Monday, April 19, 2010

Interview with a Lawyer on Labor law and IT employees

I interviewed a corporate lawyer a few weeks back. In a free-ranging discussion pertaining to labor law; rights of employees; long notice periods;bond documents; exit clauses; court procedure and so on. I will summarize my impressions in the end. I have been writing about corporations and employees for some time - this interview was an eye-opener for me. It pointed to the limits of the legal system to solve certain issues. It also led me to think an IT employee's union is more important than ever.

Note: The interview was not recorded. I am mostly paraphrasing below. But the lawyer has reviewed the transcript below and approved of it. All emphasis (capital letters) are mine.

Interview Transcript

RA: Layoffs and firings – what is the difference in labor law? I have seen companies such as TCS, IBM call layoffs as firings in public. Can an association of employees sue them?

Lawyer: Layoffs mean failure, refusal or inability of employer to give employment to a worker/employee on muster roll, on account of cancellation of a project contract, shortage of power or raw materials or accumulation of stock or lack of finance to run the business or natural calamity; An employer has to intimate the labor dept before laying off its employees as per the industrial disputes act. The obligation of the employer upon laying off its employees would be to compensate the employee so laid off.

Management Of Cholamandalam Software Ltd. vs Presiding Officer, I Addl. Labour Court, Madras And Ors. is a classic case wherein the applicability of I.D.Act to IT Companies has been discussed.

Unfortunately the judgment of the courts on whether IT Companies fall within the definition of an “industry” has not come to a finality..

Whileso the IT Companies make the most out of the situation and go ahead firing/discharging employees, which may not be that easy in any other industry. IT Companies during recession or even at will fire their employees rather than lay off their employees. Since the employees themselves are ready to swap jobs instead of being laid off, move out of an organisation without any protest. The irony is that such a situation gives the IT Companies a wide option in targeting an employee of its choice i.e an employee under probation could either be the target or maybe an employee drawing a fat salary.

In the case of freshers they are retrenched not because they underperform - but because freshers are usually in their probationary period and according to law, employees in probationary period can be fired at will .

In fact, in India IT companies fire employees in a very decent manner. They simply ask the concerned employee to sign his/her own resignation letter, requesting the management to relieve him/her “at the earliest”. When employees do this, the Company is in a WIN-WIN situation. The Company succeeds in retrenching the employee and they are not liable to pay in lieu of notice period. Under such circumstances, the employee loses his/her right to initiate legal proceedings on the company later.

A third party stranger, who is not aggrieved by such firing cannot sue TCS or IBM for such firings - only the affected employees can do that. [Ed. Note: This is a recurring theme in my discussion. You cannot sue a company "on behalf of" someone - only the affected parties themselves can do that. This is an important part of legal theory everywhere, and I could see the reason for it.]

RA: Notice periods in the IT industry keep lengthening and now stand at 3 months. Is this legal?

Lawyer: As long as the employee signed the Employee agreement with the notice period, yes, it is legally enforceable. Usually notice periods have exit clauses , where you can buy off the remaining period by compensating the employer for the shortfall in notice period.
When an employee resigns from a company, the company has to accept it. If they do NOT accept it, you can walk off at the end of your notice period.But an employee who has put in his/her resignation cannot unilaterally force the employer to concede to his/her wish in buying off the remaining months (shortfall in notice period) and cut short his/her employment. However an employee who has put in his/her resignation has all the right to negotiate with the employer for relieving –him/her even before the completion of the notice period. However the discretion to relieve the employee sooner is that of the Company.
Unfair notice periods ARE NOT enforceable - but it depends on the industry. For example, a few years back Indian Airlines pilots walked off to private airlines in droves. They had six months notice period, but they violated it. Indian Airlines sued to have them not take up alternate jobs. The court REFUSED to provide an injunction against the pilots. This is because the court thought six months was a very long notice period.
Now, the same has not been decided for the IT industry. No one has sued to make the matter decided by courts. Therefore in the IT industry, three months notice periods are legal.
I would also like to point out that this should be discussed by HR managers within the IT industry - if everyone sets notice periods at 3 months, then companies cannot pick up employees in a short duration for projects. Thus the industry's decision backfires on itself - if you recruit for a project, employee will not be available for the next 3 months. It seems industry itself should move away from this course.

RA:What is the legal status of employee agreements? Are notice periods enforceable? I mean in terms of precedent

Lawyer: Yes, employee agreements (terms and conditions of employment spelt out in the Appointment Letter/ Offer of Appointment) that have been accepted by the employee concerned are enforceable by courts.

RA: Can companies ask for very long bonds and enforce by holding original certificates? What is the nature of “one-sided” bonds?

Lawyer: First of all we have to understand what really a bond is and the reason behind employers seeking it from their employees. A bond is sought by an employer to retain an employee with the organisation for a longer period of time.

A bond is an extension arising out of an employment agreement/appointment letter. If only a candidate accepts the offer, a bone can be executed. Hence for executing a bond, the candidate should first be an employee of the organisation. An appointment letter shall contain a clause informing the employee on a bond that has to be signed by the employee. appointment letter should also necessarily have on exit clause for both the parties. Whileso the bond is an agreement within an agreement. The terms and conditions of the bond shall be in consonance with the terms and conditions of the appointment letter/employee agreement. Breach of such bond shall have to be compensated by the employee and such compensation shall be quantified in monetary terms. Breach of a bond shall arise if the employee wants to leave the organisation even before the accepted period. Under such circumstances the employer cannot unduly reject the resignation tendered by the employee. The option available with the employer is to get compensated as agreed. Violating a bond is NOT illegal - it simply means that you shift to the exit clause mentioned in the employment agreement/appointment letter .
An arbitrary bond that simply asks you to serve a certain number of years, without an exit clause is not valid. There should be an exit clause. An aggrieved employee can always go to the court if he/she fall in asituation discussed above. Whether you are willing to go to court is another question.
Even if a bond has a certain sum mentioned, it should actually link that sum to the money that the company has paid for your training etc. [Ed Note: I have seen such bonds; they mention the breakdown of sum in detail].Instead if the bond simply asks for money, without indicating any cost the company incurred for you, then that bond will likely be rejected by a court of law.
A company CAN ask for your original certificates as part of a bond. Itis a contractual arrangement between the employer and employee.
One of my friends was recruited as a Probationary officer for a Bank, to be confirmed and placed a Law Officer. They had his certificates. After his confirmation he was placed like any other officer and was asked to do all jobs. My friend simply went to the court, got an order saying he was offered a job that had nothing to do with the actual job; he got back his original certificates and moved over to another company.
If you know the law, yes, you can get back your certificates, if your reason is just.

RA: Can companies withhold relieving orders at all? How about providing wrong information on background checks?

Lawyer: If you complied with your side of the agreement, then they cannot withhold relieving orders or provide wrong information on background checks, legally. If they did, you can sue them.

RA:What circumstances will make a bond null and void? If you get cursed or abused by your boss, does that automatically release you from bonds?

Lawyer: How are you going to prove abuse? For example, you cannot record such conversations. Indian law does not consider audio recordings as material evidence. Practically it is difficult to prove such abuse.

RA:Practically, do all cases go through a court for labor disputes or is there any other redress such as arbitration?

Lawyer: Labour disputes are settled by initiating conciliation proceedings and then if the conciliation fails the matter is referred to the labour court.
There needs to be a specific term in the apploinment letter stating that the dispute between the employeer and the employee may be settled through arbitration. If so a neutral person will decide the issue on merits.
Since there are no trade unions in IT industry, matter affecting the employees do not reach the labour court. Rather the aggrieved employee if he/she wants to persue the matter takes it to the civil court.
Settlement of such disputes may take time say one year to even ten years.

RA: How long do such cases take to settle? Doesn’t it seem like companies have an unfair advantage in this regard? That they can depute subordinates and keep asking for postponements?

Lawyer: True and there is nothing to really do about it.

RA: Are Indian courts, in general, receptive to employees? Or do they enforce unfair agreements strictly?

Lawyer: Indian courts are very receptive to employees. They do form a check against employer abuse. For example, there is the case of a travel agent. He left the agency where he worked and joined another agency. The original employer sued asking that the agent not be allowed to work in the same industry (for non-compete purposes). The court decided in favor of the agent - it said that the agent's only known profession is to be a travel agent. So, they said it is unfair to ask him to not work in the same industry and deprive him of livelihood.

RA:What would be the typical cost of such a litigation? How long would it take? Are there law firms or lawyers that specialize in such disputes and can help out employees?

Lawyer: The cost can be high - actually the lawyers gain a lot. They go through multiple rounds and as the case drags on, they make a lot of money. It is in their interest to prolong the case. This is why most people are afraid of going to court. There are labor lawyers, but they vary in quality.

RA: Do we have punitive damages in Indian law? Will that help stop some abuse by corporations?

Lawyer: You can claim costs from the opposing party. But it is the discretion of the court to allow costs claimed by you. You can also file a suit for damages. The problem here is that you may have to pay court fees based on your claim. You will forebear such litigation because depositing court fees is a dead lock investment, the returns of which is not guaranteed. There is no such thing as punitive damages in Indian labor law.

RA:Some companies file false cases of property theft etc on employees. What are our rights under such conditions?

Lawyer: Practically companies do get away with such false complaints. For example, when someone files a complaint, the police will come to your home and take you to the station for a statement. At that time, it is better to have a lawyer with you - but it is unlikely that you are prepared with a lawyer for just such an occasion.
The police are supposed to produce you before a magistrate before 24 hours. If they wanted to harass you, they can keep you in jail for that time. They can potentially also take you in Fridays and keep you in for two days. ALl of this does happen in India.
Even if you had a senior lawyer, say, in the High Court, that lawyer cannot directly appear before (for example) the magistrate in Saidapet and argue your case. The lawyers in Saidapet will not allow it. [Ed Note: almost like a union]
The magistrate also knows the local lawyers better and therefore will be sympathetic to them. This is the current situation.
So, a company filing a false complaint can sometimes harass you more than enough. You can hit back by filing another complaint against the owner if you are inclined that way. [Ed Note: It seems the lack of punitive damages helps companies]

RA:Can employees publicly blow a whistle on companies’ internal policies? Let us say someone publishes such behavior and names the company, (assuming what they are saying is true), can they be punished by law?

Lawyer: You cannot make judgments about a company in a blog post or something. You can say that a company engages in some behavior - but you cannot criticize it publicly. You can be served a legal notice for that.

RA:Specifically, if someone was to start a fund for helping employees in such labor disputes, is that feasible? Is it possible to find lawyers who can capably help with such pro-labor suits? Are there such organisations right now?

Lawyer: Think about it - such an independent organisation will face flak from both sides - from the employee who may think you are losing the case (losing happens sometimes). And also the lawyers who may not want to complete the case because they are getting paid by you on each hearing.

RA: How do you think, then, that we can fight such abuses by companies?

Lawyer: Employees have to organize themselves and fight for their rights.

The interview ended there.

My Impressions of the Legal Recourse

When I went into this interview I thought the law will actually help stem abuses by employers. That is, I thought filing of enough suits will improve the situation. But it seems that we have the following issues:

1. The legal system is slow to act; time is on the side of employers.
2. It is tough for independent organizations to get involved.
3. Most importantly, the law sees employment as a contractual free agreement of two parties. Thus it impartially puts the two parties in the same level.
But, practically, we all know that a fresher from college has no means of negotiating with a company. In India there are fewer jobs and more people. Asking employees to INDEPENDENTLY negotiate, alone, with employers is like "asking the sheep to negotiate with the wolf". In many ways this is not unlike the situation you face with hospitals or schools - the common man in India seeking these services has no negotiating power.
This fact ALONE points the way at collective bargaining (in other words, organizing into trade unions).

4. I also wish punitive damages (damages that can effectively bring a company to its knees for wrongdoing) are awarded by Indian courts for abusing employees, such as filing false complaints.

To me it seems like filing suits will help, but not without a powerful IT Employee's Union. That alone will make sure that abuses such as wrong background checks, holding on to relieving orders, and keeping original certificates are brought to a stop.

Wikpedia Article on Layoffs

Indian Contract Act Explanation

Manupatra - website with legal opinions, judgements and so on for research (requires a subscription)

A Handbook of Labor Laws in India


Mukundhan said...

Thanks for posting this. It was quite useful. I have never been aware of the legal angle in IT employment.

Dinah Bee Menil said...

Nice site, very informative. I like to read this.,it is very helpful in my part for my criminal law studies.

dEEPS said...

The 3 months notice period thing was good!

I wanted to add the fact that most companies want you to join in 15 days MAX whereas they will relieve you in no less than 3 months.

Does this not amount to unfair business practice?

I recently switched jobs, and I enjoyed asking "So, will my notice period be 15 days as well" to every prospective employer who wanted me to join asap.

I think if everyone started asking the same question, we will have some recourse in the industry wrt. notice periods.

I don't quite agree with unionism.. Though it does serve the purpose, I believe it brings in various other unprofessional factors into play, which we should keep out of this beautiful profession at any cost.

JV said...

There was a component on my paystructure called annual incentive. The employer deducts some amount say 2500 pm and give to the employee after 12 months as annual incentive i.e. 12*2500 rs. There will be no increase or decrease in the total amount. Recently they denied the amount saying that there was recession. Is there any way i can sue.

Ramiah Ariya said...

I have put this question to the lawyer. My understanding is that employers can deny "incentives" linked to performance, provided the employee agreement clearly says that that part of your salary is "variable" or meant as an incentive.
Instead if they say your salary is 40,000 and do not mention that the incentive is PART of that salary, then you have grounds to sue.

Ramiah Ariya said...

JV, the lawyer wanted some clarification. I sent back some scenarios and he responded.
Here are my scenarios and his response:

RA: Let us say I have
a salary of Rs.20,000 paid per month. The employee agreement says this is my salary. It does not have any rider. But the employer deducts Rs.2500 per month and pays it out at the end of the year as 12*2500 = 30,000(companies do it just so that employees will remain with them till the end of the year). In the commenter’s case they did not pay citing a recession.

Instead if they mention in the employee agreement that my salary is Rs.17500 and 2500 is performance based incentive,
then it is fine. They can deduct, and also keep the money in case of arecession, am I right?

Lawyer:If it is the first case then the employer can be taken to the court. In fact the employer has to explain why a sum of Rs.2500/- was deducted at the first instance.

krishnasakhi said...

nice posting...very informative indeed...
however i wd like to ask you about 3 months notice period & bond for contractual employment...1 ]will it be applicable in other industries service sector or an event mgmt company 2] as an employer can i make my senior executives/leaders to not to leave the company before finishing up the project/event in hand ...please reply asap...
& warm regards
deepti kulkarni

krishnasakhi said...

nice posting...very informative indeed...
however i wd like to ask you about 3 months notice period & bond for contractual employment...1 ]will it be applicable in other industries service sector or an event mgmt company 2] as an employer can i make my senior executives/leaders to not to leave the company before finishing up the project/event in hand ...please reply asap...
& warm regards
deepti kulkarni

Ramiah Ariya said...

Yes, most of the interview is really a review of Indian Contracts Act - which is not specific to IT. It will also be applicable in other sectors.
You cannot make anyone stay in a company beyond the stipulated period agreed in the employment agreement. You can put in a clause in an agreement saying they can't leave during an ongoing assignment, but it will be shot down by a court. The reason is that it is a open ended commitment and can be abused by employers.

Unknown!!! said...

This is an excellent post, exactly needed by me at this point of time. But there is one query which is not answered in this.
Do employees in probation also have to serve the full notice period?..
now my probation period is 6 months.and in general the notice period is 2months..its no where clearly stated if it applies during the probation time also..
So wondering if have to serve the 2 full months..
One thing is clear..employers stand at an advantage during the probation time,..they save on the variable pay and other benefits which are paid to regular employees...whereas all other rules from the work wise are common.

Pradeep said...

I've not heard of a probation which does not state 1 month notice period (no matter what the permanent notice period looks like). So sounds like your employers are plain taking advantage.

Probation is pretty useful if you look at in a way that you are also (indirectly) being given a chance to evaluate the company.. ;)

Ramiah Ariya said...

Unknown, The probation period is one way, from the employer to the employee - the probation period simply means that the employer can lay you off without any justification to the labor department. The way I understand it, if you signed the employer agreement; it stipulates a notice period, then you have to abide by it. Sure, it is ambiguous, but courts may decide either way.

Anonymous said...

Audio evidences are permissible as per new IT Act 2000. See the link:-

kuldeep leadingedge said...

Sir company signed 1 year bond and company fire after 9 months what is the legal action against IT company