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.

In this period of economic recession lakhs of employees face the threat of lay off and retrenchment. People often mistake retrenchment for lay off. Even though in common parlor people use the latter term more often, what actually happens in the case of most of the employees is retrenchment or termination from service.

The Industrial Disputes Act, 1947 defines retrenchment as “termination by the employer of the service of a workman, for any reason whatsoever”. The following are not instances of retrenchment.
a.Termination as a form of punishment by way of disciplinary action.
b.Voluntary retirement of the workman.
c.Retirement of the workman on reaching the age of superannuation.
d.Termination of the service as a result of the non renewal of the contract of the employment.
e.Termination on the ground of continuous ill health.

For the retrenchment of a workman who has been employed for a minimum period of one year continuous service, the following conditions shall be met with by the employer:
a.The workman shall be given one month’s notice in writing, indicating the reason for retrenchment, or wage equivalent to the period of notice.
b.The workman shall be paid compensation equivalent to 15 days average pay, for every completed year of continuous service.
c.Notice in the prescribed manner shall be served on the appropriated authority.

Employees working in factory, mine, oilfield, plantation, port, railway company, shops and establishments where 10 or more persons are employed are eligible for gratuity. Normally gratuity is to be paid to an employee after termination of his service, if he has rendered continuous service of not less than 5 years. If termination is due to death or disablement, then 5 years service is not required.

The amount of gratuity is calculated at the rate of 15 days wages for every completed year of service. However the maximum gratuity amount shall not exceed Rs 3,50,000/-.

Keeping in view inflation and spiraling prices, the Union Government decided to amend the relevant provisions, namely Sec 4 of the Act. While it was found that an amount computed at the rate of 15 days wages was a small amount, the said amendment seeks to enhance the same to 30 days wages. The Bill was introduced in the Rajya Sabha in November 2012 and is yet to be passed in the Rajya Sabha. Following the President’s Assent, the Bill will become an Act and come into force on a date decided by the Government and notified in the official gazette.

Employers of establishments where gratuity is applicable are supposed to obtain insurance for their liability for payment towards gratuity. They also need to register the establishment with the Controlling authority. The employer is also duty bound to display an abstract of the act and rules in English and language understood by the majority of the employees in a place near the main entrance.

Each employee who has completed one year of service shall make a nomination, within 30 days of the completion of one year service.  If he or she has a family, then the nomination shall be made to a family member and not to a third party. The employee needs to apply for gratuity within 30 days of it becoming payable.

An employer who   makes a false statement or false representation with respect to any gratuity matter is liable for punishment with imprisonment up to 6 months or fine up to 1000 rupees or both.

The Payment of Gratuity (Amendment) Act, 2010, has increased the gratuity limit from 3.5 lakhs to 10 lakhs and the same is tax free. The same is applicable for both private and public sector employees. The enhancement is with effect from 24-05-10, and the same is calculated based on the date of retirement/resignation and not on the date of receipt of the amount. Section 10(10) 0f the income tax contains the provisions relevant to tax implications of gratuity.

Once the Act becomes applicable, it continues even if the number of employees falls below ten.
The formula for the calculation of gratuity = (Last drawn basic salary +DA) x 15/26 x number of years of service.
As per the decision in of Madras High Court in   Mettur Beardsell Limited, Madras Vs. Regional Labour Commissioner (Central), Madras & others reported in 1998 LLR 1072 (Mad. HC), an employee who has completed at least 240 days of service in the fifth year will be eligible for gratuity.