Legal Aspects of HRM

Prof. S. P. Pati
Indian Institute of Management
Kozhikode
(03.03.2016)

 Dunlop Model
An understanding of the IR construct, is provided by
J. T. Dunlop, who is credited with the application of
Systems approach to the same. The Systems
approach argues that any system has four distinct
processes: input acquisition, input transformation,
output and feedback.
As per Dunlop, an industrial relations system at any
one time during its development, is regarded as
comprised of certain actors, certain contexts, an
ideology, which binds industrial relations system
together and body of rules created to govern the
actors at their workplace and work community.

 As per Dunlop, the output that industrial relation system

seeks to deliver is creation of rules. Rules may be
defined as:
Rules governing all forms of compensation
The duties and performances expected of workers including
rules for maintaining discipline
Rules defining rights and duties of employers and employees
(including legislations, terms of collective agreements).
Procedures for establishing rules
Procedures for application of rules

 The inputs to the system are:

Actors
Managers and their organizations
Workers and their organizations
State and its agencies concerned with the workplace

Contexts
Technological (organization of work, state of technology,
labor or capital intensive
Market (Product demand, market growth, no. of
competitors, margins, profits etc.)
Power (How power is distributed amongst the three actors)

Common ideology
Workers are entitled to minimum standard of living
A certain standard of output ought to be delivered for
organization to remain competitive and for the actors to
survive competitively.

 The transformation occurs in the system through

Bargaining
Concillation
Arbitration
Legislation
Judgments

Actors
Context

Bargaining
Conciliation
Arbitration
Legislation
Judgment

Rules
Laws

Common
Ideology

Input

Transformation

Output

 Legal aspects of HRM can be studied under three

components:
Social security
It is the protection given by society to its members against contingencies of
modern life such as sickness, unemployment, old age, invalidity, industrial
accidents etc.
Social security is an attack on five giants that affect workers wants,
disease, ignorance, squalor and idleness (V.V. Giri)
Article 41 of the Constitution of India says that the State shall within the
limits of its economic capacity and development, make effective provision for
securing the right to work, to education, and to public assistance in cases of
unemployment, old age, sickness and disablement and in other cases of
undeserved want .
No peace without social justice and no justice without social security.

 The Employees Compensation Act (1923)

Objective: Impose an obligation on the employer to pay
compensation to the workman who suffers partial or total
incapacity for minimum 3 days resulting in loss of earning
capacity.
Coverage: Covers all employees employed in factories, mines,
plantations, transportation, construction, works, railways, ships,
and certain hazardous occupations as mentioned in Schedule II
of the Act. It does not apply to casual workers, workers covered
under the Employees State Insurance Act and members of the
Armed Forces.
Benefits: Three conditions must be fulfilled for claiming
compensation from the employer:
There must be an injury
It should be caused in an accident
It should be caused during the course of employment
Can be claimed for occupational diseases too (they have been classified). Even if the employee
shows the signs of occupational disease after cessation of employment, compensation can be
demanded

 The Employees Compensation Act (1923)

Benefits (contd.):
Even when employment aggravates the existing disease of the employee,
either by strain or fatigue incidental to employment, then too compensation
can be demanded

Accident and injury are important in the act. Accident has to be

unforseen mishap, while injury can be intangible or psychological.
Compensation can vary depend on the age of workman, type of injury
suffered and wages.

The employer is not liable to pay compensation if:

The injury does not lead to partial or total disablement for a period of 3 days.
Where the injury is caused by the fault of the worker, e.g. due to influence of
drinks, drugs, willful disobedience of an order etc.

Assessment:
No provision for medical care and treatment in case of injury to a worker.
No provision for insurance of the liability of the employer. Hence many
employers find it difficult to compensate workmen

 The Employees Compensation Act (1923)

The Employee Compensation (Amendment) Act (1923)
Received the ascent of the President of India on 22nd Dec. 2009
The word workman was substituted with employee to make it
applicable across all classes of employees and also to make it gender
neutral.
Min. compensation Rs. 1.20 lakhs for death of an employee, Rs. 1.40 lakhs
in case of permanent disability, as well as funeral expenses of Rs. 5000/ Reimbursement of actual medical expense incurred during the treatment of
injury caused during the course of employment is also being proposed.
Empowers Central Govt. to hike minimum rates from time to time

The Employees State Insurance Act (1948)

Objective: ESI Scheme for India is an integrated social
security scheme tailored to provide Social Protection to
workers and their dependents, in the organized sector, in
contingencies, such as Sickness, Maternity and Death or
Disablement due to an employment injury or
Occupational hazard
Coverage: The ESI Act 1948 applies to
Non seasonal Factories using power in and employing ten (10) or
more persons
Non seasonal and non- power using factories and establishments
employing twenty(20) or more persons
Employees of the Factories and Establishments in receipt of wages not
exceeding Rs.15000 /- per month (wef. 01.05.2010) are covered under
this Act.

 The Employees State Insurance Act (1948)

Administration: The administration of the Act has been given to
the Employees State Insurance Corporation (ESIC), an
autonomous body set up by an act of the Central Government.
The ESIC Board has representatives from the State Govt.,
employers, employees, medical profession and the Parliament.

Finances
The Scheme is primarily funded by contribution raised
from Insured Employees and their employers
Payable such as
1. Employees Contribution 1.75% of the Wages
2. Employers Contribution 4.75% of the Wages
TOTAL
- 6.5 % of the Wages

Employees in receipt of an average daily wage of

Rs.100/- or Less, are exempted from Payment of their
share of contribution but are entitled to all social security
benefits under the Scheme.
The scheme is operated through the ESI Fund, with
grants and contributions from Central, State Govt. and
local authorities

The Employees State Insurance Act (1948)

Benefits: Three types of medical help the insured person receives:
Outpatient medical care through dispensaries set up in various centers
Laboratory and testing expenses
Hospitalization charges
The scheme provides the benefits to approx 90 lakhs households through an
extensive network of offices situated in over 850 centers throughout the country.
Sickness benefit: About half the wages up to 91 days sickness
Disablement benefits: All insured persons are eligible to receive disablement
benefit (90% of wages) for any injury arising out of and in the course of
employment lasting not less than 3 days. In case of temporary disablement, full
wages are paid in addition to free medical help. In case of permanent
disablement, compensation is paid in cash for life.
Maternity benefits: All insured women are eligible to receive cash payment for
confinement, miscarriage, or sickness arising out of pregnancy. They are
entailed to receive full wages for leave upto 12 weeks, of which more than 6
weeks must precede the expected date of delivery. If the insured woman dies,
her nominee will get the benefits for the entire period.
Dependent benefits: if a person dies from employment injuries, his widow and
children are entitled to compensation benefits to be paid in certain ratio (90% of
wages).

The Employees State Insurance Act (1948)

Funeral benefit: When an insured person dies, the eldest member of the family or
other dependent or friends as the case may be, is entitled to receive Rs. 10000/towards funeral expenses. The amount should be claimed within three months of
the death.
The Maternity Benefits Act (1961)
Objective: Payment of maternity benefit to women workers under certain
conditions
Coverage: The Act is applicable to all establishments not covered under the ESI
Act 1948
Benefits:
The woman worker gets maternity leave up to 12 weeks, six weeks prior to
delivery and six weeks immediately thereafter
During this period full wages are paid
An additional amount of Rs. 250 is paid to the woman worker as medical
bonus if the employer offers no free medical care
To claim the above benefits, the woman employee must have worked for at
least 80 days in 12 months immediately preceding the day of her expected
delivery. During the leave period, the employee should not work in any
establishment. The woman employee gets Rs. 1000/- as maternity bonus

The Maternity Benefits Act (1961)

Assessment: Legislation has led to a tendency among employers towards not
employing married women, and even discharge women workers on signs of
pregnancy
Most small scale units do not extend the benefits to the women employees
exploiting the loopholes of the Act. Many women workers are reluctant to ask for
benefit, fearing unemployment.
The Employees Provident Funds and Miscellaneous Provisions Act, 1952
Objective: Retirement benefits to workers in the form of provident fund, pension
and deposit linked insurance.
Coverage: The Act applies to factories in any industry mentioned in Schedule I
where 20 or more persons are employed. The Act does not apply to (i)
cooperative societies where less than 50 persons are employed and working
without the aid of power (ii) new establishments for 3 years from the date of
commencement.
Benefits:
Provident Fund Scheme: Under the scheme, deductions are made @ 12% of pay of
employees salary (whose salary is less than Rs 15000) every month. The employer too
too contributes an equivalent sum (deduction from employee can be more, but not for
employer). The total commissions are deposited with the Provident Fund Commission
or invested in a specified way. Premature withdrawals, loans, advances can be
obtained by the employee for higher education, marriage of children, purchase of car
etc. Credit balance is paid to the nominee/or self after death/or retirement respectively

 EPF Applicability
Establishments under the control of state/central government (Sec 16 (1b)).
Establishments under any central, provincial or state act (Sec 16(1c)).
Voluntary coverage if employer and majority of the employees agree to
implement the same (u/s 1(4))

Employees with wage more than Rs. 6500/- can also opt for the
scheme, after consulting with the employer and with approval
from the Government [PF Commissioner or an officer so
authorized in this regard]. They have to pay 12% of Rs. 6500/- or
12% of basic pay (in actuals) or up to Rs. 6500 /- (if so they
wish). Under special circumstances, they can contribute more.
Max payment from employer is frozen at 12% of Rs. 6500 or up
to Rs. 6500/-, while employees can contribute more.
At time of superannuation or death, the fund (and the interest
calculated by the rates declared by Central Govt. every year) is
paid.

 Employee Deposit Linked Insurance Fund (1976)

No contribution from employee
0.5 % of wage (for wages equal to or below Rs. 6500/- | Rs. 15000 after
Sept. 2014) + 0.01% as administrative expenses
Provides life insurance benefits to employees who are members of PF
scheme
The Employees Pension Scheme 1995
It is a contributory scheme where 8.33% of the 12% contributed by employer
to PF, is diverted for pension. Under the EPS, no contribution is taken from
the employee. The Govt. contributes @ 1.16%. Neither rate has been
revised now for 14 years, leading to extremely low monthly pensions of Rs.
100/- approx.
The Payment of Gratuity Act 1972
Gratuity is additional financial benefit given to employees of organizations
when their services end due to superannuation, retirement, resignation,
death or disablement (Sec 4).
Given to all employees irrespective of rank and status
Rate is 15 days wage for every year of service, based on the last wage
drawn by the employee. Month = 26 days (accounting for four weekly offs).
5 years continuous service is required (as defined in Sec 2A) to be eligible
(except in case of death and disablement) to receive gratuity.
Max gratuity payable = Rs. 10,00,000 (tax free), but can be raised by
employer.

Regulatory Acts (Industrial Relationship Act)

Industrial Dispute Act 1947
Primarily restricts all direct actions that can be taken by parties involved in
an industrial dispute.
Proposes different conflict resolution forums like Works Committee (Section
3), Conciliation officers (Sec, 4), Board of Conciliation (Sec, 5), Courts of
enquiry (Sec, 6), Labor courts (Sec 7), Tribunals (Sec 7 A), National Tribunal
(Sec 7B)
In current times of increasing employment, productivity and flexibility, the
suitability of various provisions of the act has been questioned.
Even there is a view that the title itself is negative
The definition of industry got widened by the Supreme Court in a landmark
judgment Bangalore Water Supply and Sewage Board vs Rajappa (1978).
In Aug 2010, the act was amended to widen definitions and to include a
chapter on grievance redressal.
Labour courts or Tribunals judgment is equivalent to Civil Court.
Org should give notice of change (Sec 9A), before 21 days to workers , for
effecting any change at the workplace
Sec 10 gives Govt. power to refer disputes to boards, courts or tribunals for
settlement.
Provides restrictions on employees from going on strike (Sec 22 24)
before giving notice of 6 weeks (and within 14 days of giving notice) or when
some conciliation effect is on

 Also has provisions for lay off upon payment of compensation (Sec 25C),
retrenchment of workmen after giving sufficient notice (Sec 25F) and giving
compensation and for closure of undertakings (Sec 25FF)
The Trade Unions Act 1926
Seven employees have the right to apply and register a trade union
Later amendment (2001) makes it 10% of unionizable employees or 100
employees (whichever is less).
Registration is not compulsory, but registered unions receive protection from
certain civil and criminal actions. Unregistered unions have no corporate
existence nor legal entity (and hence no power of contract and no power to
acquire movable and immovable property)
Does not specify any criteria or method of recognition of Unions
Various states (for e.g. Maharashtra) have enacted specific legislations for
union recognition

Laws related to Working Conditions

The Factories Act 1948
Applies to Manufacturing sector
Provides safeguards for workers to protect health, provide for safety at the
workplace while dealing with machines, improve physical conditions of
workplace and provide welfare amenities
Section (5, 54-56), Restricts the hours of work, provides for overtime and
spread of working hours
Restricts employment of young people (Sec 79 63), and employment of
women in night (Sec 66)
Section 6 calls for compulsory registration of factories under the Factories
Act.
Authorities are appointed by Govt. like Inspector and Chief Inspector of
Factories (Section 8 and 9), Certifying Surgeons (Section 10) to ensure
implementation of the act.
Also recommends appointment of Welfare Officers in factories employing
more than 500 workers (Section 49) and safety officers (Section 40 B)
with appropriate qualifications
Factory workers are entitled to certain rights under the act (Section 111A),
and they are obligated to follow rules of safety, health and welfare (Section
111). Violating workers are to be punished

 The Shops and Establishment Act 1961

Largely covers all other sectors excluding manufacturing and unorganized
sectors
The State Govt. has power to exempt establishments or geographic
locations from the purview of the act.
IT/ITeS sectors come under it.
Deals with imp. aspects like restrictions on working hours, period of work,
extra wages for overtime, and earned leave and sick leave. The act also
prohibits employment of women in night hours, of child, and lays down
procedure for discharge, dismissal and termination of employment.
States have amended the provisions like working of women in night for 24
hours operation

 The Contract Labour (Regulation and Abolition) Act,

1970
Objective: Prevent exploitation of contract worker and also
introduce better conditions at work for them
A workman is a contract labourer if he is hired by or through a
Contractor to work in an Establishment
Contract workers are not in payrolls of the company. They are
hired, supervised and remunerated by the Contractor, who in
turn is remunerated by the Establishment
Applicability
Applies to Principal Employer or Contractor where 20 or more workmen are
employed or were employed even for 1 day in the preceding 12 months
The Act does not apply to Establishment where work is of intermittent (< 120
days) or seasonal nature (< 60 days)
Establishment has to apply for license (for every work particulars) within the
context within 60 days of the commencement of the work.

 The Contract Labour (Regulation and Abolition) Act,

1970
Responsibilities
Joint and Several responsibilities on the Principal Employer and the
Contractor.
The Principal Employer ought to ensure that the Contractor does the
following:
Pays the wages as determined by the Govt. (Payment of Wages Act,
1936, and Minimum Wages Act, 1948)
Pays the wages as determined by the Commissioner of Labour
In their absence pays fair wages to contract labour (the definition in
Minimum Wage Act, 1948)
Provides the following facilities
Canteen (if 100 or more workmen) and the work is likely to last 6
months or more
Rest rooms, where the workmen are required to halt at night and
the work is likely to last three months or more
Requisite number of latrines and urinals: separate for both men
and women
Drinking water, washing and first aid
Maintenance of various registers and records
Issuing of employment card.

 The Contract Labour (Regulation and Abolition) Act,

1970
Landmark judgment
Steel Authority of India vs. National Union of Waterfront
Workers (2001)
Contract workers have no right of automatic absorption in the
organization upon abolition of contract. They have only a right for
preference in employment in the positions vacated by them and
intended to be filled up with permanent workers.
Further, if the Govt. has abolished the employment of contract worker
u/s 10(1) of the act, then it is up to the contractor to find employment
for his workers in establishments where such abolition has not been
declared.
Reversed the previous judgment of the Supreme Court in the Indian
Airports Employees Union vs. Air India and Ors. (1996), where the SC
had ruled that contract labourer stands absorbed into the pay rolls of
the Establishment post abolition of contract labour system by the
appropriate Govt. u/s 10(1) of the Act.

 Sexual Harassment at Workplace (Protection, Prevention and

Redressal) Act, 2013
Definition of sexual harassment
As laid down by the Hnoble Supreme Court in Vishaka vs. The State of
Rajasthan (1997)
Unwelcome, sexually determined behaviour by any person either individually or in
association with other person or by any person in authority whether directly or by
implication such as:
Eve teasing
Unsavory remarks
Jokes causing or likely to cause awkwardness or embarrassment
Innuendos and taunts
Gender based insults or sexist remarks
Unwelcome sexual overtone in any manner such as over telephone
(obnoxious telephone calls) and the like
Displaying pornographic or other offensive or derogatory pictures, cartoons,
pamphlets or sayings
Forcible physical touch or molestation
Physical confinement against ones will and any other act likely to violate
ones privacy
Threat to a womans employment prospects (previously only on grounds of
sex, now any ground)
Creation of hostile work environment

Salient features of the act

Provides protection to women who are employed but also to any
woman who enters the workplace as a client, customer, apprentice,
and daily wage worker or in ad-hoc capacity. Students, research
scholars in colleges/university, patients in hospitals have also been
covered. Moreover workplaces in unorganized sectors are also
covered.
Bill provides an effective complaints and redressal mechanism.
Every organization having more than 10 workers ought to
constitute an Internal Complaints Committee (ICC).
Complaints committee are required to complete the enquiry
within 90 days
For establishments having less than 10 workers (41.2 million out
of 41.83 million as per Economic Census, 2005), the Bill
provides the setting up of a Local Complaints Committee
(LCC)to be constituted by the designated District Officer at the
district/sub-district level depending upon the need
The LCC will enquire and recommend action to the employer or
District Officer
The LCC shall have to complete the enquiry within 60 days.

 Salient features of the bill (contd.)

Employers who fail to comply shall be punished with fine that
may extend up to Rs. 50000/-.
Repeated offences shall even attract de-registration of the
organization.
Since there is a possibility that during the pendency of the
enquiry the woman may receive threat or be subjected to
aggression, she has the option of seeking interim relief in the
form of transfer of her own, or respondent, or paid leave from
work.
Bill provides safeguards against false or malicious complaint of
sexual harassment. Action may be taken under service rules or
for defamation under IPC.
However mere absence of proof to substantiate the charge is
insufficient to invoke action.
The number of cases filed and the action taken ought to be
reported in the Annual Report of the Organization.

 Consequences of Anti- Sexual

Harrassment Law (The other side of the
coin)
http://articles.economictimes.indiatimes.com/2
013-12-03/news/44710273_1_hr-head-maledoctors-nimhans
https://www.youtube.com/watch?v=tVuZFRvN
gaM

 The Maternity Benefits (Amendment) Bill

16 weeks of paid maternity leave to women having babies
through surrogacy and those who adopt a new born within three
months of his/her birth.
Expectant mothers are entitled to 6.5 months of paid leave
Offices with more than 50 workers should have to compulsorily
provide Creche facility within their premises.

The Employee Provident Fund Act Amendments

Dormant accounts (inoperative for more than 36 months) will
continue to earn interest till the EPF account-holder attains 58
years and is allowed to withdraw the funds entirely.
Earlier, at the time of retirement, on attaining the age of 55, an
EPF account-holder could withdraw the entire balance
(employer's and employee's contribution plus interest) from his
EPF account. This age limit has now been increased to 58
years.
Partial withdrawal is limited to employees share and the interest

 Definition of Industry (Rajappa vs. Bangalore Water

Supply Case)
Any activity will be industry if it fulfils the triple test, as under:
Systematic and organized activity
With the cooperation between Employers and employees
For the production and distribution of good and services whether or not
capital has been invested for this activity.

It is immaterial whether or not there is profit motive, and whether

or not there was initial capital invested in this activity