The IESO Act requires certain employers to formally define the conditions and rules of employment (including the rules for hiring, dismissal, shift working, hours of work, wage rates, suspension allowance, and transfers) for workmen as part of their ‘standing orders’. These standing orders must be submitted in draft form to the labour department for certification, and the workmen are permitted to raise their objections during the certification process. Once the standing orders are certified, the employer must publish them at a conspicuous location in the workplace. Additionally, the IESO Act does not permit an employer to amend the standing orders without approval of the labour department.

Owing to this exemption, IT employers in Karnataka have formulated their own policies to govern employment rules and conditions and have flexibility in amending them in light of business needs. However, given the increase in the number of industrial disputes in the state over alleged unfair labour practices, arbitrary terminations, unauthorised change in employment conditions, prolonged working hours and other similar matters, the Karnataka state government is contemplating non-renewal of the exemption, which is set to expire in May 2024. This would mean that the currently exempted businesses would be required to comply with provisions of the IESO.

As it is settled industry practice for multinational companies to cover their Indian entities under global policies to the extent compliant with Indian laws, some IT companies may, presently, not be compliant with the IESO Act owing to the exemption. In the event of the exemption being withdrawn, covered employers would be required to review their existing employment policies and handbooks in line with the IESO Act, and would also be required have their standing orders certified by the labour department as mandated by the IESO Act.

While the state government is looking to safeguard employee interests by proposing to withdraw the exemption, this could have far-reaching consequences across the IT sector in Karnataka in terms of the flexibility available to them in framing and adapting employee–related policies.

*India Kochhar & Co.