Kochhar & Co.

Forums For Adjudicating Employment Disputes

White-Collar Employees: Disputes relating to employment of private individuals are generally adjudicated by trial courts, namely District Courts and some High Courts. However, if an employment contract provides for resolution of dispute through arbitration, then arbitration would be available.

Blue-Collar Employees: The Industrial Disputes Act 1947 provides for Courts of Inquiry to inquire into industrial disputes, although it is not very common. There are also Labour Courts, Industrial Tribunals and National Tribunals for adjudication of industrial disputes.

Labour Courts adjudicate disputes relating to discharge, dismissal, reinstatement of workmen, grant of relief to workmen wrongfully dismissed, legality of strike or lock out etc.

Industrial Tribunals generally adjudicate disputes relating to leave, rules of discipline, closure of establishments, hours of work, rest intervals, bonus, provident fund, gratuity, etc.

National Tribunals primarily adjudicate disputes which, in the opinion of the Central Government involve questions of national importance or are likely to affect industrial establishments in more than one state.

The Employees’ State Insurance Act 1948 provides for Employees’ Insurance Courts for adjudication of disputes relating to rate of the contribution payable by an employer in respect of an employee.

The Employee’s Provident Funds and Miscellaneous Provisions Act, 1952 has a designated tribunal being the Employees Provident Funds Appellate Tribunal, for the purposes of hearing appeals arising out of a person aggrieved by a notification of the Central Government or any authority or with respect to any order passed by the concerned authority under the said Act.

The Main Sources Of Employment Law

Under the Constitution of India, labour is a subject in the Concurrent List where both Central & State Governments can enact legislation. As a result, National and State Legislations, Statutory Rules framed thereunder and Case Law (developed by various Courts) are the main sources of Employment Law. The Indian Contract Act 1872 and prevailing customs govern the clauses of the employment agreement

National Law And Employees Working For Foreign Companies

Generally, Indian laws apply equally to all persons who work within the territory of India, whether for Indian companies or for offices of foreign companies and prevail over any contrary provisions of the employment agreement. However, there may be some exceptions depending on the nature of the employment (such as a managing director / CEO or an officer in-charge, et.

National Law And Employees Of National Companies Working In Another Jurisdiction

Certain national enactments are applicable to Indian employees working abroad such as social security legislations including the Employees’ Provident Fund and Miscellaneous Provisions Act 1952 and Payment of Gratuity Act 1972. (Please refer to the Section entitled Social Security Contributions for further details.).

Indian Government had introduced certain compulsory regulations with respect to social security coverage for cross border employees defined as ‘International Worker’ under the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The said regulations have been put in place to provide for avoidance of ‘no coverage’ or ‘double coverage’ for employees assigned to work in a foreign country.

The term International Workers covers the following category of employees:

    1. An Indian national who has been assigned to work in a foreign country with whom India has signed a ‘Social Security Agreement’ (‘SSA’) which is a bilateral agreement.
    2. A foreign national who has been employed or assigned to work in an establishment to which the social security regulations apply.

Kindly note that a SSA is intended to avoid double coverage wherein the employee is not only obligated to make social security contribution in their home country but also their hosts country.

A Bilateral SSA provides for:

    1. Detachment, in the form of an exemption to employees who have been assigned abroad to make contributions in the host country provided that they are making the relevant contributions in their home country. Employees desirous of such an exemption would be required to obtain a ‘Certificate of Coverage’ in order to avail the benefits of exemption as agreed to by the countries being a reciprocal signatory to the SSA.
    2. Exportability of Pension - Which provides for payment of pension benefits directly without any reduction to the beneficiary employee choosing to reside in the their home country or any other country.
    3. Totalization of benefits- The period of service rendered by a employee in a foreign country is counted for determining the eligibility for benefits but the quantum of payment is restricted.

The Certificate of Coverage is valid for a certain period depending upon the terms of the SSA as agreed between the countries.

Data privacy

As per provisions of the Information Technology (Reasonable Security Practices And Procedures And Sensitive Personal Data Or Information) Rules, 2011, any collection, processing, storage or transfer of specified personal information of an individual (such as password, financial information, physical, physiological and mental health condition, sexual orientation, medical records and history, biometric information, etc.) would require consent of the such individual (i.e., provider of information). An employer is required to ensure that it has appropriate security procedures and practices to prevent wrongful disclosure of any such personal information.

Legal Requirements As To The Form Of Agreement

Except for some State specific requirements by which an employer is expected to issue a letter covering certain aspects of employment, there are no stipulated legal requirements as to the prescribed form of an employment agreement. The prevailing practice is either that the employer issues an appointment letter listing the terms and conditions of employment, which is then signed by the employee; or the employer and employee enter into a bilateral written agreement.

An employment agreement can be in oral form. The acceptance of such contract must be absolute and unqualified, be expressed in some usual and reasonable manner as provided under the Indian Contract Act, 1872. However, a written employment agreement is preferred to avoid disputes at a later stage.

Generally, for blue-collar employees, it used to be common for there to be no employment agreement executed between the employer and employee, but instead, appointment letters were issued. However, it is now increasingly common to produce formal employment agreements with the employees.

Mandatory Requirements
  • Trial Period
  • There is no legal requirement to provide for a trial period or a period of probation, in the case of white-collar employees or blue-collar employees. Notwithstanding the above, depending upon the applicability of Industrial Employment Standing Orders Act, 1948, the initial period of probation, in case of blue-collar employees, could be three (3) months. As a matter of practice, companies do have probation period and extension of probation period if required either in the Handbook/ Company Policy or in the Letter of Appointment.

  • Hours Of Work
  • White-Collar Employees: The hours of work of any employee are ordinarily governed by the terms of the employment agreement.

    Such employment agreements should conform with the Shops and Establishments Acts enacted by individual states in India (or the Factories Act 1948, if an employee works from an office located within a factory premises). As a result, conditions such as hours of work may differ from state to state and also depending upon the nature of establishment. The requirement of overtime, over a certain number of hours, may also change based on the Shops and Establishments Acts, etc, as applicable.

    For instance, the Bombay Shops and Establishments Act 1948 stipulates the maximum hours of work as 9 hours per day and 48 hours per week in shops, commercial establishments, residential hotels, restaurants, eating houses, theatres or other places of public amusement or entertainment.

    Blue-Collar Employees: For blue collar employees working in non-manufacturing establishments the hours of work will be governed by the State specific Shops and Establishments Act. For blue collar employees working in manufacturing establishments, the Factories Act 1948 stipulates that an adult employee may be required to work for a maximum period of 9 hours per day and 48 hours per week, excluding overtime, and 10 hours a day and 60 hours a week, including overtime. Overtime work is subject to a maximum of 50 hours in any quarter. A child or adolescent will not be allowed to work beyond a maximum period of 4½ hours per day. (Please refer to the section entitled “Minimum/Maximum Age – Blue- Collar Employees” wherein the age group categorising a person as a child or adolescent is specified.)

  • Special Rules For Part-time Work
  • There are special rules under Indian laws for part-time work. The Government of India has proposed introduction of new rules that would apply in case of ‘gig workers’ and ‘platform workers’.

  • Earnings
  • White-collar employees: Earnings are mutually agreed upon by the employer and employee and this clause forms an essential term of the employment agreement.

    Indian law entitles employees to twice the ordinary rate of wages in respect of overtime work.

    Blue-Collar Employees: The Central or State Government fixes the minimum rates of wages payable to employees under the Minimum Wages Act 1948 and reviews such minimum rates of wages periodically.

    The Payment of Bonus Act 1965 entitles employees in establishments (having 20 or more employees) to payment of a bonus on the basis of profits, production or productivity. Employees earning INR 21,000 or less per month are entitled to statutory bonus. The minimum bonus payable is 8.33% of salary and the maximum is 20%.

    The Payment of Wages Act 1936 prescribes a time-limit within which wages payable to employees must be disbursed by the employers and ensures that no unauthorised deductions are made by employers.

  • Holidays/Rest Periods
  • White-collar employees: Depending upon where a person is working, the holiday entitlement is generally governed by the holidays announced by the relevant State. Generally, an employee would be entitled to mandatory weekly holiday, (eg. Sundays), national holidays (such as Independence Day, Republic Day etc.) and State holidays. In addition to the above, employees may be entitled to paid leave ranging from 15 to 25 days as stipulated in the Shops and Establishments Acts of each state or Factories Act, as applicable.

    Rest periods are also prescribed by the Factories Act or Shops and Establishments Acts, as applicable. For instance, the Bombay Shops and Establishments Act 1948 stipulates that every shop and commercial establishment shall remain closed on one day of the week, and a maximum of 5 hours of work followed by an interval of at least one hour for rest and a maximum of 3 hours of overtime.

    Blue-Collar Employees: For blue collar employees working in non-manufacturing establishments, the holidays/rest periods will be governed by the State specific Shops and Establishments Act (and also Industrial Employment Standing Orders Act, 1948, depending upon its applicability). This would be similar to the entitlement of white collar employees.

    For blue collar employees working in manufacturing establishments, the Factories Act 1948 provides for a mandatory weekly holiday, compensatory holidays and specifies that no person will be required to work for more than ten days consecutively without a holiday. This act further stipulates intervals of rest of at least half an hour following a maximum of five hours of work and provides for annual leave with wages.

    The Weekly Holidays Act 1942 provides for the grant of a weekly holiday to blue-collar employees in shops, restaurants and theatres without any deduction or abatement of wages.

  • Minimum/Maximum Age
  • White-collar employees: The minimum age for employment in any establishment is 15 years of age in certain trades. However, in practice employees who are considered suitable for such employment are at least 20 years old.

    Blue-collar employees: Any child who is younger than 14 years of age is statutorily barred from employment. Adolescents aged between 15 and 18 require a certificate of fitness to be employed in certain trades.

    The maximum age for employment of white-collar and blue-collar employees is whatever age is stipulated by the employer.

  • Illness/Disability
  • In case of illness, an employee (white-collar or blue-collar employee) is entitled to paid sick leave, the duration of which varies from industry to industry or state to state.

    Alternatively, white-collar employees are entitled to paid sick leave (usually ranging from 5 to 7 days) as specified in their employment agreement or as per the Shops and Establishment Act or Factories Act, as applicable to an establishment (factory or commercial establishment) and the jurisdiction where the establishment is located, whichever is more beneficial to the employee.

    The Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act 1995 provides for encouragement of employment of persons suffering from specified disabilities.

  • Location Of Work/Mobility
  • Location of work and mobility are mutually agreed by the employer and employee (white- collar or blue-collar employee) verbally or in the terms of the employment agreement.

  • Pension Plans
  • Under the Employees’ Provident Funds and Miscellaneous Provisions Act 1952 (applicable to establishments where 20 or more white- collar and/or blue-collar employees are employed) employees are entitled to receive a pension. From the monthly contributions payable by the employer towards the Employees’ Provident Fund, 8.33% of the employee’s pay is remitted by the employer to the Employees’ Pension fund contribution (please refer to the section entitled “Social Security Contributions” wherein the details relating to contributions to the Provident Fund are specified). The Central Government will also contribute to the fund at the rate of 1.16% of the pay of the employee.

  • Parental Rights (Pregnancy/ Maternity/ Paternity/ Adoption)
  • The Maternity Benefit Act 1961 is applicable to women engaged in white-collar employments in the public sector, as well as blue-collar employments. This act entitles women, who have less than 2 suriviving children, to receive maternity benefit before and after childbirth for a maximum period of 26 weeks, of which not more than 8 weeks can precede the date of expected delivery. A woman employee who has more than 2 surviving children is entitled to 12 weeks of paid maternity leave. The legislation also prescribes for payment of medical bonus and nursing breaks after birth until the child attains the age of 15 months.

    A woman employee is allowed 12 weeks of paid leave on adoption or surrogate birth.

    The Government of India has ordered that female Government employees are further entitled to:

    • Maternity leave of up to 180 dats,
    • “Child Care Leave” of a maximum of two years during her entire service, and
    • “Child Adoption Leave” of up to 180 days.

    The Government of India has entitled male Government Servants (including apprentices) to paternity leave of 15 days within six months of the date of adoption. In the private sector, paternity leave is not ordinarily granted though the same is seen as an emerging trend with various private employers (non-government companies) granting a paternity leave of 10 to 15 days.

  • Compulsory Terms
  • Barring limited requirements in some State specific statutes which make certain aspects mandatory, it is customary to specify certain terms in the employment agreement such as names and addresses of parties, job title, duties, responsibilities and job description of the position held by the employee, salary and emoluments, date of commencement of employment, hours of work, probation period, if any, confirmation upon completion of period of probation, entitlement to leave, provisions relating to confidentiality and intellectual property, performance review and bonus, dispute resolution and termination of employment.

  • Non-Compulsory Terms
  • The employer and employee are free to mutually agree upon other non-compulsory terms, provided they are not contrary to statutory provisions.

Types Of Agreement

The various kinds of employment agreements may be categorised as:

Fixed-Term employment agreements: which have a fixed duration and expire on a designated date or on completion of a project.

Full-time employment agreements: which contain compulsory terms governing employees who work on a full-time basis.

Contracts of Apprenticeship: The Apprentices Act 1961 regulates the training of apprentices and governs the terms to be incorporated in a contract of apprenticeship. This act is applicable to blue-collar as well as white-collar employees, as apprentices are classified under the enactment as trade apprentices, graduate and technician apprentices and technician (vocational) apprentices.


Almost every contract of employment in India contains a privacy and confidentiality clause. A breach of confidentiality may serve as grounds for termination of employment. An employee is duty-bound to maintain secrecy/confidentiality of sensitive information gathered in the course of employment, whether or not the employment agreement contains a specific clause to that effect.

Ownership of Inventions/Other Intellectual Property (IP) Rights

Generally, ownership of inventions or other IP rights is contractually provided for in the employment agreement. In the absence of any such express or implied contractual provision, ownership of IP rights is governed by applicable laws.

Patents: The mere existence of an employment agreement does not, in itself, disqualify the employee from obtaining a patent for an invention made by him during his term of service, even though:

  • the invention may relate to subject-matter useful to the employer,
  • the employee have used the employer’s time, servants and materials in completing his invention, or
  • the employee had allowed his employer to use the invention during his employment.

Under the Patent’s Act, the true and first Inventor is the first owner of the work/invention and there is no automatic assignment of such work/invention in favour of the employer. For that reason, it is advisable that the employer takes appropriate steps to ensure that such invention/work is assigned in its favour.

The Copyright Act 1957 lays down the general rule that the author of a work will be the first owner of copyright therein.

Further, this act stipulates that in case of a work made in the course of the author’s employment or apprenticeship, the employer can be deemed to be the first owner of the copyright therein, in the absence of any agreement to the contrary. It is however preferable that an employee signs a specific assignment agreement in this respect.

Both under the Copyright Act and the Patents Act, any assignment has to be in writing. It has to identify the work, so strictly speaking a blanket assignment or assignment of future work is not possible.

Pre-Employment Considerations

In recent times, it has become usual for employers to undertake background checks (including criminal background) and medical examination of individuals prior to engaging them as employees. As this process may involve use of personal information, the consent of the concerned individual is required.

Hiring Non-Nationals

Companies in India can hire non-nationals. The Indian Government has begun to enforce a new quota system that seeks to limit the number of foreign nationals in the country.

The Ministry of Labour and Employment, Government of India, issued guidelines in 2009 stating that no employment visa will be issued to foreign nationals in any sector unless the individual is drawing a salary in excess of USD 25,000 per annum. However, this condition is not applicable to (i) Ethnic cooks (ii) Language teachers (other than English language teachers) and (iii) Translators and staff working for the concerned Embassy/High Commission in India. Further, foreigners coming to India on Project Visas for executing Steel and Power Sector Projects are also exempt from the requirement of minimum floor salary being in excess of USD 25,000 per annum.

The salary threshold limit of USD 25,000 per annum is worked out taking into account salary and other allowances paid to the foreigner. However, it excludes perquisites like housing, telephone, transport, entertainment etc.which are received in kind. In general, employment visas are only issued to foreign nationals who are highly skilled and/or qualified professionals and who are engaged or appointed by a company/organization/industry/undertaking in India, on contract of employment basis. Employment visas are not granted to foreign nationals for jobs for which qualified Indians are available or for routine, ordinary, secretarial / clerical positions. Further, it is essential that an employment visa applicant is sponsored by an entity in India.

Hiring Specified Categories Of Individuals

In the private sector there is no classification of individuals for employment.

A percentage of posts for white-collar as well as blue-collar employees are reserved for employment in the Government, in public sector units, and in certain educational institutions, for Scheduled Castes and Scheduled Tribes with inadequate representation in these services and institutions. Caste, gender, state of domicile, rural people, religion, physically disabled persons, members of the armed forces etc are some of the criteria used to identify under-represented groups.

Outsourcing And/Or Sub-Contracting/Temporary Agency Work

In the case of an outsourcing arrangement in India, the company to which work is outsourced is responsible for its blue-collar and white-collar employees. If such employees breach any obligations relating to data protection and confidentiality, a number of civil and criminal remedies are available under various Indian laws to the outsourcing company against such employees, as well as the company to which work is outsourced.

If a blue-collar employee is hired as “contract labour” through a contractor (or sub-contractor), the main employer continues to be responsible to such an employee in case the contractor fails to provide wages or facilities for health and welfare of the employee, such as canteens, rest-rooms, drinking water and first aid facilities. In case of failure of the employer to make such provisions, penalties of imprisonment and fines are prescribed.

Changes To The Contract

In the case of both white-collar and blue-collar employees, the employer can make changes to the employment agreement provided such changes are not unilateral or illegal. Otherwise, the employer can change the terms of the agreement with the due consent of the employee.

Depending upon the level of work that a blue-collar employee is being engaged, either an employment agreement or an appointment letter is entered into by the employer and blue-collar employee.

Change In Ownership Of The Business

White-Collar Employees: In case of change of ownership of the business (transfer of a business division from one company to another), the company policy and the arrangement between the new company and the old company determines the employment, termination or retention of employees. However, transfer would require consent of an employee.

Blue-Collar Employees: In case of change of ownership of the business, every employee who has been in continuous service for at least one year is entitled to receive one month’s notice and 15 days’ average pay as severance payment (unless the contract provides for better terms and conditions) as if such a person had been terminated.

However, such notice or compensation may not be payable when the service of the workman has not been interrupted by such change of ownership of business; and the terms and conditions of service applicable to the employee after such change in ownership are not less favourable than those applicable to him before such change of ownership of business. In such cases, the old employer may terminate the employment of the employees without the need to comply with giving notice or compensation and the new employer may hire on a continuity basis. It is pertinent to note here that without consent, workmen cannot be forced to work under different management and in that event workmen are entitled to retirement/retrenchment compensation in terms of Industrial Disputes Act, 1947.

Social Security Contributions

Both white-collar and blue-collar employees are entitled to social security contributions, such as provident fund and gratuity.

The Employees’ Provident Funds and Miscellaneous Provisions Act 1952 provides for contribution by the employer as well as employee at the rate of 12% of the basic wages, dearness allowance and retaining allowance, (if any) to the Employee’s Provident Fund Scheme. Every employee drawing a monthly salary of INR 15,000 or less is eligible for the benefits under the Employees’ Provident Fund Scheme, 1952 (EPF), Employees’ Pension Scheme, 1995 (EPS) and Employees’ Deposit Linked Insurance Scheme, 1976 (EDLI) under the said act.

The Employees’ Provident Funds and Miscellaneous Provisions Act 1952 is also applicable to foreigners (international workers) coming to work in an establishment in India to which this Act is already applicable. It would be pertinent to mention that the aforesaid wage limits would not be applicable to foreign nationals being international workers as defined under the Employees’ Provident Funds and Miscellaneous Provisions Act,1952.

Gratuity is payable to an employee upon termination of his employment after he has rendered continuous service for at least 5 years. The completion of five years of continuous service is not applicable in case of termination of services of an employee due to death or disablement. The amount of gratuity payable to an eligible employee is 15 days of salary for every completed year of service or part thereof in excess of 6 months, subject to a maximum of INR 2,000,000.

Accidents At Work

White-Collar Employees: If an accident/death takes place in a workplace while the employee was discharging his/her duties and if the employer had been negligent, then such employer is liable to pay compensation.

Blue-Collar Employees: The Employee’s Compensation Act, 1923 deals with accidents at work for blue collar employees in certain employments. The Act states that the employer is liable to pay compensation to employees for injuries suffered due to accidents at work if the accident took place during the course of employment or if the employer had not maintained the machinery in good working condition.

The employer will not be liable to pay compensation if the accident occurred while the employee was intoxicated or did not follow safety measures as laid down by the employer.

An employer is responsible to pay compensation to the dependants of the employee, in the case of the death of an employee in the course of the discharge of his employment duties.

In some establishments, the Employees State Insurance Act, 1946, may also be applicable to certain employees. This Act also provides benefits in case of accidents at work for certain categories of employees (mostly blue-collar employees). However, if certain employees are covered by this Act, then they are not eligible to benefits under the Employee’s Compensation Act, 1923.

Discipline And Grievance
  • Disciplinary actions
  • White-Collar Employees: Generally, establishments have their own disciplinary policy, violation of which will be regarded as an offence. Examples of such violations are physical violence while on duty, theft of, or damage to employer’s assets, falsification of company data, and unauthorised disclosure of confidential information. Such violations may lead to termination of employment and prosecution.

    Blue-Collar Employees: Every establishment has its own disciplinary rules, breach of which may lead to either termination of employment or prosecution of the employee. No such disciplinary action will be taken against any employee unless he is given reasonable opportunity to be heard and the provisions of Industrial Disputes Act 1947 are followed.

  • Grievance Redress
  • White-Collar Employees: Redress of grievances of white-collar employees will be governed by company policy and the terms of the appointment letter or employment agreement.

    Blue-Collar Employees: The Industrial Disputes Act 1947 directs the employer of every industrial establishment wherein 20 or more workmen are employed to provide for a grievance redressal committee to adjudicate employee grievances.

    In the case of an industrial establishment wherein less than 20 workmen are employed, the establishment will have to give the employee an opportunity to be heard and a fair disciplinary proceeding must be conducted.

Harassment/Discrimination/Equal pay

Under the Indian laws, any kind of harassment or discrimination in the workplace based on sex, religion and caste is strictly prohibited. In the case of any such harassment, the law provides for inquiry into the matter and termination of employment of the guilty employee.

The Indian Government has notified the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 for prevention of sexual harassment at the workplace.

The said Act provides protection to women employed on regular, temporary, contract, daily wage basis, ad hoc basis, with or without the knowledge of the principle employer whether for remuneration or not and includes a co-worker, probationer, trainee and apprentice.

The said Act clearly demarcates what would constitute as sexual harassment and mandates the establishment of an ‘internal complaints committee (ICC)’ in workplaces with 10 or more employees.

The law also prescribes equal pay for men and women performing work of the same or a similar nature.

Compulsory Training Obligations

The employer is responsible for the compulsory training of both white-collar and blue-collar employees if the employment requires special skill and expertise.

Offsetting Earnings

White-Collar Employees: In case of any loss or damage incurred by an employer due to any act or omission of an employee, the employer may be indemnified by proportionately offsetting the earnings of the employee if permitted by the employment agreement or company policy.

Blue-Collar Employees: The wages of an employee can be deducted if the employer has incurred any loss or damage due to the neglect or default of the employee.

Payments For Maternity And Disability Leave
  • Maternity Leave
  • Maternity benefit is payable by the employer to female employees (blue-collar or white-collar Government employees) A female employee is entitled to maternity benefit if she has worked at least 80 days in the preceding 12 months in an establishment prior to her expected date of delivery. The said employee would be entitled to maternity benefit in accordance with the Maternity Benefit Act, 1961 being 26 weeks of her average daily wage (in case of a female employee who already has 2 or more surviving children, the maternity benefit is 12 weeks of paid leave). In addition the female employee is entitled to a medical bonus of Rs. 1000 to a maximum of Rs. 20,000 if the employer cannot provide for pre and post natal care to the female employee. Further, a woman who has suffered a miscarriage would be entitled to 6 weeks leave with average pay from the date of miscarriage. Further, an elgible female employee is entitled to 12 weeks of paid leave on adoption or birth through surrogacy.

  • Disability Leave
  • The Employees’ Compensation Act 1923 entitles every employee to compensation depending upon the extent of disablement in case of injury suffered in the course of employment.

Compulsory Insurance

The law imposes an obligation on employers to take compulsory insurance for blue-collar employees engaged in essential services in factories, mines, major ports, plantations etc. There is no such provision stipulated by law in relation to white-collar employees.

Absence For Military Or Public Service Duties

There are no legal provisions regarding absence of any employee for military or public service duties.

Works Councils or Trade Unions

The law permits blue-collar employees to form trade unions and requires such trade unions to be registered. The purpose of such trade unions is to settle disputes connected with employment or non-employment, or conditions of labour, through collective bargaining on behalf of the employee.

Employees’ Right To Strike

The Industrial Disputes Act 1947 stipulates that a blue-collar employee may go on strike provided such strike is legal. The Supreme Court has come down heavily on illegal strikes. The Industrial Disputes Act 1947, deals with respect to strikes in public utility services. However, no specific law deals with strikes in private employment except in certain circumstances where an employer has to ensure that no closure or strike can be initiated.

Employees On Strike

An employer (public utility services, etc.) cannot fire an employee taking part in a legal strike, i.e. a strike where the employer is given prior notice, and the strike is held within 14 days of such notice. The Industrial Disputes Act, 1947 expressly protects the right of an employee to take part in trade union activities. Further, as provided under the said Act, victimization of an employee by an employer such as unfair dismissal or punitive action by arbitrary transfer for taking part in trade union activities has been held to be an ‘unfair labour practice’ by the employer.

Employers’ Responsibility For Actions Of Their Employees

According to the principle of agency, an employer is responsible for the actions of its employees so long as the employee acts within the scope of his/her duties.

Procedures For Terminating the Agreement

White-Collar Employees: The procedure for terminating employment will be governed by the terms of the employment agreement. Such provision has to conform with the Shops and Establishment Acts of each state. Generally, the Shops and Establishment Acts require a notice in writing, or wages in lieu of such notice, to be given to the employee. For example the Bombay Shops and Establishment Act requires at least 14 days’ notice to be given in writing, (in case of an employee who has been in continuous employment for at least 3 months) or 30 days’ notice in writing (in case of an employee who has been in continuous employment for at least a year) or wages in lieu of such notice.

Blue-Collar Employees: No employee who has been employed for less than one year (240 days in a year) can be fired unless he is given one or three months notice (as applicable depending upon an establishment having up to 100 or more such employees) or payment in lieu thereof and compensation as per the Industrial Disputes Act 1947. There may also be a requirement to notify the government authorities, or to obtain prior government approval (depending upon an establishment having less than 100, 100 or more than 100 such employees, respectively). The employer may also be required to comply with the last-in-first-out rule.

In both the cases, whether white-collar or blue collar employees, in case the terms of appointment letter or employment contract provide longer notice period or better severance compensation, then such terms of appointment letter or employment contract would prevail over law.

Instant Dismissal

White-Collar Employees: Dismissal of such employees will be governed by terms of the employment agreement.

In cases of a major breach of disciplinary rules, the employment of white-collar employees may be terminated without notice provided it is not prohibited by the appointment letter, employment agreement or company policy. Some state laws may require an inquiry before such termination without notice.

Blue-Collar Employees: An inquiry must be conducted in cases of breach of disciplinary rules and the employee must be given the opportunity to be heard. Pending such inquiry, the employee may be suspended and his employment may be terminated if his guilt is established in such inquiry.

Employee's Resignation

The procedure for resignation by an employee is governed by the terms of the employment agreement. Most of the Shops and Establishments Acts requires the employee to give a written notice, or wages in lieu of such notice. For example the Bombay Shops and Establishment Act requires an employee to give 14 days’ notice or payment in lieu thereof, in case the employee has been in continuous employment for at least 3 months. In case the employee has been in continuous employment for at least one year this Act requires the employee to give at least 30 days’ notice in writing or payment in lieu thereof.

Blue-Collar Employees: Resignation by a blue-collar employee will be governed by the terms of the appointment letter or the employment agreement or relevant legislation, as applicable, whichever is more beneficial.

Termination On Notice

White-Collar Employees: The law requires an employer to give notice in writing or pay salary in lieu of such notice if he wishes to dismiss an employee. Such clauses are recorded in the employment agreement but the employer could also follow the statutory right even if certain aspects are not covered in the agreement.

Blue-Collar Employees: The Industrial Disputes Act, 1947 provides that no employee in any industry, who has been in continuous service for not less than one year, can be dismissed unless one month’s notice or payment in lieu of such notice is given.

Termination By Reason Of The Employee's Age

The Employees’ Pension Scheme 1995 (applicable to blue-collar employees and white-collar Government employees) states that superannuation or retirement benefits will be payable to an employee on attaining the age of 58.

The retirement age for white-collar or blue-collar employees engaged in the private sector is not stipulated by law but by company policy.

Automatic Termination In Cases Of Force Majeure

White-Collar Employees: Automatic termination in cases of force majeure is possible if provided for in the employment agreement.

Blue-Collar Employees: No employee can be automatically dismissed.

As per the Industrial Disputes Act 1947 where an undertaking is closed down on account of circumstances beyond the control of the employer (and not by reason of financial difficulties, losses, expiry of lease or license) every workman who has been in continuous service for at least one year will be entitled to compensation of a maximum of 3 months’ average pay./

Collective Dismissals

In case of collective dismissal in an industrial establishment engaging 100 or more blue-collar employees, prior approval of the concerned Government authorities would be required. The affected employees would be entitled to 3 months notice and severance payment.

Termination By Parties’ Agreement

The employment of any white-collar or blue-collar employee may be terminated at any time by mutual agreement (in writing or verbal) between the employer and employee.

Directors Or Other Senior Officers

As provided under the Companies Act, 2013 the shareholders of a company can remove any director before the expiry of his/her tenure except for a director appointed by a tribunal for prevention of oppression and mismanagement under Section 242 and a director appointed by the company having adopted the principle of appointment of director by proportionate representation under Section 163. Also if a director has been appointed as a result of his employment then upon termination of employment, the office of director gets vacated.

The employment of senior officers can be terminated as specified in the employment agreement.

Special Rules For Categories Of Employee

White-Collar Employees: There are no statutory provisions pertaining to special rules for categories of employees. Such rules may be governed by the terms of the employment agreement or company policy.

Blue-Collar Employees: The Industrial Disputes Act 1947 provides for compensation of 15 days’ pay for each completed year of service upon termination of employment in an industrial establishment where 50 or more workmen are employed.

The Maternity Benefit Act 1961 declares it unlawful for an employer to discharge or dismiss an employee on account of absence during her pregnancy or to deprive her of maternity benefit and/or medical bonus.

The Employees’ State Insurance Act 1948 provides that employer cannot dismiss, discharge or reduce or otherwise punish an employee receiving sickness benefit.

Specific Rules For Companies in Financial Difficulties

Once a company unable to pay its debts or an insolvent company is wound up in accordance with the provisions of Companies Act 1956, the employees (whether white-collar or blue-collar employees) are automatically discharged (but would be eligible to receive severance compensation etc).

Restricting Future Activities

It is prevailing practice to include non-compete clauses in employment agreements restraining employees from undertaking employment with a similar organisation for a certain period of time after cessation of employment. The Courts in India have declared that such non-compete clauses/agreements can have effect only during the subsistence of services. Post-termination they are deemed to violate public policy and are therefore void as per the Indian Contract Act 1872. Any agreement between the employer and employee which restrains the employee from exercising a lawful profession, trade or business of any kind, is to that extent void.

Whistleblower Laws

India has enacted the Whistle Blowers Protection Act, 2014 which is applicable only in the case of public servants.

In terms of the provisions of the Companies Act, 2013 and listing regulations, only listed companies which have accepted deposits from the public and companies which have borrowed amounts in excess of INR 500 million from banks or financial institutions are mandatorily required to have whistleblower policies.

As a matter of good corporate governance, subsidiaries of many multi-national companies have also introduced whistleblower policies.

Special Rules For Garden Leave

There are no special rules related to garden leave in India. Increasngly, employers are using the option of garden leave in case of separations at senior levels.

Severance Payments

White-Collar Employees: There are no specific provisions for severance payments for white-collar employees. Entitlement to severance payments is governed by the company’s policy and the terms of the employment agreement. In practice, severance pay is calculated as 15 days of gross pay for every completed year of service.

Blue-Collar Employees: An employee who has been in continuous service for at least one year is entitled to be paid compensation equivalent to 15 days’ average pay for each completed year of service at the time of termination of employment.

Special Tax Provisions And Severance Payments

Severance Payments are not a part of the salary and are subject to tax deduction at source. An employee can claim income tax exemption on severance payment received as per the provisions of the Industrial Disputes Act 1947.

Allowances Payable To Employees After Termination

Provident Fund is payable to an employee (white-collar or blue-collar employee) upon termination. Gratuity is payable only after the employee has completed 5 years of continuous service. Accrued but unused annual /privilege leave is also payable to an employee. No other allowance is payable to an employee after termination of his/her employment.

Time Limits For Claims Following Termination

As per the Limitation Act 1963, mostly relevant for white-collar employees, money claims (including claims relating to provident fund and gratuity) must be initiated within 3 years of the date when it was due from the employer. However, gratuity will not be payable if the employee is found guilty of fraud. In the case of blue-collar employees, with respect to any statutory dues, the claim should be filed in a reasonable period but in exceptional circumstances, this period could be longer also.

Specific Matters Which Are Important Or Unique To This Jurisdiction

Children below the age of 14 years old are prohibited to work in any establishment.

Search by:
Need more information?
Contact a Contributing Author:
Rohit Kochhar
Kochhar & Co.


© 2021, Kochhar & Co. All rights reserved by Kochhar & Co as author and the owner of the copyright in this chapter. Kochhar & Co has granted to Multilaw non-exclusive worldwide license to use and include this chapter in this guide and to sublicense Lexis Nexis, a division of RELX Inc. and its affiliates certain rights to use and distribute this Guide.

The information in the How to Hire and Fire Guide provides a general overview at the time of publication and is not intended to be a comprehensive review of all legal developments nor should it be taken as opinion or legal advice on the matters covered. It is for general information purposes only and readers should take legal advice from a Multilaw member firm.

Publication Date: June 2021