A 50-people IT/ITeS company in Karnataka? Get ready to battle an archaic statute

Doomed if you stick to it and doomed if you don't. This is the predicament of IT and IT-enabled Services (ITeS) industry in Karnataka, as the State Government extends an archaic labour statute to cover companies in the sunrise sector employing more than 50 workers.

The act in question is the Industrial Employment (Standing Orders) Act, 1946, better known as Standing Orders Act, according to a report by Nishith Desai Associates, a legal and tax counselling firm.

The industry had been exempted from its provisions for more than 11 years in Karnataka, one of the prime reasons for its giant strides which propelled Bangalore as India's Silicon Valley.

The Silicon Valley halo attached to Bangalore will certainly be battered by the Standing Orders Act. Imagine a company having 50 employees. What the Act would require such firms to comply with is provocatively retrograde norms, which are almost irrelevant in a modern world. Such norms making a comeback should be baffling to anyone with an entrepreneurial frame of mind and would most certainly trigger a flight of a host of companies from the State.

So if you are a company with a 50-odd work force get ready to first "define and publish uniform conditions of employment", the report says.

According to the firm, the statute has been extended to IT & ITES enabled companies in the light of certain objections raised by the support groups for women employees.

So, after defining and publishing uniform conditions of employment, our hapless employer now goes on to collect signatures of "approved representatives of employees". Now, what that means to IT & ITES companies is not clear, since there is very little evidence/requirement of such sort of activism in IT & ITES sector. The only clear offshoot we can visualise is a retrograde march to the violent old days of trade unionism.

If the employee representatives feel obliged to give their stamp of approval, the new-age company then feebly limps to the corridors of labour department to have it certified.

Now what will the Standing Orders have?

As per the report, it "should contain terms of employment including, hours of work, wage rates, shift working, attendance and late coming, provision for leaves and holidays and termination or suspension/dismissal of employees", all contentious issues especially in an employee-employer stand-off scenario.

It is not clear how a statute found to be archaic as far as back in 1999, was imposed on an industry that was exempted from it every two years from then till 2011 precisely because it doesn't fit into the present-day scheme of things.  According to unconfirmed reports, another one year exemption has been granted, though the challenges still remain.

Any modification to the Standing Orders would also require another round of permissions from the employee representatives and labour department.

Another grey area is that while the labour department is applying the Standing Orders Act to commercial establishments in Karnataka, how IT and ITES companies will fall within the definition of 'industrial establishment' is not clear. Such firms are governed under the Karnataka Shops and Commercial Establishments Act, 1961.

Industry groups have lobbied with the State Government contending that the timeworn statute does not envisage the circumstances and situations of a globalised economy, but the pleas have fallen into deaf ears.

The Karnataka Government has, however, indicated that it is willing to consider exempting companies in the IT/ITeS sector, upon specific applications being made in this respect, from compliance under the Standing Orders Act, on a case-to-case basis.

(Edited by Prem Udayabhanu)