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It’s layoff season. Many companies around the world are laying off their employees to cut costs and save profits. In India, many people have left their jobs, especially in start-ups. However, not many employees are aware of their rights when they are dismissed and what they can do if they are dismissed wrongly or for a short time at the time of dismissal.
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Recently, we have heard a lot of news about mass layoffs at various IT companies. This suggests that there may be sudden job losses in such industries as well. However, not many employees are aware of their rights when they are fired without notice or simply asked to leave. It is important that all employed people know their rights.
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Sanket Jain, partner, Pioneer Legal, says, “Employees are usually governed by the contracts they sign at the time of joining. However, labor and employee welfare laws are sacrosanct and take precedence over employment contracts. There are a number of welfare laws at work these days. and the most prominent of these are the Industrial Disputes Act, 1947 and the Trades and Establishments Act, 1954. However, these Acts have inconsistencies and are insufficient to deal with complex labor-related issues.”
According to labor law, there is no standard format for employment contracts. Therefore, if the labor laws do not talk about any issues (say, the compensation payable in case of dismissal), the contract will prevail.
If the employment contract states that the employee is entitled to compensation in the amount of 30 days’ wages in the event of dismissal, but the applicable labor legislation states that compensation for 90 days is due, then the provisions of labor law will take precedence over the employment contract . , says Jain. On the other hand, if the law provides compensation for wages for 30 days, while the employment contract stipulates the payment of compensation for 60 days, then the employment contract takes precedence over the labor regulations. It is actually the larger of the two amounts that will be payable to the employee, he explains.
Abhishek Mathur, Partner, Luthra & Luthra Law Offices India, says, “After independence, labor laws were drafted primarily with the intention of protecting the interests of workers, who usually had less bargaining power. Generally speaking, the legal framework in the context of industrial relations and disputes, categorizes employees as workers or workers whose nature of work is not managerial or administrative (usually includes workers at the lower rung of the hierarchy).” The second category is people who have a managerial or administrative or higher profile.
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Labor laws closely regulate the termination or dismissal of these workers (not managers) and supersede the terms of their employment contract. “However, for other employees who have a managerial, administrative or senior profile, the law generally allows the parties to determine their own terms and conditions, including termination, subject to certain overriding provisions under any applicable laws, such as the Trades and Establishments Act. Provisions about termination in such employment contracts are generally of two types: one in which the employer or the employee can terminate the employment relationship without giving a reason, but in advance, and the other in which the employer can terminate the employment relationship due to some fault of the employee, because stated in the contract, Mathur adds.
Under “Termination for fault”, the company can fire an employee for violating the terms of the employment contract. This includes acting against the interests of the company. In such cases, the employment contract must not contain any notice period or detailed termination procedure. The employee may be asked to leave work immediately.
In the event that a company wants to fire an employee to implement cost-cutting measures, or for any other reason through no fault of the employee, the employment contract usually provides that the employee will be given advance notice (often 30 to 90 days).
PV Ramana Murthy, Head of Employment and Labor Law Practice, Economic Law Practice (ELP), says, “The services of an employee who falls under the category of non-worker under the Industrial Disputes Act, 1947 are governed solely by valid employment. If the employer wants to terminate the services of such an employee, he can do so by applying the relevant provision of the employment contract and complying with the conditions set out in the contract. For example, an employer can terminate an employee’s services to the employee by giving a prescribed notice period or by paying wages in lieu of such notice. Indian employers many times invoke this clause to terminate their employees by issuing a ‘termination simpliciter’ meaning without assigning any reason.”
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Mathur says that the termination clause in employment contracts (with managerial/white collar/senior profiles) usually stipulates that the company can circumvent the requirement to give advance notice to the employee by paying wages and other benefits as agreed in lieu of notice.
Key employees in large corporations are often able to get termination clauses that provide them with certain benefits, such as a substantial severance package, built into their employment contracts. That is why we often hear about the high sums paid to high-ranking employees of large companies when they are fired.
Says Mathur: “If the terms of employment are governed by the terms of the employment contract, an employee who has been wrongfully dismissed can sue the company for acting in breach of the terms of the agreement.
Similarly, if the employee does not receive the benefits payable at the end of the employment relationship, the employee can claim these benefits. In cases where the termination of employment with a worker is governed by the provisions of labor law, the law itself determines the remedy available to such a worker.”
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Therefore, if an employee is dismissed with a shorter notice period or is paid a lower wage compensation than is stated in the employment contract, this is considered a breach of contract. In such a case, the employee can sue the company for breach of the employment contract.
Pioneer Legal’s Jain says, “Breach of employment contracts are usually dealt with by labor courts in the case of workers. However, an employee who has signed an employment contract can also approach a civil court for breach of employment contract. Jurisdiction of the courts is determined by the place of work.”
As mentioned above, if the employment contract is silent on any issue, the laws will apply to those issues. Usually the Industrial Disputes Act 1947 or the Trades and Establishments Act applies to the individual.
The Industrial Disputes Act is a central law, so the rules are the same throughout the country. An employee will be governed by the Industrial Disputes Act if he meets the definition of a ‘worker’. In general, the law defines a worker as an individual who does not work in an administrative or managerial capacity.
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Even if an employee meets the definition of a worker, other parameters must also be met in order to be covered by the Industrial Disputes Act. Some parameters are the nature of work, industry, and the like.
If an employee covered by this law is dismissed, he or she is entitled to severance pay. “Retrenchment compensation is payable as 15 days of the last drawn basic pay for each completed year of service,” says Jain.
Further, government permission is required to dismiss workers if an enterprise covered by the Industrial Disputes Act has employed 100 or more workers per working day in the last 12 months.
According to the law, the company or establishment is obliged to state the reason for the termination. However, the law would not apply to employees who do not fall under the term worker, nor to employers who, according to the law, do not meet the conditions of an industrial plant.
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If the employee is not covered by the Industrial Disputes Act, the provisions of the Shops and Establishments Act take precedence over the terms of the employment contract to the extent that they conflict with the provisions of this Act. However, the establishment where the employee works should fall within the scope of this law. Each state has its own shop and establishment law, so the case depends on where the employee’s place of work is located.
For example, an employee working in Hyderabad for an MNC with multiple offices in India will be subject to the Telangana Shops and Establishments Act.
As the current laws are old and archaic, individuals must read their employment contracts first. Says Jain: “An individual joining a firm must carefully read and understand the terms of the employment contract. There may be areas (besides salary) in contracts that are negotiable.”
The government plans to replace the old labor laws with the Labor Relations Code by 2020. Although the laws have been approved by parliament, the implementation date is still pending. Mathur says, “In view of the need for uniformity and clarity in the application of labor law, Parliament has enacted four separate laws, generally
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