Fwd: Software companies or other outsourcing service providers exempted from human rights?

There is a growing need to draw a fine balance between the hire
and fire policy of the employer and the rights of the workmen.

Termination of employment needs to be in accordance with the Shops and
Establishments Act as applicable to the jurisdiction where the IT
company is situated and the Industrial Disputes Act, 1947 (hereinafter
the "ID Act"). The Shops and Establishment Act usually enables the
employer to discharge his employee, other than an employee engaged for
a specified period or in a leave vacancy, from the service by
providing the employee a thirty (30) days notice in advance or such
longer period as may be required under the terms of employment or
salary in lieu thereof.

Cholamandalam Software Ltd. v/s. Additional Labour Court Madras
[(1995) (S) LLJ 78 Mad]

The Hon'ble Judge, thus, essentially took the view that electronic
data processing units had been specifically excluded from the
definition of 'factory' in Explanation II. Therefore, Cholamandalam
Software could not be considered a factory under section 2(m) of the
Factories Act and in turn, could not be considered an 'industrial
establishment' within the meaning of section 25L of the ID Act. This
judgment was later upheld by the Division Bench of the Madras High
Court, after which the workmen of the company filed an appeal in the
Supreme Court. The Supreme Court while distancing itself from the
interpretation provided by the Madras High Court recognized that the
key question is whether the activity of data processing and
preparation of software would constitute a 'manufacturing process' and
further referred the matter to a larger bench of the Supreme Court for
consideration, the decision of which is still awaited.

In view of the pending Supreme Court's consideration, the question as
to whether the software companies or other outsourcing service
providers would constitute an 'industrial establishment' under the ID
Act remains unanswered as of date and there is no clarity as to
whether a software company can dismiss its employees without
compliance with the ID Act if it has more than 100 employees.

From a practical standpoint, the IT industry does not consider itself
an 'industrial establishment' within the meaning of section 25L of the
of the ID Act and follows the 'hire and fire' policy without
compliance with the ID Act of seeking prior state government approval,
taking support from the Division Bench judgment of the Madras High
Court which has held that the software companies are not an
'industrial establishment' and hence are not covered under the
stringent provisions of retrenchment mentioned under Chapter VB of the
ID Act.

Notwithstanding the above flexibility, the software companies will
need to comply with the retrenchment related provisions of section 25F
of the ID Act which applies to all industries (and not only industrial
establishment) and requires that "no workman employed in any industry
who has been in continuous service for not less than one year under an
employer shall be retrenched by that employer until -

(a) the workman has been given one month's notice in writing
indicating the reasons for retrenchment and the period of notice has
expired, or the workman has been paid in lieu of such notice, wages
for the period of the notice;
(b) the workman has been paid, at the time of retrenchment,
compensation which shall be equivalent to fifteen days' average pay
for every completed year of continuous service or any part thereof in
excess of six months; and
(c) notice in the prescribed manner is served on the appropriate
Government or such authority as may be specified by the appropriate
Government by notification in the Official Gazette.

In view of the foregoing, an IT Company may terminate the services of
those employees who have not completed one year of employment in terms
of their respective contract of employment, i.e., by providing a
minimum notice of one month without compliance with the aforesaid
retrenchment provisions.

As regards the employees who qualify as 'workmen' and have competed
continuous service of one year, in cases other than misconduct, the IT
company may terminate their services by providing minimum one month's
notice (or such agreed notice) in writing indicating the reasons of
termination together with retrenchment compensation equivalent to 15
days average pay for every completed year of continuous service in
excess of six months and necessary intimation is provided to the
appropriate labour authority.

--
Adv Mathews Emmanuel

DISCLAIMER:

"The information in this e-mail and any attachment is intended only for the person to whom it is addressed and may contain confidential and/or privileged material. If you have received this e-mail in error, kindly contact the sender and destroy all copies of the original communication.  More over the legal articles and opinions made herein are not intended to solicit professional work. "