The State Government of Karnataka has, since 2014, exempted companies operating in the IT, ITeS, startups, animation, gaming, computer graphics, telecom, BPO, KPO, and other knowledge-based industries ("Exempted Industries") from the ambit of Industrial Employment (Standing Orders) Act, 1946 ("IESO Act") in order to encourage the growth of IT sector and boost employment in the state.

The IESO Act inter-alia requires certain employers to formally define the conditions of employment, including, appointment, dismissal, shift working, hours of work, wage rates, suspension allowance, transfer, etc. of workmen, as part of the standing orders. Said standing orders must be submitted in draft form with the labour department for certification, and the workmen are permitted to raise their objections during the certification process. Once the standing orders are certified, an employer must publish them within its premises at a conspicuous notice board. Additionally, the IESO Act does not permit an employer to amend the standing orders without approval of the labour department.

Owing to the aforesaid exemption, employers in Exempted Industries in Karnataka have formulated their own policies to govern the service conditions and have flexibility in amending the service conditions as per business needs. However, given the increase in number of industrial disputes in the state on account of unfair labour practices, arbitrary terminations, unauthorised change in service conditions, prolonged working hours, etc., the Karnataka State Government is contemplating non-renewal of the exemption, which is set to expire in May 2024. This would result in the relevant Exempted Industries being required to comply with provisions of the IESO.

As it is settled industry practice for multinational companies to cover their Indian entity(s) under global policies to the extent compliant with Indian laws, Exempted Industries may, presently, not be compliant with the IESO Act owing to the exemption. In the event of the exemption being withdrawn, covered employers in Exempted Industries would be required to review their existing employment policies/handbooks in line with the IESO and also have their standing orders certified as per the IESO Act.

While the state government is looking to safeguard employee interests by proposing to withdraw the exemption, same could have far-reaching consequences across the IT sector in Karnataka in terms of the flexibility available to them in framing employee related policies.

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