Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

The word “employment” has origins from the words ‘employ’ and ‘implicate‘– meaning ‘apply or devote something to a purpose’ and ‘to engage/hire’.

Employment relationships are unique since both the employer and the employee invest time and effort with a long-term objective of mutual growth and benefit.

The relationship is governed by employment laws, which, though quite complex when it comes to compliances, are necessary for the fair and impartial management of employment matters. It is therefore critical to have a clear understanding of issues surrounding employment matters including appointment, terms of engagement, continuing compliances as well as termination/lay-offs.

Legislations Are Pro Employee: ‘At Will’ Employment- In the Indian context, ‘At Will’ employment and ‘Hire and Fire’ are not the accepted norms. While a specified term of employment is an alternative since it prescribes a start date and an end date for the employment relationship, when it comes to a regular employment arrangement, any termination is typically for a cause. The cause can mean disciplinary matters, breaches, misrepresentations or performance-related issues. Any termination requires compliance with several laws which include transfer of provident fund balance, payment of gratuity, leave encashment and notice period pay. Some of these are contractual, while some are statutory. Where the employees are non-supervisory or non-managerial, there could also be payment obligations in the nature of ‘retrenchment compensation’, and in certain cases, approval from the government authority. There are also statutory restrictions on termination of women or alteration of their terms of service, when on maternity leave. Wrongful termination can not only lead to litigation and claims, with pay outs and reinstatement, but also affect a company’s reputation. It is therefore critical that while dealing with any termination, necessary legal advice is obtained to confirm compliance and adherence to statutory norms.

Contract Labour- Engagement of employees through a manpower supply arrangement seems simpler, but it also comes attached with several obligations and compliances. Although the contractor is the legal employer of such contract employees for all purposes, the law imposes a responsibility on the entity engaging in contract labour by categorizing such entity as the ‘principal employer’. Essentially, all employee-related liabilities (statutory in particular) are underwritten by the principal employer so that the employee is not at risk. Additionally, it is expected that engaging in contract labour by an entity is not for its core business activity, but for activities that are intermittent and of a non-permanent nature.

Moonlighting- A recent trend puzzling employers is that of ‘moonlighting’. Moonlighting refers to employees taking up other jobs/side gigs, along with their regular employment. Some corporate houses have called such conduct as ‘inappropriate’. Views are quite diverse on the appropriateness of such conduct by the employees. A more likely outcome in the long run is for employers to encourage a clear and transparent system in place to ensure appropriate disclosure by employees. Critical among the issues of moonlighting is the safeguard for company proprietary information. Standard employment contracts typically include restrictions that the employee will not take up any other engagement or employment while in full-time employment with an entity. Despite such restriction, if an employee takes up any side gigs, the company should be entitled to initiate disciplinary action including termination of the employment. The work from home concept has also, to a large extent, exacerbated moonlighting and similar issues.

Termination & Lay-offs- Termination and lay-off of employees could be due to a downturn in the business, or for reasons that are beyond the control of the employer, or due to disciplinary action including for reasons of moonlighting by employees. The Covid-19 pandemic also caused a lot of anxiety for companies who were unable to retain their employees due to a near standstill of their operations. Indian laws do not contemplate any state support for furlough employees, which imposes a severe burden on the employer entity.

Given that new age businesses have varied requirements from time to time including the quantum of employees and considering the ups and downs of the business, one could opt for fixed term employment as a fair alternative. Another alternative is the nature of a contract being a non-exclusive contractor relationship instead of an employment relationship. While this could, to a large extent, deal with the liabilities otherwise associated with the termination of employees, issues surrounding confidential information and data, and the continuity of relationships will need to be appropriately looked into.

Authored by

Raj Ramachandran, Partner at JSA

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members