) reasons related to the individual employee; or 2) business-related reasons? Are employees entitled to compensation on dismissal and if so, how is compensation calculated?
We have discussed the grounds for dismissal of individual workmen and non-workmen employees in our response to questions 5.4 and 6.3.
Indian courts have recognised redundancy of positions due to business-related reasons as a valid ground for dismissal by an employer. The ID Act also recognises and prescribes specific processes for dismissal of workmen on account of permanent closure, or transfer, of an establishment. Having said the above, Indian courts adopt a labour welfare approach, and if these dismissals are challenged, the employer may have to establish, by way of adequate evidence, the bona fides of the reason for dismissal.
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:
6.6 Are there any specific procedures that an employer has to follow in relation to individual dismissals?
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 of being heard prior to being dismissed on grounds of misconduct.
Please see our response to question 6.5 for monetary entitlements of workmen employees at the time of their dismissal for other causes.
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.
For non-workmen employees, compensation payments may be set out in their contracts or agreed policies.
6.7 What claims can an employee bring if he or she is dismissed? What are the remedies for a successful claim?
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/reliefs 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.
6.8 Can employers settle claims before or after they are initiated?
There is no specific bar in settling claims before or after they are initiated.
6.9 Does an employer have any additional obligations if it is dismissing a number of employees at the same time?
There are no additional obligations arising from dismissal of a specific number of workmen at the same time, except that closure of an establishment is subject to a specific procedure.
6.10 How do employees enforce their rights in relation to mass dismissals and what are the consequences if an employer fails to comply with its obligations?
Workmen or trade unions can file an industrial dispute under the ID Act to enforce their rights. An individual employee can file claims on grounds described in our response to question 6.7 above.
In case of a violation by an employer, in addition to reliefs awarded to successful employees as mentioned under our response to question 6.7, fines can be imposed on employers, and against officers of a company, who fail to follow prescribed statutory procedures.
7.1 What types of restrictive covenants are recognised?
The most common forms of restrictive covenants in employment contracts include exclusivity, non-compete, non-solicitation and confidentiality. When enforced during the existence of employment, these covenants (unless completely unconscionable) are usually recognised.
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 Section 27 of the Indian Contract Act, 1872, save for limited cases pertaining to sale of goodwill.
Confidentiality has generally been enforced by courts even in a post-employment context. Courts in India have also upheld non-solicitation obligations to be a reasonable restriction in limited circumstances.
7.2 When are restrictive covenants enforceable and for what period?
Please see our response to question 7.1 above. There is no uniform period for which restrictive covenants are enforceable, but they should be of a reasonable time limit and scope.
7.3 Do employees have to be provided with financial compensation in return for covenants?
Given that restrictive covenants are contractual obligations, they should be supported by a consideration that can be part of the employment contract.
7.4 How are restrictive covenants enforced?
Restrictive covenants are enforced as contractual obligations before civil courts, where one can seek remedies in the form of damages or injunctions.
8.1 How do employee data protection rights affect the employment relationship? Can an employer transfer employee data freely to other countries?
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.
8.2 Do employees have a right to obtain copies of any personal information that is held by their employer?
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.
8.3 Are employers entitled to carry out pre-employment checks on prospective employees (such as criminal record checks)?
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.
Under the DPDP Act, in the absence of conclusive guidance on whether pre-employment checks would be considered within ‘purposes of employment’, employers are advised to obtain a clear affirmative consent from prospective employees for undertaking pre-employment checks.
8.4 Are employers entitled to monitor an employee’s emails, telephone calls or use of an employer’s computer system?
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.
8.5 Can an employer control an employee’s use of social media in or outside the workplace?
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 in such policies to ensure such monitoring is related to safeguarding the employer from loss or liability.
8.6 Are there any restrictions on how employers use AI in the employment relationship (such as during recruitment or for monitoring an employee’s performance or productivity)?
There is no such statutory restriction prescribed as of today.
9.1 Which courts or tribunals have jurisdiction to hear employment-related complaints and what is their composition?
Jurisdiction of courts or tribunals will vary, depending on the law pursuant to which relief is sought by the subject employee and the employee classification.
For instance, under the ID Act, the Conciliation Officer, Board of Conciliation, Courts of Inquiry, Labour Courts, and Industrial and National Tribunals are empowered to hear claims of workmen employees.
Non-workmen employees can file their employment or contractual dispute before the civil courts, or the jurisdictional courts under the State S&E Laws.
9.2 What procedure applies to employment-related complaints? Is conciliation mandatory before a complaint can proceed? Does an employee have to pay a fee to submit a claim?
The process varies as per the relevant employee category, the State, and legislation pursuant to which the relief is sought.
Under the ID Act, an employment dispute is termed as an industrial dispute, which must be filed with the appropriate Government, which usually refers the matter for conciliation. If no conciliation is reached between the parties, a report is sent to the appropriate Government, and the issue is ultimately adjudicated by the Labour Court or Industrial Tribunal, depending on the nature of the case. Therefore, conciliation is mandatory before the industrial dispute can be adjudicated by the courts.
Disputes relating to dismissal may be filed directly with the Labour Court or Industrial Tribunal by the aggrieved workman.
Payment of fees by the employee will depend on the tribunal/court before whom the complaint is filed. Generally, nominal court fees are payable by the complainant before a civil court, and some exemptions may be available for workmen employees.
9.3 How long do employment-related complaints typically take to be decided?
The timeline varies considerably. Under the ID Act, officers/tribunals are mandated to resolve an industrial dispute within a time frame ranging from two to six months; however, in our experience, these timelines are extended at the discretion of the authorities.
9.4 Is it possible to appeal against a first instance decision and if so, how long do such appeals usually take?
Yes, usually parties have a right to appeal against the first decision; however, an appeal may not be accepted by the tribunal/court as a matter of right. Timelines vary depending on the facts and circumstances of each case.
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