Mentoassociates.com – Legal Articles

The labour law, at present in India, is not highly favouring employees drawing handsome salary, working in IT and other related fields. The applicable labour laws do not assure the job security of skilled employees, particularly who work mainly in managerial, administrational and supervisory roles. In the absence of specific contracts which protect the interest of employees, employers continue to adopt a hire and fire policy. The present discussion includes within its ambit IT Sector and other higher level employment.

In Karnataka almost all IT and other major companies come under the definition of ‘commercial establishment’ and hence The Karnataka Shops and Commercial Establishment Act, 1961 is applicable to the employees working in them.

As per sec-39 of the said Act, an employer can remove or dismiss an employee who has put in at least 6 months of continuous service only for a reasonable cause and after issuing one month notice or giving him salary instead. This means that if an employee has put in less than 6 months of service an employer can terminate him at his will.

If, after an enquiry, it had come to the notice of employer that there is some misconduct on the part of the employee, then the employee is not entitled for notice or salary in lieu of notice.

An employee who is removed or dismissed from his service shall have the right of appeal before the Assistant Commissioner of Labour within 30 days from the date on which the order of removal or dismissal was communicated to him.

If the appellate authority finds that the employee has been removed or dismissed without reasonable cause or without proof of misconduct and if the employer does not agree to reinstate him, employee shall be entitled to compensation calculated at the rate of one month pay for every year of service. If the employee or the employer is not satisfied with the order of appellate authority they can apply for a revision of the said order by the district judge.

Other states have passed similar acts for Shops and Commercial Establishments.

The Industrial Dispute Act 1947 also deals with the termination of employees. However this Act is not applicable in the case of the following employees:
a. Employees who are employed in managerial or administrative capacity
b. Employees who are employed in a supervisory capacity and whose monthly income exceeds Rs. 10,000/- per month.

As per this Act, if an eligible employee, who had been in continuous service for not less than 1 year, then the employer can terminate him only by following the below mentioned procedure:
a. The workman to be given 1 month notice in writing indicating the reasons for retrenchment/termination or one month salary instead of notice.
b. The workman has been paid at the time of retrenchment compensation equivalent to 15 days average pay for every completed year of service.
c. Notice in the prescribed manner is served on the appropriate government authority.

In spite of what is discussed above, if there is any employment contract between the employer and employee, which provides better conditions in favour of the employee, then the same will have applicability over and above the statutory provisions mentioned before.

Section 25 of the Companies Act, 1956, provides for formation of companies for the purpose of promoting Commerce, Art, Religion, Science, Charity and other useful objects. Many people form charitable organisations in the form of companies also. In the case of companies, the statutory compliance is much more than compared to trust or a society. Hence the chances of mismanagement are less. Normally chambers of commerce and trade bodies are registered under this section. This is not a very popular form of charitable organization for common people.

Section 25 company is more stable than a society but less rigid than a trust Amendments to the objects can be made by invoking the provisions of the Companies Act, 1956.

People form a society when the members are more and the control and management is broader based. Here it is comparatively easy to change the powers and objects of the society. The managing committee is normally elected and hence a society is more democratic in its form and spirit.

The main disadvantage of the society is that it is more decentralised and more likely to have lack of stability. There is likelihood that the management may fall into the hands of undesirable persons. However the Registrars under the societies Act have sufficient powers to effectively control the society. The statutory compliances and governmental interference is more compared to a trust and less compared to a society.

The process of registering a trust is comparatively easier than registering a society or a company under section 25 of the Companies Act, 1956. The control of the trust is in the hands of a few trustees who are normally nominated and not elected. Further the number of trustees is limited. The founder of the trust, if he wishes can become a trustee also. A trust is more suited where a few people can contribute more money for charitable purposes and want a tight control on the organisation. The statutory regulations and interference is less compared to a society or a company.

The disadvantage of the trust is that the trustees cannot change easily the objects of the trust or their powers; it can be done only with the approval of the court. Further there is less democratic spirit in a trust and the same is more centralised.