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January 21, 2008
Employment Law: Hire & Fire Your Employees At Will
Recent news articles suggest that the Indian
Ministry of Labour and Employment (“Ministry”) is
considering reforming some of the onerous Indian labour laws in
order to allow for an ‘at-will’ employment policy, as a result
of which the employer may be able to terminate the employee’s
employment without the requirement to establish a cause. Such a
reform would basically require an amendment to the existing
retrenchment (termination) provisions under the Industrial
Disputes Act, 1947 (“IDA”) and the state-specific labour
laws, as may be necessary. The Ministry’s proposal though is
expected to have strong resistance from trade unions and leftist
parties, in view of the fact that such a move is regarded as
being anti labour.
Proposed
Reforms:
The current provisions of the IDA inter alia
require the employer to issue a termination notice indicating
the reasons for termination of a workman’s (as defined in the
IDA) employment. Some of the state-specific shops and
establishments enactments, including the Karnataka Shops and
Commercial Establishments Act, 1961, the Andhra Pradesh Shops
and Establishments Act, 1988 and the Tamil Nadu Shops and
Establishments Act, 1947, currently require the employer to
terminate an employee’s employment only with a “reasonable
cause”, although such requirement is not necessary in case of
termination as a result of the employee’s misconduct. The IDA
also contains provision for the requirement of obtaining prior
permission of the government in case of termination of workmen
in certain industrial establishments such as factories, mines
and plantations employing at least 100 workmen.
Sensing that such provisions have been
restricting the ability of employers to employ larger number of
employees in the organisation, the Ministry has been working on
a formula to allow employers to terminate the employee’s
employment after suitably compensating them. The current
proposal includes payment of an additional compensation by the
employer to the employee, to be calculated at the rate of 45 to
90 days of the employee’s salary. The Ministry is working with
some of the industry bodies to finalise the structure for such
compensation.
Implications:
The concept of at-will employment, which has been
adopted successfully in several countries, does not currently
exist under Indian labour law. The proposal of the Ministry, to
the extent it eventually results into law, is expected to
significantly enhance business confidence, not only amongst
Indian companies, but also with foreign companies who are
currently using or are proposing to use India as an offshoring
center. Besides increasing industrial productivity, such a
proposal is also expected to help reduce the high levels of
employees currently in the so-called ‘unorganized’ sector, as
the employers would be more forthcoming to directly employ them
as regular full-time employees. However, it is necessary that
before enacting any such proposals, utmost care should be taken
to protect the employees’ interests in order to ensure that the
employees are not put at any disadvantage as a result of
immediate loss of employment. Further, it is also necessary to
add caveats so that such a policy is not abused by the employers
by creating discrimination issues in the workplace or is not in
contravention of public policy. Source:
The Economic Times,
January 13, 2008
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