DH Deciphers | Proposal to bring IT firms under Karnataka labour department

Bengaluru: The Karnataka government is mulling placing IT and IT-enabled services companies within the ambit of the state labour department in the coming year. The department has cited safeguarding interest of employees as a reason for revisiting the exemption awarded to the sector in 2014. In this edition of DH Deciphers, Shakshi Jain explains what this would mean for tech firms within the state, and their employees.

What is the labour department’s stand on the issue?

A press statement released by the labour department last week stated that the state government is contemplating discontinuation of the Industrial Employment Act exemption enjoyed by the IT/ITeS sector in Karnataka. The statement cited instances of unfair trade practices such as ID blocking, mass retrenchment, layoffs, extended work hours and sexual harassment at workplace, as reasons behind the decision.

As of now, the government is intent on holding consultations with concerned industry stakeholders, on the proposed move. Further action will follow the outcome of the discussions.

What is the history of the exemption?

The Industrial Employment (Standing Orders) Act, 1946, mandates that employers in private establishments formally define the terms and conditions of employment under them and disclose the same to their employees. IT/ITeS companies are registered under the Karnataka Shops and Establishments Act, 1961, to which the Payment of Wages Act, 1936, is attached, and thereby come under the purview of the Standing Order.

The Karnataka government had however, through a notification dated January 25, 2014, exempted knowledge based industries - IT/ ITeS, startups, animation, gaming, computer graphics, telecom, BPO and KPO - from the application of the Act, in an effort to boost growth of these sunrise industries in the state. This provision, which had run its course in 2019, was extended for another five years on May 25, 2019. The relaxation is set to expire in May, 2024.

What are the riders governing the exemption provision?

The exemption is subject to the following conditions:

Constitution of an internal committee in accordance with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition, Redressal) Act 2013.

Setting up of a grievance redressal committee consisting of an equal number of members representing employer and employees.

Informing the concerned labour authorities about cases of disciplinary action against employees, such as suspension, discharge, termination, demotion or dismissal.

Readiness to furnish details on service conditions of employees, when sought by the government.

How will the move impact employees of IT/ITeS companies?

According to government estimates, currently nearly 18 lakh professionals are employed across 8,785 IT/BT firms in Karnataka. Following Covid-19, the state labour department witnessed a surge in complaints from tech professionals alleging unfair trade practices at play. The proposed move is likely to strengthen job security and help ensure a safer and more equitable work environment for these employees.

The Standing Order precisely defines the service conditions of employees - wages, duration of work, paid holidays, grievance redressal, etc - and requires companies to comply with stated procedures before the termination of an employee’s services.

What would be the key drawbacks for companies following discontinuation of the exemption? What do the trade unions say?

Industry experts who spoke to DH cited reduced ease of business, constraints tied to determining and deploying policies, processes, frameworks and facilities, and higher cost of operations as key bottlenecks that are likely to kick in following implementation of the proposed move.

According to the state government, the exemption was extended in 2019 on the insistence of industry bodies. However, trade unions, including the Karnataka State IT/ITeS Employees Union, have persistently posed stiff opposition and advocated against the exemption granted to the sector, citing employee rights.