India: Employment Law – Updates

Last Updated: 25 August 2016
Article by Singh & Associates

Most Read Contributor in India, September 2016

This write-up provides brief insights to recent updates regarding employment laws in India. So, relevant judgments, amendments, policies, regulations that impact how various entities employ, manage and terminate its employees have been included herein.



A circular1 recently issued by the Department of Labor, Government of Tamil Nadu clarified that employees of the IT Sector are covered under the Industrial Disputes Act 1947 (IDA) and have the right to form trade unions. Alarming as it sounds, this development has caused consternation in industry circles which believed that the IT Sector was outside the ambit of this Act.

Obviously, for some reason, the IT Sector has been misinformed of the correct position under the law2. The instigating point is Tata Consultancy Services dismissing hundreds of employees last year leading to the formation of the IT Employees Wing supported by the New Democratic Labour Front (NDLF or Puthiya Jananayaga Thozilalar Munnani). Since no response was received from the state government, NDLF had approached the Hon'ble Madras High Court seeking a direction to the administration to clarify whether the IT sector was covered by the IDA, following which this note has been issued.

Now, whether IT professionals are workmen or not finds it clarification in the judgment of H.R Adyanthaya Vs. Sandoz (India) Ltd.3 by Hon'ble Supreme Court. The apex court held that "a person to be workman under ID Act must be employed to do the work of any of the categories, viz., manual, unskilled, skilled, technical, operational, clerical or supervisory. It is not enough that he is not covered by any of the four exceptions to the definition. We reiterate the said interpretation." Meaning thereby, except for supervisory or managerial level employees, all other employees are considered as workmen under the IDA if they perform any manual, skilled, unskilled, technical, operational and clerical work. This ratio was recently reiterated by the Supreme Court in its judgment in Raj Kumar Vs Director of Education4.

Effect of this move by the Tamil Nadu State Government is to clarify that no exemption from the law is available to the IT sector. Hence, in order to avoid litigation and hostility with employees, lay-offs, retrenchments and terminations of employees ought to be done in compliance with the provisions of the IDA.


The Payment of Bonus Act, 1965 (PBA) provides for payment of bonus to persons employed in certain establishments on the basis of profit or on the basis of production or productivity and for matters connected therewith. The PBA provides for the mandatory annual payment of bonus, calculated on the basis of the grossprofits which are determined at the close of the accounting year, to eligible employees of establishments which employ 20 or more persons. Under PBA, every employee who draws a salary of INR 10,000 or below per month and who has worked for not less than 30 days in an accounting year, is eligible for bonus (calculated as per the methodology provided under the Principal Act) with the floor of 8.33% of the salary payable to him/her and a cap on the maximum bonus statutorily payable (20% of the salary).

The much talked about Payment of Bonus (Amendment) Act, 2015 (the Amendment Act) made following amendments to PBA: (i) Retrospective Applicability of Amendments: The amendments relating to eligibility of employees entitled to receive bonus and the ceiling on salary or wages for calculation of such bonus payments, are to be effective retrospectively from 1 April 2014.

(ii) Eligibility Limit of Employees: Section 2(13) of PBA was amended to increase the ceiling on salary or wage limit for eligible employees from INR 10,000 per month to INR 21,000 per month.

(iii) Ceiling on Salary or Wages for Calculation of Bonus: The amended section5 now provides that where the salary or wage of an employee exceeds INR 7,000 per month or the minimum wage for the scheduled employment, the bonus payable to such employee shall be calculated as if his salary or wage were INR 7,000 per month or the minimum wage for the scheduled employment, whichever is higher.

It has been a general industry view that the retrospective nature of the amendments must be done away with an order to give time to the employers to plan for such increase in costs towards salaries. The main concern was that employers would not have budgeted for this expense in the previous financial year (2014-15) for which the books of accounts were already finalized and income tax returns filed.

In fact organizations such as Confederation of Indian Industries (CII), Micro, Small and Medium Enterprises (MSME) chamber, Indian Industries Association (IIA), and FICCI had approached the Labour Ministry urging and suggesting various options to apply the amendments specifically seeking prospective application of the amendments.

Likewise many entities took the more formal route and approached Courts challenging the retrospective effect of the amendments from FY 2014-15. And that few High Courts (Kerala High Court, Karnataka High Court, Madhya Pradesh Labour Office, Allahabad High Court (Uttar Pradesh), Gujarat High Court, and Punjab & Haryana High Court) have earlier been pleased to stay the retrospective operation temporarily since its introduction.

Recently, the Division Bench of the Hon'ble Bombay High Court passed an ad interim order staying the retrospective operation of the Amendment Act. In this case6 the petitioners filed a writ petition in the Hon'ble Bombay High Court challenging inter alia retrospective operation of the Amendment Act. It was contended before the Court that since Amendment Act was introduced and passed much after the financial statements for the financial year 2014-15 were already closed, along with income tax / bonus computation and payments and statutory filings under various laws and regulations; therefore, the Petitioners, for no fault of theirs, may be constrained to get its financial statements re-audited. This requirement by the Amendment Act is impractical and burdensome as it will result in re-preparation/filing of tax audit and filing of income tax returns. The Hon'ble Court while granting temporary stay on the retrospective operation of the Amendment Act observed that the Amendment Act imposes harsh burden on the employers since there is no specified timeframe to factor in the increased costs of compliance in their financial statements.


1.Not available in public domain

2.   //

3.(1994) 5 SCC 737

4 h t t p : / / j u d i s . n i c . i n / s u p r eme c o u r t / i m g s1. aspx?filename=43544 // This judgment has also been discussed later on different issue in this write up.

5. Section 12

6. WPL/1548/2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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