Wednesday, December 14, 2011

India - Recent developments in employment law

Sajai Singh, Partner, J. Sagar Associates, Bangalore, India

India has continued with the development of its employment law jurisprudence this year as well. There is some level of clarity on issues that legal practioners like me were debating upon, and there are some ways forward where things looked bleak. Let’s take a look at a few recent highlights.

To be a Workman, or Not to be …

Lets start with a favorite discussion topic, of who is a ‘workman’ as defined
[1] under the of Industrial Disputes Act, 1947 (‘IDA’). And the usual question that is asked by multinationals doing business in India - what is the wage level / designation level that takes a person out of the category of ‘workman’? Can an employee be re-designated to get him out of the protective coverage available to a ‘workman’?

In such situations we recommend that clients apply two tests:

1) Check whether the employee is employed for hire or reward; and
2) Check if the employee has been employed to do manual, unskilled, skilled, operational, technical or clerical work.

On satisfaction of the above two tests of employment in the affirmative, the employee would invariably fall within the definition of ‘workman’.

Our further response that the quantum of wages / salary, the designation, the method of recruitment, the terms and conditions of employment, and the mode of payment are not relevant for deciding whether or not a person is a workman has been given a shot in the arm by the Supreme Court of India recently[2].

The observation that merits a mention is that the definition of ‘workman’ does not make any distinction between full-time and part-time employees or a person appointed on contract basis. Therefore, it cannot be said that only a person employed on regular basis or a person employed for doing full-time job may be categorized as a ‘workman’ and those employed on a temporary basis, casual, part-time or contract basis on fixed wages are not ‘workmen’.

In another judgment[3], the Supreme Court considered a matter of an employee who was transferred but did not join the work place where he was transferred. The employer company terminated his services. This led to the employee challenging the transfer order before the High Court of Allahabad. While disposing of the writ petition, the High Court gave liberty to the employee to move a representation before the Labour Commissioner. The employee filed a representation before the Labour Commissioner which was challenged by the employer company submitting that the employee was not a ‘workman’. While the Labour Commissioner held that the question whether the employee was ‘workman’ under the UP Industrial Disputes Act, 1947 could not be decided; the Supreme Court held that the issue of whether or not a person is a ‘workman’ within the meaning of U.P. Industrial Disputes Act, 1947 is a matter to be decided by a competent court, after allowing the parties to lead evidence. The enquiry before the Labour Commissioner was of a summary nature and while exercising powers of summary nature, the Labour Commissioner cannot decide and examine factual matters relating to an issue as to whether or not the person concerned is a ‘workman’.

Misconduct and its Determination

Following the brief discussion on workmen, a related issue is the protection that a ‘workman’ has vis-à-vis his job. This security of employment comes from relatively few avenues available for employers to terminate a ‘workman’. Indeed, for misconduct or a discipline related issue, a ‘workman’ may be terminated. However, misconduct has to be established pursuant to a duly conducted domestic enquiry. A domestic enquiry should be conducted in an unbiased manner, following the principles of natural justice. While the burden of proof in domestic enquiries is not as stringent as in a criminal trial, it nevertheless weighs the employer down. Some recent jurisprudence is related hereinafter.

Principles of Natural Justice - The Supreme Court had a chance to adjudicate
[4] on an ex-parte order passed in a domestic enquiry. The ex-parte order was passed since the workman was absent on various dates of hearing. The Supreme Court, on the question of whether the principles of natural justice were violated in the present enquiry, held that these principles should not be stretched to a point where they render in-house proceedings unworkable. The workman remained absent and adopted dilatory tactics. Further, the workman had tendered two admissions of guilt before the management witness and there was hardly anything that could be said on his behalf to repel the charges. Hence, it was held that the proceedings had been conducted in a fair and reasonable manner, and there had been no violation of the principles of natural justice.

A Case of Bias – As stated above, in addition to following the principles of natural justice, the domestic enquiry needs to be conducted in a fair and reasonable manner. There should be no bias in the conduct of such an enquiry. Bias formed the basis of a recent decision
[5] of the Supreme Court wherein, bias was considered to be included within the attributes and broader purview of the word ‘malice’ which in common parlance, means and implies ‘spite’ or ill will. It was held that mere negative statements are not sufficient to indicate ill-will. Cogent evidence should be led, to prove whether in fact, bias or mala fide motive existed, resulting in miscarriage of justice. As per the judgment, presumption lies in favour of bona fides of an order, unless contradicted by acceptable material, and the burden of proving mala fide lies on the person who alleges it.

Trivial Pursuits - The Allahabad High Court held[6] that a domestic enquiry cannot be held unfair on trivial points. To hold a domestic enquiry as being unfair, there should be substantial denial of opportunity to the workman and the workman should be able to demonstrate that such denial has resulted in prejudice.

The Ability to Transfer Employee – The Delhi High Court considered[7] this unique case of a suspended bank employee. On revocation of suspension the employee was asked to report to another branch of the Bank. The employee did not report to work. The Bank, thereafter, sent a notice to his last known address, but failed to get any response. The Bank then conducted a disciplinary enquiry and found that the employee had voluntarily abandoned his employment. On challenge, the Court held that transferability of the job was an incidence of service. Therefore, the employee’s failure to comply with the transfer justified the action taken and findings of the management, that he had voluntarily abandoned his job.

Crime & Punishment - Recently, the Delhi High Court
[8] considered the issue of a domestic enquiry in the context of a criminal trial and held that in normal circumstances a criminal case as well as a domestic enquiry may proceed simultaneously. The Court held that if the employer finds himself in a position where he needs to protect the discipline, sanctity, stability and propriety of his establishment he may initiate disciplinary proceedings and, if necessary, launch criminal proceedings simultaneously.

Loss of Productivity - In another interesting case on termination, a workman was terminated on grounds of not meeting productivity standards, as per the revised work norms. Such termination was held to be justified by the Madras High Court
[9] as long as the management conducted a proper domestic enquiry and found the workman guilty.

Director’s Liability - It has been clarified,
[10] by the Supreme Court of India, that Directors are not liable for crimes of the Company. Here, the offence complained of, was cheating and misappropriation of property, against the Company. The Court held that though civil law recognizes the principle of ‘vicarious liability’ of Directors of companies, the concept is not acknowledged in criminal law. Further, the Supreme Court held that there was no specific allegation against the members of the Board of Directors and that they had been named as they constituted the management of the Company. The Court also held that concepts of the Negotiable Instruments Act, 1881 (‘NI Act’) and the IDA cannot be imported into offences under the Indian Penal Code, 1860 (‘IPC’).

Past Director’s Liability – Under the NI Act, a Director may be held liable for dishonour of a cheque issued by the Company. The case
[11] before the Supreme Court was a curious case of a Past Director and her liability. The Supreme Court acquitted the Director as she had resigned before the alleged dishonour of cheque took place. The Court held that in case of a Director, the complaint should clearly specify in what manner the Director was in charge of or was responsible to the accused Company for conduct of its business before liability may be established.

Social Security Dues in Liquidation Situations

Putting social security dues of a Company above all other debts, the Supreme Court of India has reiterated
[12] its efforts to try and create an equitable work environment. The statute in question here was the Employees Provident Fund and Miscellaneous Provisions Act, 1956 (PF Act), and the Supreme Court of India held that if any amount is due from an employer under the PF Act, the amount so due is to be paid in priority to all other debts due.

Reference was made to Section 11 of the PF Act, in terms of which the workmen’s dues, and debts due to secured creditors, are required to be paid in priority to all other debts.

The employer Company in this case was under liquidation and the Official Liquidator was appointed to look after its properties and clear debts.

The Supreme Court considered the two aspects of sub-section (2) of Section 11 of the PF Act:

1) Amounts due from the employer towards contribution under the PF Act are deemed to be a first charge on the assets of the establishment.
2) Notwithstanding anything contained in any other law for the time being in force, such debt is to be paid in priority to all other debts.

On considering the above, the Supreme Court held that these provisions bring out the intention of Parliament to ensure the social benefit. There are other provisions in the PF Act rendering the Provident Fund amounts payable, immune from attachment of Civil Court’s decree. Therefore, only after the payment of such dues and debts in full, may the Official Liquidator distribute the remaining money as per Section 530 of the Companies Act.

The Dilemma of how much Exit Notice to Provide For

Is a month’s notice period fine for exiting/discontinuing an employment relationship? While the statutes may say so, employers in the IT / ITES space think differently. This is an industry that needs to counter a very high attrition rate
[13], while keeping the quality of its service and work product world class. So the solution is a three-month notice regime being implemented by industry[14].

While the Shops & Commercial Establishment’s Act one-month notice regime is very convenient when the markets are down and lay off’s are big, during boom times abrupt exits hurt ongoing projects and delivery schedules of global operators. Another advantage of a 3 month exit is to make it dearer for corporate raiders to acquire talent. A poacher’s ‘buy-out’ option thus becomes more expensive. Not to mention the 3 month time being enough time from a HR perspective to encourage the employee to stay on with the present employer.

[1] Section 2 (s).
[2] Devinder Singh v. Municipal Council, Sanaur AIR 2011 SC 2532

[3]Triveni Engineering and Industries Ltd. v. Jaswant Singh and Anr. AIR 2010 SC 2939..
[4] State Bank of India v. Hemanth Kumar, Civil Appeal No. 2957 of 2011, decided on April 6, 2011
[5]Chairman-cum-MD, Coal India Ltd. v. Ananta Saha & Ors. 2011(4)SCALE398..
[6] State Bank of Patiala v. Union of India and others., 2011(129)FLR594.
[7] U P Singh v.Punjab National Bank, 2011IIIAD(Delhi)373.
[8] of National Insurance Company v. Sunil Kumar and others, 178(2011)DLT439.
[9] Management of Lakshmi Crad Clothing Manufacturing Co Ltd, v. M Ramu and others, MANU/TN/1383/2008
[10] M/sThermax Ltd. & Ors. Vs. K.M. Johny & Others, 2011(11)SCALE128.
[11] Mrs. Anita Malhotra v. Apparel Export Promotion Council & ANR 2011(6)UJ3765(SC).
[12] Employees’ Provident Fund Commissioner v. O.L. of Esskay Pharmaceuticals Limited, MANU/SC/1327/2011.

[13] For top end IT / ITES companies the attrition levels are between 14% and 17%, while for small and medium sized companies are now in the range of 25-30%.
[14] IBM India, Capgemini India, Accenture, Cognizant. iGate Patni and Infotech Enterprises follow the 3 month notice policy for exits, for all or at least some levels of employees.