This article is written by Asmita Topdar, pursuing a Diploma in Companies Act, Corporate Governance and SEBI Regulations from Lawsikho.com.

Introduction

The Industrial Employment (Standing Orders) Act, 1946 [SO Act] was enacted in pre-independence era with the objective of defining the service rules in the industrial establishments of the country to prevent any discrimination caused due to unilateral service rules/ policies in the sector. The Standing Order covers, within its ambit, matters relating to the working conditions of the workers, holidays and working hours, shift working, classification of workmen, attendance and late comings, termination of employment, dismissal or suspension for misconduct and redressal procedure for any unfair treatment towards the workmen. 

The Standing Order is applicable in those industrial establishments which employ or had employed (in the last 12 months) 100 or more than 100 workmen. This threshold requirement has been decreased to 50 in some states like Haryana and Karnataka. The article shall focus on the exemption enjoyed by the Information Technology and ITES (Information Technology enabled services) industries in the state of Karnataka from the applicability of the Standing Order and the conditions which are subjected to these exemptions. 

Background

Standing Order is a central enactment by the Labour Law Department of the Government, which requires employers of industrial establishment to draft their own Standing Order or service rules in line with the SO Act, have it approved by representatives of their employees and get it certified by the Certifying Officer who is a Labour Commissioner in the Government. 

Certification of the Standing Order is provided on the condition that the provisions of the Draft Standing Order are in accordance to the matters set out in the Schedule provided in the SO Act and shall also be in conformity with the SO Act. On receipt of draft Standing Order, the Labour Commissioner shall forward a copy of the draft to the Trade Union of the workmen, if any or to the workmen, if there is no trade union, for invitation of their objection on the draft submitted by their employer. The Certifying Officer will give opportunity to the trade union or the workmen for hearing their grievance or objection, if any, following which he shall make decisions with respect to any modification or addition, if necessary in the draft and accordingly shall pass the appropriate order for certification in writing. Within seven days of passing the order, the Certifying Officer shall send copies of the certified standing order along with the written order passed by him, to the trade union or workmen and the employer of the Industrial Establishment. 

The definition of ‘Industrial Establishment’ does not find a direct mention in the SO Act, however relies upon the definition mentioned in the Payments of Wages Act, 1936 to mean and include plantation, mines, quarry, motor transport services, air transport services, inland vessel, manufacturer of articles, establishments involved in construction of roads, buildings etc. and establishments involved in generation, transmission or distribution of electricity and power, factory, railway and establishment employing workmen for fulfilling contractual obligations. 

The IT and ITes sectors in the state of Karnataka have a history of enjoying blanket exemption from the applicability of this SO Act since 1999. In 2011, the exemption expired and the IT companies were required to comply with the SO Act for a brief period until the same was argued by some industry representatives on the ground that SO Act was outdated and not conducive to the working functioning of the IT sector. The exemption continued for another few years till January 24, 2019. 

Renewal of exemption 

The exemption from applicability of SO Act has been renewed several times by the State Government of Karnataka, with the latest renewal having been expired on January 24, 2019. Expired exemptions meant that those exempted establishments were then required to make their draft standing orders in line with SO Act and get it certified from the certifying officer.

For a brief period of almost four months there was uncertainty regarding the further renewal of the exemption. In absence of certified standing order, the model standing order provided in the rules of the SO Act became applicable. Several IT / ITeS companies raised their voices through their representative body National Association of Software & Service Companies (NASSCOM) and argued that renewal of the exemption was necessary for progressive growth of the IT sector and application of SO Act would impose cumbersome and unnecessary compliances & regulatory framework thereby hampering their steady growth. The State Government, finally, through its notification dated May 25, 2019 renewed the exemption for a period for another 5 years till 2024. 

Intent behind such exemption

Bangalore, also known as the ‘Silicon Valley of India’ is an IT hub and is the fastest growing IT centre in the country.  As per a recent report published by the Indian Brand Equity Foundation, Karnataka has been recognized as the IT hub of India and home to the 4th largest technology cluster in the world. The journey of Bangalore as the IT hub began as early as the 1990s, the era which introduced India to new technologies. Within years, Bangalore became the front runner in the IT sector, having headquarters of major IT companies in the city. 

With friendly policies promoting ease of doing business and regulatory framework introduced by the State Government, Karnataka till date remains at the forefront as the fastest growing IT hub in the country. Flexible policies, less cumbersome regulatory compliances and progressive framework attaining international standards leading to ease of doing business, thereby attracting Foreign Direct Investment in the state. In view of many IT companies having their operations in the state thereby leading to the steady growth of the city as the IT hub of the country, the State Government may have introduced such exemptions from SO Act as it will contribute further to the ease of doing business. The exemption will allow the IT companies to modify and adopt their draft policy regarding service rules as per their needs making it more flexible and as per international standards like introducing work from home, paternity leave, flexible working hours etc. However, these exemptions have some conditions attached to it. Let us see what these conditions are and to which sectors other than IT does it apply. 

What are these exemptions

The provisions under SO Act were considered onerous and outdated in view of how the industries function in today’s world. The notification dated May 25, 2019 exempts establishments and industries from the application of SO Act for a period of 5 years. The industries which have been brought within the ambit of such exemptions are – 

• Start-ups
• IT
• ITeS
• Gaming
• Animation
• Computer Graphics
• Business Process Outsourcing (BPO)
• Telecom
• Knowledge Process Outsourcing (KPO)
• Other knowledge based industries.

Conditions for exemptions

The exemptions are however subjected to certain conditions which these exempted establishments are required to comply to avail the exemptions. 

• Constituting ICC committee as per Sexual Harassment Act

Employers of the abovementioned exempted establishments are required to form an Internal Complaints Committee (ICC) as provided under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (Sexual Harassment Act). This committee shall work towards protecting the interests of aggrieved women. Aggrieved women can send their complaints regarding any sexual harassment at work place to this committee who will inquire into the subject matter and make recommendations to the employer regarding the actions to be taken in the matter.

• Constituting Grievance Redressal Committee 

In order to address any grievance by employees, the employers are required to constitute Grievance Redressal Committee (GRC) which shall be composed of equal numbers of employers and employees. This committee is constituted to protect the interests of employees and to address their grievances in a timely manner. GRC shall be provided with powers to handle all types of complaints within the workplace. 

• Intimation of disciplinary action by employer

If any employer has taken disciplinary actions like termination, discharge, suspension, dismissal or demotion, against any employee, he is required to intimate the jurisdictional Deputy Labour Commissioner and the Commissioner of Labour, Karnataka. 

• Intimation of working conditions of employees

Employers are under an obligation to intimate the jurisdictional Deputy Labour Commissioner and the Commissioner of Labour, Karnataka about the working and service conditions of their employees within the establishment. 

All these conditions have been imposed upon the exempted establishments in order to ensure the working conditions of the employees are not compromised and their interests are very well protected. 

Penalty – Although the notification does not mention imposition of any penalty, however the language of the notification makes it clear to the employers that any violation regarding these conditions can give the ground to the State to cancel or withdraw such exemption, thereby triggering application of SO Act. 

Conclusion 

The notification issued by the State Government of Karnataka is progressive in view of the IT sector growth, the city of Bangalore has witnessed. Strict regulations and compliances results in slow growth due to its cumbersome nature, making the investors aversive in making investment in the State. Further, the employment opportunities generated in the IT sector of Bangalore, housing one-third of IT professionals of the country, would have seen a decline if the exemptions were not renewed. Thus, in view of enhancing the ease of doing business and generating more employment opportunities, renewal of the exemption was needed for the hour. However, the exemptions are subjected to certain conditions imposed which ensures employees’ protection in their work places, reinstating that such exemptions will not absolve the employers from the purview of other labour law legislations. The first two conditions find its origin from the Sexual harassment Act, 2013 and Industrial Dispute Act, 1947 respectively while other two conditions are imposed so as to maintain the sanctity of work places and ensuring no unjust treatment towards the employees. 

This development has helped the Government of Karnataka to strike a balance by ensuring protection to the IT professionals and employees of the exempted establishments while on the other hand, ensuring the attraction Karnataka receives from investors since 1990s. 

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