This article is written by Gurkaran Babrah, a first year law student at Symbiosis Law School. Noida. This article discusses various aspects under the Labour And Industrial Laws.
Contract of employment is mostly used in labour laws and Industrial laws. It is a written agreement between an employer and an employee which states the rights and duties of both the employer as well as the employee. The agreement specifies the salary/wages, duration of employment, timings, employee benefits, employee responsibilities, Employment absence, Dispute resolution, grounds for termination and stipend (if any).
Employee versus Independent Contractor
These two terms are often misunderstood by a number of people. These two have different meanings and are different in its legal application. Therefore, it is imperative to understand these terms. To determine whether a person is an employee or an independent contractor, there are a number of factors which are taken into consideration.
An employer is covered by a number of federal and state employment and labour laws.
Whereas an independent contractor is not covered by labour laws.
An employee works for a single employer.
Whereas an independent contractor can work for more than one employer.
An employer works under the direction of the employer.
An independent contractor does not work under the control and direction of the employer.
An employee is eligible for workman’s compensation benefits.
An independent contractor is not eligible for workman’ s compensation benefits.
An employee is required to attend the office and work on the official premises of the employer.
They can work from anywhere from any location constraint.
Employee versus Consultant
Employees and consultants are two different things. Employees are considered to be a part of the organisation. They work for the organisation. Their actions are considered to be the legal actions and are considered to be the actions of the organisation itself. Employers and employees have relationships in an organisation and it’s a different kind of relationship. It is the duty of the employer to maintain a safe environment and to provide basic needs to their employees. Whereas consultant is a completely different person. He/she provides his or her services to the organisation and does not directly work under the organisation. A consultant does not the benefits which a regular employee gets. They are hired for a specific task, i.e., to evaluate and advise.
Express and Implied terms
There are two types of terms and these are express and implied terms.
Express terms are those terms which are specifically stated either orally or in writing. The law requires that the express terms should be put into writing and they should be handed to the employee in a written statement.
Whereas implied terms are those terms which are not stated explicitly. These are general terms like the right to equal pay, and duty of care, etc.
Good faith and Fidelity
When there is a contract of employment, there are always implied and express terms. Sometimes everything is not written in a contract. There are implied terms in a contract. Acting in good faith means that the employer would honour these provisions and will not terminate the contract for other reasons. The covenant of good faith and fair dealing requires the employer to fire the employee when they have good cause.
Fidelity is also similar to good faith. Fidelity means that the employee will serve his employer with loyalty. In a contract of employment, the employer is expected to act in good faith and fidelity because each and everything is not written in a contract of employment. There are certain things which are assumed. There the employer is expected to act in good faith and fidelity.
Right to suspend an employee
The employer has the right to suspend an employee if, found misbehaviour or misconduct is found on the employee’s part. Generally, when employees are hired or the staff is selected they are made familiar with the rules and regulations of the organisation. Their consent is also taken that they will follow and adhere to the rules and regulations of the organisation. Thus, they give the right of suspension to the employer.
To suspend an employee means not to allow him/her to continue the work. The question arises that why, when and how an employee can be suspended. Employees are mostly suspended on the grounds of misconduct or misbehaviour. Intoxication, fighting or physical abuse, lewd behaviour, theft, fraud, sabotage, offensive behaviour and bullying are examples of misconduct. An employee is suspended to stop him to continue his/her misbehaviour. He/she may be stopped from interacting with other employees as it can put a bad effect on business.
Scale of subsistence allowance
Subsistence means necessities. It means that supporting oneself, especially at a minimum level. Subsistence allowance is defined under Section 10 (A) of the Industrial Employment (Standing Orders) Act, 1946.
Subsistence allowance means that when an employee is suspended by the employer and the investigation is still pending against the employee, the employer has to pay the subsistence allowance to the employee.
For ninety days, he/she will be paid fifty per cent of the wages which he/she was getting before suspension. If the investigation is still pending after the ninety days then, the employee will be paid seventy-five per cent of the wages. But the delay in the completion of the investigation should not be attributable to the conduct of the employee.
Transfer of employee
Under the agreement, the employer can transfer the employee. He/she can have their employees to work for another company. These transfers are considered to be the legal transfers if the employee has given his/her consent. Here is an example of it. Suppose if (employer 1) has hired an employee and wants to transfer him/her to (employee 2). He can transfer him with employee’s consent.
The employee will remain legally employed to (employer 1). He will be paying wages to the employee. (employee 1) will not be bound to any terms which were not in the original agreement. But if the employee does not give his/her consent then the employer can not make a transfer.
In this case, the manager (appellant) of a mill wanted to transfer its 4 workmen. So he ordered the transfer to another mill. Subsequently, he bought that mill. The concerned workmen (respondent) protested against the order and did not want that transfer to happen. As a result, they were served with the notice of disobedience of standing orders and were further dismissed from the service.
The law tribunal found that the appellant had no right to transfer its employees because there was no free consent from the employees. The appellant came before the supreme court and said that the right of transfer of an employee by the employer is implicit in every contract of service. But, the question was whether a person employed in a factory can be transferred to other factory without his consent.
It was held that other than any statutory provision, the right of an employer to transfer its employees are governed by the terms and conditions of the contract between them or by implied terms.
But in this contract, there was no express agreement regarding the transfer and it can not necessarily be implied that the employer has the right to transfer its employees to any of its concerned place. Therefore, the employer (appellant) can not transfer its employees (respondent).
Customary practices may ripen into an implied term There are some instances where a customary practice somehow leads to implied terms in a contract. Sometimes customary practices are considered to be the standard practice. For example, if someone has called an electrician to get some work done then it is generally presumed that he will bring his own equipment because this is the standard practice.
In this case, the respondent was working as a clerk in the company. He worked there for 30 years. After he retired, he claimed that he was entitled to get the 3 months wages as ex gratia payment. He claimed it because it was considered as an established practice and the same was paid to all who had rendered services for more than 30 years.
Therefore, he contended that it was an implied term of the contract that whoever will render service for more than 30 years will get this payment. The petitioner refuses to pay the amount. The judge of the labour court in his judgement said that since it is a long-standing practice. The petitioner has to pay the said amount as the respondent has rendered his services for more than 30 years.
Sources of Contract of Employment
There are a number of sources of employment. These include advertisements, employment exchanges, educational institutions, recommendation of existing employees, factory gates and labour contractors. These are further explained below:
Advertisements is a very common and widely used method of employment. Advertisements are given in newspapers, blogs, professional journals and etc. They attract a large number of applicants. To attract the job seekers advertisements are prepared in a very good manner. Preparation of advertisements is also a specialised task as it affects the job seeker very positively if the advertisement is well-drafted.
Employment exchanges is a very good source of employment. These exchanges are run by the government agencies and are often related to unskilled, semi-skilled, skilled and clerical posts. For some organisations, it has been made compulsory for them that they should notify the employment exchanges about vacancies. If there are vacancies then Employment agencies helps to provide job the job seeker.
Educational institutions also plays an important role as a source of employment. In professional courses, the companies visit the campuses of reputed universities. Companies offer packages to the students. If the student accepts that particular package then he/she starts working in that company. Recruitment from Indian institute of technology (IITs) is a fine example of this process.
Recommendation of existing employees
Recommendation of employees is another source of employment. The employees who are already working in the organisation are asked to assist employers and help them in the recruitment process. They are asked to recommend the candidates who are actually interested in the job and who are willing to put such efforts to accomplish the goals of the organisation. The present employees generally know the candidates which there are going to recommend.. Rewards are given if the company selects the candidates recommended by them.
Factory gates is also known by the name of “direct recruitment”. It is generally for unskilled and semi-skilled workers. In this, a notice is placed outside the organization specifying the details of the job, time period of the job, and salary. A number of workers gathered outside the factory. Whenever there is a need for workers, the personal manager scrutinize them and select them on the spot. The workers selected are known as ‘Badli workers’.
The practice of labour contractors is very much prevalent in the country. This is mostly used for unskilled and semi-skilled workers. The labour contractors keep themselves in contact with the labourers. When required they bring these labourers to the workplaces and they get commission on the number of workers supplied by them.
Appointment letter is an official legal document given by the employer to the employee. It is a confirmation letter that the job offered by the organisation is accepted by the employee and he/she has accepted the terms and conditions of the job. It contains all relevant details of the job and is mentioned that what is expected of the employee, job timings, salary, number of hours one has to work, and sick day leaves. The appointment letter should not contain irrelevant details. There is a structure of writing an appointment letter. It should be written on the organization’s letterhead pad mentioning details of the person who is writing that appointment letter with his/her signature at the end.
Statutorily imposed terms and conditions of service: Standing Orders
Standing orders defines the terms and conditions of recruitment, discharge, disciplinary action, holidays, leave, etc. Standing orders are mentioned under the Industrial Employment (Standing Orders) Act, 1946. Prior to these orders, the law of demand and supply used to prevail in the labour market. The employer and the employee used to mutually bargain the terms of employment. This process continued for a long time but after a certain time employees thought that they don’t have that adequate bargaining power. Though the terms and conditions are made in favour of employers.
As a result, they started gathering themselves into trade unions and collective bargaining. All this started creating problems and it started hampering industrial peace. Workmen started putting their demands in front of the employees. To deal with all these issues legislature came into the picture and introduced the Industrial Employment (Standing Order) Act, 1946.
In this case, the respondent was a conductor in Rajasthan state road transport. When he was on duty on badi chopped, Ajmer route, a surprise inspection was done and was found that 6 passengers were travelling in the bus without tickets. The respondent was dismissed from the service.
The respondent wanted to have departmental proceeding so he preferred an appeal. His appeal was dismissed. He further preferred review before the reviewing authority. His review was also dismissed. The respondent further filed a civil suit against the dismissal order in the court of additional munsif and judicial magistrate. The appellant challenged the jurisdiction of the court and said that being an industrial dispute, this should be resolved in an industrial tribunal.
The judge heard both parties and declared the orders of dismissal illegal and ordered the reinstatement of financial and other benefits to the respondent.
“Industrial or other establishment” under Payment of Wages Act,1936
Industrial and other establishments are mentioned under Section 2 of the Payment Of Wages Act, 1936. These include:
- Tramway service, or motor transport service;
- Air transport service other than employed in air, naval or military services;
- Dock, wharf, or jetty;
- Inland vessel;
- Mine, quarry or oil-field;
- Workshop in which articles are manufactured or produced with a view to transport or sell them;
- Establishment in which any work relating to the construction, development, or maintenance of buildings, roads, bridges or canals, or relating to operations connected with navigation, irrigation, or the supply of water or relating to the generation, transmission and distribution of electricity or any other form of power is being carried on.
“Factory” under the Factories Act, 1948
The law related to the regulation of factory labourers was embodied under the factories act,1934. This act was amended a number of times because it revealed some defects. On the other hand at the same time, the industrial sector was booming and it was getting difficult to continue with this law, therefore, the legislature restructured the law and introduced the factories bill in the legislature.
Factory is defined under Section 2 (m) of the Factories Act. It says:
- “Whereon ten or more workers are working, or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or
- “Whereon twenty or more workers are working, or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on without the aid of power, or ordinarily so carried on.
Matters for which Standing Orders should contain provision
Section 3 (2) of the Industrial Employment (Standing Orders) Act,1946 states that:
“Provision should be made for every matter mentioned in the schedule which may be applicable to the industrial establishment, and where model standing orders have been prescribed, shall be, so far as is practicable, in conformity with such model.”
These matters are:
- Type of workman, i.e permanent, temporary or probationers;
- Shift working;
- Attendance and late coming;
- Requirement to enter premises by certain rules and liability to search;
- Termination of employment, notice given by the employer;
- Suspension or dismissal on the grounds of misconduct;
- Manner of intimating to workmen periods and hours of work, holidays, pay-days.
Collective settlement is also known as collective bargaining. This process is mostly used by the workmen who are represented through trade unions. It is a method in which a dispute is resolved through a settlement. It is a process of negotiation and bargain from employer and employee to come to a conclusion. The terms of the agreement are discussed and both the employer and the employee discuss their viewpoints and then they come to a conclusion.
Employment manuals, etc
Employment manual are also known by the name of employee manual and company policy manual. This manual is given by the employer to the employee. Employment manual is like a welcome gesture. It contains all the relevant information related to the job. Company policy, rules, disciplinary and grievance procedures and what is expected of employees. All this is mentioned in the employment manual.
Types of Employment Contracts
Contract with a “permanent” employee
As the term suggests contract with an employee on a permanent basis means that the employee will work with the organisation on a permanent basis. He/she will receive all the benefits from the organisation. By holding a permanent position the employee will be eligible and will receive all the benefits from the employer. This term is defined in The Industrial Employment (Standing Orders) Central Rules, 1946. It says that a permanent employee is one who has satisfactorily put in three months of continuous service.
Contract with a “temporary” or “fixed-term” employee
Temporary or fixed-term contracts are those contracts which focus on specific task, or on a particular project. These are characterised by a limited duration of time. These kinds of contracts are mostly found in labour markets and serve a specific purpose. The person is employed for a limited duration and he/she is asked to perform the specific task.
The term “Probation” or “probationary period” is a status which is given to employees. This status allows the employer to check the abilities of the employee. The employer can closely evaluate and check the reliability, honesty, interactions with co-workers, supervisors and customers.
The time period of the probationary period varies from time to time. If the probationary performs well and does well in his period then he is removed from probationary status. On the other hand, if the probationer does not do well in his/her probationary period, the employer has the right to terminate their contract of employment.
Ajit Singh the respondent was a superintendent at the office of district food and supplies controller at Patiala, Punjab. Narinder Kumar Malhotra was employed as a sub-inspector at the same office of food and supplies, Patiala. He was dismissed from the service and the order was sent to the office of the respondent (Ajit Singh). The order of dismissal was to be delivered to Narender Kumar but it was not served to him.
The responded was dismissed and disciplinary proceedings were initiated against him on the basis of a charge sheet. The respondent went against the order which was rejected by the state government. The respondent filed a writ petition in the High Court of Punjab and Haryana challenging the order of suspension.
Contract with a “casual” employee
Casual employees are those employees who are mostly engaged on an as-needed basis. They are engaged in a work which is mostly casual in nature. The employee does not have the rights the way the permanent employees have. Casual employees are not entitled to the benefits the way the permanent employment are. A casual employee is entitled to guaranteed working hours, annual leave or etc.
The term “Badli” is defined in The Industrial Employment (Standing Orders) Central Rules, 1946. A badli is a worker who is appointed in the post of a permanent employee. If a badli has completed a period of one year, then, he/she will cease to exist a badli worker and will be converted into a permanent employee. A baldi becomes a permanent employee after the completion of the probationary period.
In this case, there was a mill in which there were certain goods which were essential in the process of manufacturing. These goods were detained by the excise duties for the non-payment of central excise duty. As a result, there was disruption in the functioning of the mill.
The respondent demanded that the affected employees should get their wages for the period in which the mill was not working. His demand wasn’t accepted by the appellant. The respondent filed an application before the labour court. After hearing both the parties court made liable to pay 50% of the basic wages and dearness allowance to the affected employees.
As the term suggests part-time employees are those employees who don’t work on a permanent basis. Part-time employee is an employee who work for fewer hours, has less number of responsibilities, and limited benefits. Service of part-time employee is protected under the Industrial Dispute Act, 1947.
Persons who are employed on a part-time under supervision or guidance of an employer, they can benefits of continuous service. They also have the right to challenge their dismissal, their services are terminated without fulfilling the provisions mentioned under Section 25F of this Act.
“Regularisation” of or granting “permanence” to “temporary or casual employees”
Regularisation and permanence are two different concepts. The supreme court has deliberated on regularisation of employees. The court said that the organisations who give jobs to the employees on a temporary basis or to casual employees and then convert them into regular employees is against the law of the land. The temporary employees have no right of regularisation of jobs.
In the landmark case of state of Karnataka vs Uma Devi, the court held that the state should employ the employee according to the rules and regulations of permanent recruitment.
If “State” is the employer
Public employment in a democratic, republic, socialist and sovereign nation has to be with the rules and regulations by the government of that nation. The appointment of persons by the state and its instrumentalities should be in accordance to the procedure of regular employment.
Adherence to Article 14 and 16 in the process of public employment
Article 14 talks about the right to equality. It says that the state shall not deny any person equality before the law or equal protection before law within the territory of India.Article 16 talks about that there should be equal opportunity in terms of employment for all citizens. There should be no discrimination on grounds of race, sex, place of birth, caste or any of them. But regularisation of employees from a temporary job into a permanent job violates these articles.
For example, if a person is hired for a job whose period is of six months. But after six months the period of that job is increased from six months to two years. The person who was employed for that job for six months and now with the increase in period in the job the same person is employed. This process of regularisation violates the fundamental articles. Because it deprives others of getting employment opportunity.
Therefore, the process of public employment in a democratic, republic, socialist and sovereign nation has to be with the rules and regulations by the government of that nation.
“Regularisation” versus “permanence”
“Something that is irregular for want of compliance with one of the elements in the process of selection which does not go at the root of the process can be regularised and that it alone can be regularised”.
This was concluded in the state of Karnataka vs umadevi case. Workers demanded that they were working from a long time as a temporary employee and they wanted them to be converted into a permanent employee. Whereas permanence is a different concept. It cannot be equated with regularization.
In this case, the respondents were employed on daily wages in commercial taxes department in some districts of Karnataka. They were engaged for more than 10 years hence they claimed that they are entitled to be made permanent employees and are entitled to all benefits of permanent employees.
The government did not accept the recommendation. They further went to administrative tribunal but the tribunal rejected their claim. Further, they went to the high court of Karnataka. The court challenged the decision of the administrative tribunal. The high court ordered that they are entitled to salaries and wages as permanent employees.
Rights under Industrial Disputes Act and cognate legislation
In case of any dispute between an employer and an employee, the rights are mentioned under The Industrial Disputes, Act 1947. The Act has defined “Industrial Dispute” as a dispute between an employer and an employee, or employers and employees, between workmen and workmen which shall be connected with the employment, non-employment or within the conditions of labour contract.
The Act has provided various authorities to settle disputes. These include appointment of conciliation officers, board of conciliation, courts of inquiry, labour courts, tribunals, and national tribunals for settlement dispute.
There are various legislations which are made to protect the rights of the employees. Payment Of Wages Act, 1936, Payment Of Bonus Act, 1965, Minimum Wages Act, 1948, Trade Unions Act, 1926, Employees Provident Funds and Miscellaneous Provisions Act, 1952, Payment Of Gratuity Act 1972, and many more are there.
“Unfair Labour Practice”
Section 186 (2) of The Labour Relations, Act defines “ Unfair labour practice” as “any unfair act or omission that arises between an employer and an employee involving:
- Unfair conduct by the employer relating to the promotion, demotion, probation (excluding dismissals of probationers) or training of an employee or relating to the provision of benefits to an employee;
- The unfair suspension of an employee or any other unfair disciplinary action short of dismissal in respect of an employee.
Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971
This act (Maharasthra Recognition Of Trade Unions And Prevention of Unfair Labour Practices Act, 1971) is applicable to the whole state of Maharashtra. This act provides-
Recognition of trade unions for facilitating collective bargaining for certain undertakings;
- To state their rights and obligations;
- To confer certain powers on unrecognised unions;
- To provide for declaring certain strike and lock-outs as illegal strikes and lock-outs;
- To define and provide for the prevention of certain unfair labour practices.
In this case, the respondent was appointed as an assistant (clerical) in daily wage basis with effect from 12 August 1985. He said that he has continued till 12th august, 1996 and has completed more than 240 days of service.
The labour court in case held that the termination of services is responded as a workman was illegal. Further, the court directed that the responded would be entitled to continue in service with the full back wages.
In this case, the respondents were working on daily wage basis. There was a plantation watchmen, wireless operator and a helper. they all claimed that since they were working from more than 10 years their service should be regularised.
The appellants refused to pay and said that the scheme of regularization was applicable to only those persons who were employed before July 1, 1984.
The appellants contended that respondents not being recruited through the proper procedure were backdoor entrants and regularization of them in government service would be a violation of the fundamental rights of the constitution.
The landmark case of State of Karnataka vs Umadevi was referred and the request of regularization of the job was not accepted by the court. It was held that such regularisation leads to violation of article 14 and article 16 of the constitution.
Illegal “retrenchment” Employees Union v Mineral Exploration Corpn. Ltd.
The appellant was a registered trade union. (Respondent no.1) was a public sector undertaking which was managed and controlled by the ministry of mines and was engaged in the exploration of mineral resources for rapid growth of the industry. Respondent no.1 was having various projects throughout the country.
The workmen engaged in mineral exploration corporation have completed minimum 8 years and a maximum of 20 years of service and were not regularized nor paid regular wages. The workmen started demanding regular wages and on the other hand, the corporation started retrenching their employees. An industrial dispute was raised under the provisions of The Industrial Disputes Act, 1947.
The question was raised hat the actions of the corporation of not regularizing the service and not giving the wages as that of permanent employees is justified or not?
Definition of “workman” under the Industrial Disputes Act, 1947
Under this act, a workman is defined under Section 2 (s) of the act. It says that a workman is a person who is employed in an industry for manual, skilled,semi-skilled, unskilled, clerical, technical, operational, managerial, supervisory work.
The terms of employment can be implied or express for any proceeding under this act in case of any dispute. This act does not include:
- Persons who are employed in the air force, navy or in military,
- Who is employed in police services, or an officer of a prison, or
- Who is employed in the managerial, or administrative capacity?
Definition of “retrenchment”
Retrenchment is defined under Section 2 (oo) of The Industrial Disputes Act,1947. It says that it is a termination by an employer of the service of the workman for any reason. But it should not be on the grounds of as a punishment under the disciplinary action
Section 25(G) of the Industrial Disputes Act, 1947
Section 25 (G) states that if an employer wants or starts retrenching its employees then, he/she has to retrench the workman who belongs to the same category in that establishment. Further, it states that retrenchment should on the basis of “last come first go rule”. The employer will have to first retrench the last person employed.
Private employer means any person, company, corporation, labour organization or association. In the private sector, it has fewer legal barriers to hiring and laying off employees, although they are subject to anti-discrimination rules, and they carry legal liability associated with human resources. If revenue suddenly drops, however, the private sector company can eliminate job positions and can lay off employees.
Every organisation needs employees who will work for the organisation and will help them to achieve the predetermined goals of the organisation. During the recruitment process, there is always a contract of employment between an employee and an employer. The terms and conditions should be laid down very clearly and in case of any dispute, employees have various rights under labour and industrial laws. Some of them are discussed in this article. Contract of employment is a necessary element and it is a legal document because it defines the duties of both the employer and an employee. It has also been discussed about regularisation and permanence with relevant case laws. The recruitment in any organization or company should be according to the fair guidelines given the government otherwise it may deprive others of equal opportunity.
- Labour and Industrial Laws, 10th edition by H.L Kumar, volume 1 and 2
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