Employment Disputes in India: A Legal and Practical Guide (Part 1)

India is a hotbed of several burgeoning industries such as information technology, artificial intelligence and other advanced technologies and other rapidly evolving sectors such as financial services, aviation and pharmaceuticals to name a few. In addition to these sectors, technology is increasingly becoming a key driver of change in more conventional industries, such as construction, consumer goods, and hospitality. This has resulted in changes to employment structures, creating new classes of employment disputes.

This article marks the beginning of our new series, which explores common employment-related disputes in the context of emerging issues where jurisprudence is still evolving.

Legal Landscape of Employment Disputes in India

Employment law in India has evolved through a blend of constitutional mandates, legislations, judicial precedents and globally recognised practices. At a constitutional level, the twin objectives of labour welfare and ensuring safeguards are discernible. Significantly, the fundamental rights embodied in Articles 14, 15,16, and 19 (the right to equality), the right to prohibition against discrimination, the right to equal opportunity in public employment, and the freedom to practice any profession, occupation, or trade, guide the overarching framework for employment law. However, in practice, special laws and contractual obligations influence employment disputes, particularly in the private sector.

There are nearly 40 (forty) central laws^[1] and numerous state laws, which together create a significant compliance framework for employers. Indian courts have also developed legal principles to interpret legislation and fill existing gaps in the law.

The Labour Codes: Reshaping India’s Labour Law Landscape

Before touching upon aspects of employment disputes, it is imperative to mention the new labour codes, which are intended to streamline and modernise labour and employment law in India:  

1.              Industrial Relations Code, 2020 –This Code will replace three key legislations: the Trade Unions Act 1926, the Industrial Disputes Act 1947 and the Industrial Employment (Standing Orders) Act 1946. This Code aims to simplify conditions of employment, regulate trade unions, and settle disputes.

2.             Code on Wages, 2019 –This Code will supersede four legislations: the Payment of Wages Act 1936, the Minimum Wages Act 1948, the Payment of Bonus Act 1965 and the Equal Remuneration Act 1976. This Code attempts to consolidate the law relating to payment of wages in India.

3.             Code on Social Security, 2020 –This Code will replace nine legislations dealing with a plethora of social security aspects like state insurance, provident fund, maternity benefit and gratuity.

4.             Occupational Safety, Health and Working Conditions Code, 2020 – Once implemented, this Code will replace thirteen legislations regulating contract labour, factoryworkers, plantation labour and so on. The Code aims to foster workers' health and welfare, standardising safety norms and ensuring employer compliance.

One of the key features of these impending statutes is the acknowledgement of “gig workers” and “platform workers”, duly recognising new categories of workforce. Interestingly,even though they received Parliamentary and Presidential assent nearly five years ago, they are yet to be implemented. A key challenge for implementation is the delay in framing rules by multiple states.

Aspects of Employment Disputes

For both employers and employees, understanding legal nuances and applicable principles is imperative for resolving employment disputes. Broadly speaking, the following issues often arise in employment litigation:

I.               Termination-related disputes

For termination of employment to be valid, employers must adhere to the contractual procedure, applicable employment policies, relevant statutory provisions, and other applicable rules and regulations. Any perceived violation could result in a legal challenge to the termination of employment. Typically, grounds for challenging termination of employment include the following:

(a)          Contractual non-compliance -When the termination violates the procedure prescribed under the employment contract.  

(b)          Reasons for termination -Most employment contracts allow employers to terminate without cause. However, courts in India have consistently highlighted the need to include reasons for termination of employment. Common grounds for termination include loss of the employer’s confidence in the employee’s ability to fulfil expectations, redundancy, and breach of applicable policies. The obligation to provide reasons for termination can also be found in statutes. For instance, the Telangana Shops and Establishments Act, 1988, requires employers to give reasons for terminating employment.^[2]

(c)           Termination Simpliciter vs Termination for misconduct – Stigmatic termination requires an enquiry to be conducted by the employer. A substantial number of employment disputes revolve around the propriety of a disciplinary enquiry or the applicability of an enquiry before termination.

(d)          Retrenchment - This applies to “workmen”^[3] under the Industrial Disputes Act, 1947. Retrenchment can be challenged on the grounds of non-compliance with the requirements of Section25F of the Industrial Disputes Act, 1947 and the applicability of the “last in first out” rule.

II.             Disputes concerning the enforcement ofrestrictive covenants

Restrictive clauses in employment contracts, such as non-compete and non-solicitation provisions, are recurring points of conflict. Non-compete provisions are typically not enforceable, considering Section 27 of the Indian Contract Act, 1872, which renders agreements in restraint of trade void. While reasonable restrictions during the subsistence of employment are enforceable, they can be enforced post-employment only in exceptional cases.

On the other hand, non-solicitation clauses(which restrict former employees from poaching clients and employees of the employer) are more likely to be enforced, particularly if such clauses seek to protect the employer's trade secrets and confidential information, rather than restricting competition.

A growing body of disputes concerns the enforcement of a former employee’s continuing obligation not to divulge trade secrets or proprietary information of an employer. Such clauses are found in specific non-disclosure agreements (NDAs) or embedded in employment contracts or policies. These disputes are often centered around what constitutes trade secrets in a given case, who can be viewed as a competitor and the like. However, while employers closely guard their trade secrets, presenting cogent evidence to obtain long-term injunctive relief can be challenging in most cases.

III.           IPR Related Employment Disputes

Ownership, attribution, and compensation are the primary points of contention in employment disputes that intersect with intellectual property. Ownership of intellectual property is governed in India by the Patents Act, 1970, the Copyright Act, 1957, and the Designs Act, 2000.  

Section 17 of the Copyright Act, 1957,provides that in the case of a work created “in the course of employment,” such work is owned by the employer unless there is an agreement to the contrary. This provision, which is often referred to as a “work for hire”, is mirrored in the UK model, and its enforceability in India depends on factors like whether the work was within the employers’ duties, was created within working hours by using the employer’s resources and so on.

IV.          Other Employment Disputes

Beyond issues such as termination, intellectual property, and restrictive covenants, employment disputes may also arise from compliance obligations and statutory benefits, including provident funds and gratuities.

Employment disputes related to provident fund contributions are common. They can sometimes raise complex questions, such as determining the components of basic wages and computing provident fund contributions, as well as employees' coverage (and that of an establishment) under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, and the rules framed under it. With an increasing number of part-time and international workers across industries, robust compliance with such laws is imperative for employers.

With the introduction of the new labour codes imminent, more disputes are expected in the near future over reclassification of workers, new thresholds and revised benefit structures. Disputes concerning the exercise of vested stock options and their valuation are also on the rise, with an increasing number of employers offering ESOPs.

Dispute Resolution Mechanisms for employment-related disputes

(a)          Internal Mechanisms: This would include resorting to the grievance redressal committee as established under the Industrial Disputes Act, 1947^[4], as well as the Industrial Relations Code, 2020^[5] as and when it comes into force. Similarly, for workplace-related sexual harassment, a resort may be taken to the Internal Complaints Committee^[6] under the POSH Act, 2013.

(b)          Adjudication: Labour Courts as well as Industrial Tribunals have been established to deal with both individual employment disputes as well as complex issues about retrenchment, closure and collective bargaining through the process of adjudication. Being specialised forums, they are intended to provide speedy and expert adjudication of such disputes.

(c)           Civil Remedies, Arbitration, and other modes of Dispute Resolution: Besides traditional dispute resolution procedures, mechanisms such as mediation and Lok Adalats^[7]are gaining popularity in resolving employment-related disputes. Civil suits for injunctive relief and damages are default options in the absence of arbitration clauses. However, the exclusion of employment disputes from the Commercial Courts Act, 2016, is a downside. It must also be noted that certain employment disputes are non-arbitrable when they are covered by specific statutory remedies.^[8]

Inthe articles that follow in this series about employment disputes, we aim tobuild on the bird's-eye view presented above and delve into the significantaspects of employment disputes.

References

[1] https://mospi.gov.in/94-list-acts-governing-various-aspects-labour-and-employment

[2] Section 47 of the Telangana Shops & Establishments Act, 1988.

[3] Section 2(s) of the Industrial Disputes Act, 1947.

[4] Section 9C of the Industrial Disputes Act, 1947.

[5] Section 4 of the Industrial Relations Code, 2020.

[6] Section 4 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

[7] https://labour.gov.in/lok-adalat

[8] Dushyant Janbandhu v. M/s. Hyundai Auto ever India Pvt. Ltd – 2024 SCC On Line SC3691

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