Karnataka Industrial Employment (Standing Orders) (Amendment) Rules, 2019: An Analysis

INTRODUCTION

The Government of Karnataka on June 30, 2020, introduced an Amendment[1] to the Karnataka Industrial Employment (Standing Order) Rules, 1961 (hereinafter referred to as the “Rules”) enacted under the Industrial Employment (Standing Orders) Act, 1946 (hereinafter referred to as the “Act”). The main object of the Amendment was to bring the concept of fixed term employment (FTE) to Karnataka.

Karnataka is not the first to have taken up this employment model. Maharashtra, Gujarat,[2] Bihar,[3] Goa[4] and Punjab[5] have also relied on this model for employment.

KEY CHANGES

New Category: Fixed Term Employment Workman

• Schedule-1 of the Rules provides a classification of workmen.
• Existing Classification is - permanent, casual, temporary, badli, apprentice & probationers.
• Schedule I will now include, a new category i.e ‘fixed term employment workman’.
• A FTE workman is defined as, “a workman who has been engaged on the basis of written contract of employment for a fixed period”.

FTE brought on Par with Permanent Workmen

• hours of work, wages, allowances and other benefits of a fixed term employment workman should not be less than that of a permanent workman.
• eligible for all statutory benefits available to a permanent workman on a pro rata basis irrespective of the period of employment.

Notice and Termination

• FTE shall not be entitled to any notice or pay if his/her services are terminated as a result of non-renewal of contract of employment or upon expiry of the period of such a contract.
• This requirement is subject to the provisions of the Industrial Disputes Act, 1947 (“ID Act”).
• However, services of a FTE workman shall not be terminated as a punishment without giving him an opportunity of being heard on the alleged charges.

WHO IS A WORKMAN?

Section 2(s) of Industrial Disputes Act defines a workman as an individual who is engaged in a technical, skilled, unskilled, operational, manual or clerical work but excludes those who are in a managerial or supervisory position.

ARE NON-PROFITS COVERED?

Yes – in Karnataka, all establishments including non-profit – trusts, societies & Sec 8 companies having 50 or more employees are included under the ambit of the Act. But the IT & ITES, KPO & BPO sector is exempted.

Eg, a field worker/researcher whose main job comprises going in the field to collect data may be considered a workman if he/she is working under an employment contract, is reporting to a superior, is working under that superior’s directions, does not lead a team and is rendering services mainly of a technical, skilled/unskilled, operational, manual or clerical nature.

ADVANTAGES OF THIS AMENDMENT?

• FTE provides a flexible alternative - employers can employ workers on need basis.
• No obligation on employers to keep workers on their payroll beyond their requirements.
• Increase the ease of doing business in the state & specifically benefit the MSMEs.
• For workers, it helps to avoid long term unemployment.
• It will open more employment opportunities.

DISADVANTAGES OF THIS AMENDMENT?

• Can be a blow to permanent employment and job security.[6]
• Trade unions in Karnataka apprehend that employers will hire and fire labourers at will, & the middle-aged working class will be the worst affected.
• Trade unions also apprehend that FTE model would dilute the collective bargaining power of the workers[7].
• For employers, it could lead to problems like loss of productivity, increase of administrative burden, etc.

WHAT REMAINS UNCLEAR?

• Tenure-based statutory benefits: Amendment is unclear regarding tenure based statutory benefits for FTE. It seems from the language that the purpose is to cover benefits like gratuity for fixed term workers as well. This idea also resonates in the draft code on Social Security.
• Therefore, it is likely that payment of gratuity is to be extended to fixed term workers with contracts of less than five years.
• Will retrenchment compensation be payable to workmen particularly on termination prior to expiry of contract term?

The Amendment is also silent on the option of termination simpliciter prior to the expiry of the term of the fixed employment. As the Amendment does leave some gaping holes, legal consultation is recommended, to draw contracts of FTE, structuring statutory benefits, conversions of full time to FTE and terminations of FTE, in a manner that is legally compliant.

[1] Karnataka Industrial Employment (Standing Orders)(Amendment) Rules, 2019 https://complianceuncovered.com/wp-content/uploads/2020/07/Karnataka-introduces-%E2%80%9CFixed-term-Workmen%E2%80%9D-amending-the-Standing-Order-Rules.pdf

[2] Anil Gejji, Karnataka allows flexible hiring across industry, Times of India (Jul 7, 2020, 07:21 AM), https://timesofindia.indiatimes.com/city/bengaluru/karnataka-allows-flexible-hiring-across-industry/articleshow/76824844.cms.

[3] Draft Notification, EGazette Bihar (May 15, 2020), http://egazette.bih.nic.in/GazettePublished/314_2_2020.pdf#page=1.

[4] AZB Partners (July 9, 2020), https://www.azbpartners.com/wp-content/uploads/Amendment-To-The-Industrial-Employment-Standing-Orders-Central-Rules-1946-In-Goa.pdf.

[5] AZB Partners (July 9, 2020), https://www.azbpartners.com/wp-content/uploads/The-Draft-IESO-Punjab-Amendment-Rules-2020-as-applicable-to-the-UT-of-Chandigarh-Introduction-of-Fixed-Term-Employment-2.pdf

[6] Akram Mohammad, 'Fixed term workmen' will hit jobs for middle-aged: unions, Deccan Herald (July 7, 2020, 20: 43 PM), https://www.deccanherald.com/state/top-karnataka-stories/fixed-term-workmen-will-hit-jobs-for-middle-aged-unions-858277.html.

[7] Sharat S. Srivatsa, ‘Fixed-term workmen: trade unions fear for collective bargaining power”, https://www.thehindu.com/news/national/karnataka/fixed-term-workmen-trade-unions-fear-for-collective-bargaining-power/article32006450.ece