FAQs On Indian Employment Laws: Work Force Structuring And Hiring Practices.

Updated: Sep 10, 2020

The COVID – 19 pandemic forced governments across the world to impose lockdowns and organisations to temporarily shut shop or allow employees to work from home. Now that governments, including the Indian Government, are allowing establishments to open and begin work in a regulated and phased manner, we thought it be useful to for employers to take this opportunity to relook at and re-evaluate their compliance with Indian employment laws.

This article is part of a three part series, which intends to answer key frequently asked questions on Indian employment law:

  • Part I: Workforce Structuring and Hiring Practices

  • Part II: Employment Benefits, Health and Safety, and Discrimination and Harassment

  • Part III: Employee Separation and Post Employment Restrictive Covenants

Frequently asked questions on workforce structuring and hiring practices:

1. How do organisations typically structure their workforce? Are these different structures statutorily governed?

The manner in which an organisation structures its workforce primarily depends on the business of the organisation and the manner in which it intends to utilise its workforce. Below are common workforce categories:

a. Employees: This is the most common form of workforce engagement and also the most clearly understood category. The employment relationship is regulated under law and envisages the employer’s ability to exercise supervision and control over its employees. Employees are entitled to benefits as prescribed under the organisations polices and applicable employment laws such as the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, the Employee’s State Insurance Act, 1948, and the Payment of Gratuity Act, 1972. Certain categories of employees are also entitled to statutory protections against at-will termination. Terms of employment such as leave, hours of work, process for termination, etc., depend on factors including the industry of the employer, nature of work performed by the employee, seniority, and the state in India where the establishment is based. Taking into account the needs of an organisation, employees are employed as full time, part time or fixed term employees.

b. Consultants: Individuals who are engaged to provide specific services to an organisation on a principal-to-principal basis are considered consultants. There is no employer-employee relationship in a consultancy arrangement and therefore, the consultants are not ordinarily subject to supervision and control as part of the engagement. Consultants are generally non-exclusive resources who may perform work for a number of organisations. Consultants are not eligible to the statutory benefits that are otherwise available to employees, such as social security, overtime, and protections with respect to termination of employment. Organisations typically engage consultants to perform specialised work and not to carry out routine or core work that would ordinarily be done by employees.

c. Contract Workers: Contract workers are engaged through third‑parties (contractors) to provide services or complete specific work at the organisation’s establishment. The engagement of contract workers is governed by the Contract Labour (Regulation and Abolition) Act, 1970. This statute prescribes certain thresholds (that vary from state to state) for organisations and contractors to obtain registrations and licenses to engage or deploy contract workers. Contract workers are normally engaged for a variety of purposes which include infrastructure maintenance, security, housekeeping and catering.

Additionally, the proposed Code on Social Security, 2019, has defined gig-workers and platform workers. Accordingly, these arrangements may be regulated in the future.

The manner in which an organisation structures its workforce would have to be aligned with its overall business goals and workforce and human resource costs. With the emergence of e-commerce and other technology based business models, gig or on-demand working models are gaining popularity in the country. It is also important that organisation understand the legal requirements and implications before finalising on its workforce structure.

2. Can foreign nationals be employed by Indian organisations? What are the key factors to be kept in mind while engaging foreign nationals?

Yes, foreign nationals can be employed by Indian organizations. However, it is important to keep the following in mind immigration, social security, and tax considerations.

3. Is the recruiting process statutorily governed? What aspects should an employer keep in mind while receiving applications and conducting interviews?

Recruitment in the private sector is not statutorily governed. However, it is important for organisations to keep in mind that India has a set of anti‑discrimination statutes that prohibit discrimination in employment on the basis of certain characteristics, including sex, gender, disability, caste and HIV status. Therefore, when seeking applications from candidates and conducting interviews, it is essential that organisations be mindful not to seek information that could potentially lead to a recruitment decision being made on the basis of a person’s protected characteristics.

4. Are employers permitted to conduct pre-recruitment background checks?

Yes, there is no statutory prohibition on conducting pre-recruitment background checks on employees. Background screening is generally done for education qualification verification, previous employment status, address verification, criminal background verification, reference verification, and applicable database verification.

Additionally, in the event that applicants are required undergo medical tests to ensure that they are fit to work, the organisation must ensure that no HIV tests are conducted without the informed consent of the applicant. Further, as stated above, a person’s HIV status is a protected characteristic under Indian law.

5. Are there any consent obligations that an employer should comply with while recruiting employees?

Yes, to the extent that any recruitment related information from the candidate is being collected, stored, and/or transferred as electronic data, the organisation would be required to adhere to the requirements prescribed under the Information Technology Act, 2000 and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011. These rules require that entities adhere to certain requirements in relation to the collection, storage and transfer of electronic data that is classified as sensitive personal data or information (Sensitive Personal Information) viz., (i) passwords; (ii) financial information such as bank account or credit card or debit card or other payment instrument details; (iii) physical, physiological and mental health condition; (iv) sexual orientation; (v) medical records and history; and (vi) biometric information.

6. Is it mandatory to issue an employment contract? Should it be in vernacular?

No, there is no mandatory requirement to execute employment contracts in India. It is however highly recommended that organisations execute/issue some form of an employment agreement, which captures terms regarding notice period for employment, confidentiality, conditions of employment and restrictive covenants. Additionally, certain state specific statutes that are applicable to shops and commercial establishments require that employers issue appointment orders to employees containing basic details such as designation of the employee and the wages of the employee. Employment documentation can ordinarily be issued in English or any other language that is understood by the employee.

7. What are the critical terms in an employment contract?

Employment contracts would have to be aligned to the objectives of the organisation that is employing a candidate and would vary based on the organisation’s objectives and ethos. However, some critical terms that are typically included in employment contracts are: (i) duties and obligations of the candidate, (ii) duration of employment (i.e. part-time, full-time, fixed-term, etc.), (iii) termination and notice related terms, (iv) compensation and benefits, (v) restrictive covenants such as non-compete, non-solicit, non-disclosure, (vi) ownership and assignment of intellectual property created during the course of employment, and (vii) confidentiality.

8. Can employment contracts be digitally signed to be enforceable?

Yes, per se under law there is no requirement of a wet ink signature for valid formation of a contract.

9. Can terms of employment be unilaterally altered by an employer?

The ability of an employer to unilaterally alter the terms of employment would depend on (i) whether the employee in question is a ‘workman’ as per the Industrial Disputes Act, 1947 (ID Act); (ii) whether the employer has retained this right under the employment contract; and (iii) the nature of the change itself. The ID Act requires an employer to provide workmen at least 21 days prior notice of any change to certain terms of employment if the change is to the detriment of the workmen. These terms include compensation and benefits, hours of work, leave, and customary concessions and privileges. State-specific rules also require that this notice also simultaneously be forwarded to labour authorities. As per the ID Act, a ‘workman’ is any person employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward. This definition excludes persons employed mainly in a managerial or administrative capacity and those persons who are employed in a supervisory capacity drawing monthly wages in excess of INR 10,000.

For conditions of service, the change of which are not regulated under the ID Act, and for employees who are not ‘workmen’, consent would be required to change the terms of employment, unless the organisation has retained the right to unilaterally alter terms in the existing employment documentation.

10. What are the mandatory / recommended policies governing the employment relationship?

Below are recommended human resource policies that are either mandatory under law or highly recommended to secure the interests of both the employer and employees.

a. Policy on Prevention of Sexual Harassment at the Workplace: This policy is required to be in accordance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

b. Equal Opportunity Policy: Employers are required to formulate an equal opportunity policy under the Rights of Persons with Disabilities Act, 2016.

c. Maternity Benefit Policy: The Maternity Benefits Act, 1961, mandates that employers inform women employees of the benefits available thereunder, in writing, at the time of employment. As this statute provides a comprehensive set of maternity benefits, it is best to inform employees of the benefits available thereunder through a comprehensive maternity benefit policy.

d. Leave and Holiday Policy: While not mandated under law, it is best practice to notify employees of their leave entitlements through a leave policy as this would ensure that there is clarity regarding leaves and holidays.

e. Information Security Policy: Given that a number of organisations have begun working from home, it has become even more important for employers to implement robust and comprehensive confidentiality and information security procedures and process. It is not only highly recommended that employers invest in creating robust confidentiality and information security policies, but also train employees on these policies, the best practices to be followed and consequences of breach.

f. Code of Conduct: It is recommended that organisations put in place a comprehensive code of conduct that specifically details the various types of unacceptable behaviour, and misconduct.

g. Overtime Policy: The requirement to pay overtime in India is contingent on a number of factors including the work that the employees are performing, the wages that the employees are earning, and the state in which the employee is based out of. Given that a large number of employees are working from home, organisations are now finding it difficult to monitor the actual number of hours worked. Therefore, it is recommended that organisations prepare robust overtime policies to state when employees would be entitled to overtime pay.

h. Anti-Discrimination and Anti-Harassment Policy: While not mandatory under law, it is recommended that organisations implement anti-discrimination and anti-harassment policies to ensure address any cases of discrimination or harassment that employees may face. In addition to such policy creating a safe and respectful working environment, it will also help organisations standout as favourable workplaces for employees.

In this part of the series on FAQs on Indian Employment Laws, we have highlighted key employment law considerations in hiring and on‑boarding of employees. In Part II, we will be addressing key issues that arise during the course of employment, particularly related to employment benefits, health and safety and discrimination and harassment.

About the Authors:

Veena Gopalakrishnan, Partner

Veena Gopalakrishnan is an employment law partner at AZB & Partners and is based out of Bangalore. She focuses on providing strategic and practical counsel to employers across industries on a wide range of issues pertaining to Indian employment law, keeping in mind rapidly evolving workplace dynamics. A significant portion of the practice is focused on assisting employers mitigate risks of litigation and ensuring compliance with Indian law. Being a strong advocate of inclusion, she has also been actively involved in advisory pertaining to workplace harassment, legal aspects of diversity and inclusion, including drafting and reviewing employment policies and educating employers on their duties and obligations in this respect.

Linkedin profile: https://www.linkedin.com/in/veena-gopalakrishnan-b311a692/

Nishanth Ravindran, Senior Associate

Nishanth Ravindran is a senior associate at AZB & Partners, with a focus on employment law. He routinely advises on issues pertaining to all stages of the employment lifecycle viz., recruitment and hiring, employment documentation and human resource policies, remuneration and benefits (including stock linked benefits), employee cessation, and related intellectual property law and corporate law issues. He also supports clients in employee related litigations and disputes, and with their industrial and employee relations issues.

Archika Dudhewala, Associate

Archika Dudhwewala is an associate at AZB & Partners, and a part of the firm’s employment law practice. She predominantly focuses on advising clients on various employment law issues including those related to statutory benefits, working hours, and employee policies and also assists in drafting and reviewing employment documentation such as employment agreements, employee handbooks, and termination policies and procedures.

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