This article is written by Harshit Bhimrajka currently pursuing B.A.LLB (Hons) from the Rajiv Gandhi National University of Law, Patiala. This is an exhaustive article which talks about the objective, key provisions, and some flaws in the Terminated Employees (Welfare) Bill, 2020.
After the 1991 LPG policy, India allowed private companies in its economy and The role of the public sector has become limited to some areas only. Since then the private sector has escalated substantially and the public sector is plummeting. The concern to the private sector employee has also started gaining prominence as there is no security of a job and post-employment benefits as present in the public sector. They can suddenly be asked to leave the job due to several reasons which might not be attributed to their performance or any wrongdoings on their part. Such reasons may be an economic slowdown, some regulatory issues that halt running of a business, failure of a business, etc. If we took real-life examples then various businesses such as telecom sectors like Aircel, Docomo, etc and airlines like in India have seen shut down which led to the loss of thousands of jobs. Most people are not prepared for an abrupt break in their careers, any decision to halt the business considering various issues can be detrimental to the employees. Though some companies work out severance packages in cases of any abrupt termination, it is limited to a notice period of 1-3 months, and the time taken to job may take a bit longer. Understanding the plight, Mr. Rakesh Sinha, Member of the Parliament introduced a private member bill i.e. Terminated Employees (Welfare) Bill, 2020. In this article, we will see the highlights of the bill introduced in February 2020.
Terminated employee welfare bill 2020
The Terminated Employee Welfare Bill, 2020 introduced in the parliament in February 2020. The main objective and reasons as stated by Bharatiya Janata Party MP Mr. Rakesh Sinha was that the bill was proposed because presently there is no law to ensure the security of the employees and to ensure that the employers should provide terminal benefits and provisions such as medical facilities, educational benefits, etc. to the employees and their families who have been terminated. Its aim was to provide a minimum of nine months’ salary to the employees in case of termination due to employer filing of bankruptcy, economic slowdown, change in technology among others, or court order.
It also states that the employee terminated shall be entitled to unemployment compensation, health insurance benefits or any other benefits as may be prescribed by the Central Government, only if such benefits are not part of the contract between the employee and employer. He shall be entitled to these benefits for nine months or till the time he gets employed somewhere else, whichever is earlier.
Bharatiya Janata Party MP Mr. Rakesh Sinha said that there is no law to ensure that the employees and their families are being provided with facilities like education, medical facilities, etc. So, the bill introduced seeks to achieve this objective so that employers provide their employees with terminal benefits. After termination, a person often takes a loan to fulfil the needs of his family, like an educational loan. The bill seeks to ensure that the family of the employee should not suffer because of such an event and therefore the bill provides an assured income for nine months to the terminated employees so that they can get enough time to reassign themselves to a new job without disturbing the existing set of the structure of their family.
The key or the main provisions of the Bill have been divided into the following points to get a clear view and for the effortless understanding of the concept:
- The preliminary step to understand the provisions of the bill is to understand the meaning of employer and employee so that it makes clear who is considered as an employee or employer.
- According to the bill, the employer includes the director or owner of any private organization or establishment where ten or more than ten persons are employed. It has excluded all the organizations or undertaking owned, funded, or controlled by the Central or the State Governments from the definition of the employer.
- The meaning of the terminated employee as per the Bill is that any employee whether on a regular or temporary basis or on the contract or on a casual basis, whose services have been terminated by the employer comes under the purview of the term “terminated employee”. This definition’s scope is very wide as it includes all the employees in a supervisory or managerial category unlike Labour Laws and Statues in the country.
- One of the main provisions is the applicability and benefits to the employees. The employee whose employment is dismissed or terminated by the employer because of the winding-up of the establishment or organization due to change in technology, or the change in the policies of the government, or the orders of the court, or incurring losses and unable to carry on the business, or insolvency or bankruptcy: The owner or director managing the affairs of the establishment becoming insolvent; or economic slowdown will be entitled to the unemployment compensation, health insurance benefits, or any other as prescribed by the Central Government (in addition to PF, leave encashment, gratuity, etc).
- The bill does not apply to the employees whose employers have terminated them due to cheating, indulging in fraudulent means and misappropriation of money, proved misconduct, or declared guilty by a criminal court.
- The severance package vis-a-vis unemployment package is another one of the key provisions. It is stated in the bill that the employer has to pay unemployment compensation which should not be less than 60% of the gross salary or as provided in the contract between the employee and the employer (if any) whichever is higher. It also states that the unemployment compensation will be dispensed if the employer provides a severance package to the employees and it is higher than that of unemployment compensation. The only legislation which provides a severance package is the Industrial Disputes Act, 1947. It only applies to workmen as defined under the act as who completed one year of continuous service.
- The other provision mentioned in the bill is that of duration. A terminated employee is only entitled to the benefits given under the bill if such is not the part of the contract between the employee and the employer and such benefits are available to him/her for the period of nine months or till the time he/she gets other jobs, whichever is earlier.
- Another unique and special provision listed in the bill is the creation of the corpus fund. It made an obligation on the employer to separate five per cent of the net profits of his/her organization named corpus fund. It is also mentioned in the bill that the employer may solicit a contribution from any trust or individual or organization for the maintenance of the corpus fund. Such corpus can only be used for the welfare of the terminated employees, it can also be utilized for the expenditure on the education of the children of the terminated employees, and medical facilities. This is an entirely unique and new concept that is not envisaged by any other law.
- The last but not the least key provision is related to interest. The employer who terminated the employee is duty-bound and legally bound to provide unemployment benefits from the month of termination or the completion of the notice period (if provided), whichever is earlier. If the employer fails to provide the terminated employee the benefits then he is liable to pay interest at the rate of twelve per cent per month for such delay.
The bill is biased towards the employees which make the Bill unfeasible although it is intended to eliminate the post-employment hardships, there are many practical issues, such as:
- Huge burden on the employers- The Bill imposes financial obligations on the owners or directors of the organizations as compared to their current implications. The bill provides sixty per cent of the gross salary for nine months to the terminated employees or till the employees get another job without any clause of employee’s tenure taken into consideration. It made it compulsory for the organizations to set aside five per cent of the net profits as a corpus fund, without considering the level of competitiveness in India. The bill has a flaw that if a severance package is lower than that of unemployment compensation then the employee can claim both under the current structure of the bill.
- The ambiguity of certain provisions: It is not clear by the bill that when a situation of loss arises in the organization, then how the employee is able to compensate the employees or contribute to the corpus fund. Section 3(1) of the Terminated Employees (Welfare) Bill states that the owner or the employer is bound to compensate the employee of his company even in the situations where winding up of the company is happening because of some inevitable reasons like economic slowdown or change in technology or change in the government policy. It also said that a special provision must be made for the companies which are incurring continuous losses or whose profits have been hampered because of inevitable reasons. The bill will be triggered at the time of winding up and it failed to define the term winding, which leaves for various interpretations. It may be understood that it will only be triggered when the organizations will permanently shut down but what if the firm terminates because of redundancies. Cases of redundancy means the situation where the employer no longer needs the specific work which his employee was working on or when the company has changed the location of its production process as a result of which it does not require services of its employees. It states that the employee will be terminated because of reasons like “proven misconduct” and will not be able to seek any compensation. The proven misconduct mostly is determined by the company’s internal committee hearing, but the nature and transparency of the hearing are always questionable.
- No provision for punishment: The bill provides enough relaxations to the employees but it fails to provide any liability either civil or criminal to the employer if he doesn’t comply with the provisions of the said bill. In the absence of such a provision, the bill will be ineffective legislation.
The Terminated Employees (Welfare) Bill, 2020 undoubtedly highlights the lacunas in the existing regime concerning the cessation of the employees working in the private sector organizations and where the benefits like unemployment compensation or severance package are absent. The enforcement of the said bill is highly unfeasible due to the number of practical problems in it. The bill is a private member bill and the chances of being passed in both the houses are very unlikely. As a report published in 2015, the 13th Lok sabha discussed only five per cent of the private bills, the 14th Lok Sabha discussed only three per cent while the 16th Lok Sabha discussed barely 2.85% of the private bills. As it is a private bill it has an expectancy of 6 years to be discussed before it gets lapsed. This is not the first time such an employee-friendly bill is presented in the parliament. In 2018, NCP MP Supriya Sule tabled the much-hyped “Right to Disconnect Bill”. It permits employees to skip work-related calls and messages after the working hour of their job without any fine, penalty, or deduction in the salary. It is also against the government’s intention to improve ease of doing business ranking as it is anti-industry and can be said as counterproductive to some of the Government’s schemes and initiatives. The clarity on some of the issues pertaining to the bill is needed before it became an Act though which is very unlikely.
“Always treat your employees exactly as you want them to treat your best customers.”
– Stephen R. Covey
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