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Terminated Employees (Welfare) Bill, 2020: Practically Unworkable and Ill-timed

In the present era where the role of the private sector has escalated substantially and the role of the public sector is plummeting, the questions connected to the welfare of private sector employees have started gaining prominence. The threat of losing the job always looms over the head of every private sector employee and therefore, to reduce the impact of sudden termination and to ensure job security for the employees, a private member Bill - Terminated Employees (Welfare) Bill, 2020, (the “Bill”) was introduced in the parliament by Mr. Rakesh Sinha, Member of Parliament in February. The statement of objects and reasons of the Bill says that-

At present there is no law to ensure that the employers provide terminal benefits in time and which makes provision for education, medical facilities, etc., to the families of employees who have been terminated. The Bill seeks to achieve the above objective.

Key provisions of the Bill

  1. Eligibility: An employee will be eligible to avail unemployment benefits in case his/her employment is terminated owing to winding up of the establishment. The establishment can be winded up owing to several reasons including change in technology, orders of the court, economic slowdown or change in government policy.
  2. Non Eligibility: No employee will be eligible to avail the benefit of the act if the employer has terminated his employment because of reasons like indulging in cheating, found guilty by the court, using fraudulent means to appropriate money or any other misconduct.
  3. Duration: An employee will be able to avail the benefits of the Bill only if the benefits are not part of the contractual agreement. The employee can use benefits for a period of nine months (including notice period) or till he gets employment at some other place, whichever is earlier.
  4. Severance Package or Unemployment compensation: The Bill states that the unemployment compensation shall not be less than 60 percent of the gross salary of the terminated employee or the compensation shall be in accordance with the employer-employee agreement, whichever is higher, and the entire cost of the compensation shall be borne by the employer himself. The Bill also states that unemployment compensation can be dispensed with in a case where the employer is providing the employee with a severance package, provided that the severance package is higher than the unemployment compensation.
  5. Corpus fund: The Bill also states that the employer must create a corpus fund for the benefit of terminated employees. According to Bill every employer must set aside at least five percent of the net profit towards the corpus fund for the welfare of terminated employees. The fund created will also be utilized for looking after the medical expenditure as well as educational expenditures of the terminated employees’ family.
  6. Interest payment: If the employer fails to provide the benefits conferred upon the employee by the Bill, then he would be liable to pay penalty in form of interest payment which will be at the rate of 12 percent per month from the date of delay in paying benefits.

Analysis of the Bill
Though the object of the Bill is to reduce the difficulties faced by the private sector employees, it is replete with practical difficulties:
  1. Absence of punishment: Though the Bill imposes arduous requirements on the employers, it fails to provide for any provision which deals with cases where the employer fails to comply with the provisions of the Bill. No provision of the Bill provides for any liability (civil or criminal). In the absence of any such provision, the Bill will be an ineffective legislation, failing to address any of the grievances of the aggrieved employee.
  2. Onerous requirement for the employer: The Bill has imposed a severe financial burden on the employer in comparison to liability under the current regime. Presently according to Section 25F(b) of the Industrial Disputes Act, 1947, which deals with condition precedent for retrenchment, a worker cannot be retrenched unless he has been paid retrenchment compensation by the employer. The compensation to be paid by the employer must be equal to fifteen days average pay for every completed year of continuous service. This would mean that for an employee to claim compensation equivalent to nine months’ pay, he must have served his employer continuously for a period of 18 years. But according to Section 3 of the Bill, an employee can claim compensation equivalent to nine months (i.e. almost two-third of the gross salary) even if he has served the employer only for one year. Such a provision which does not take into account the time served by the employee in the organization at the time of paying unemployment compensation is severely detrimental to the interest of the employer. Further, if the severance package being offered by the employer is less than the unemployment compensation, then as per the provisions of the Bill, an employee can claim both severance package as well as unemployment compensation which will have significant impact on the profits of the organization.
  3. What if organization is incurring losses: Section 4 of the Bill mandates the employers to create a corpus fund for the terminated employees and at least five percent of the net profits of the organization must be transferred to such fund. But the Bill fails to consider such situation a where the organization is incurring losses, especially for past many years. Is such an organization still mandated to create such a fund? If the answer is in the affirmative, then what percent or what amount is to be transferred? The Bill is completely silent on these peculiarities. Section 3(1) of the Bill states that the company is bound to compensate the employee even in situations where winding up of the company is happening because of reasons which are not in anyone’s control like economic slowdown or change in technology or government policy. A special provision must be made for companies incurring continuous losses and for those companies whose profits have hampered because of reasons which are not in their control.
  4. Bill triggered only in case of winding up: Section 3 of the Bill states that the provisions of the Bill will be triggered on winding up of the organization. But the Bill fails to define the term  winding up and in the absence of clarity, it seems that provisions of the same will be triggered only when the organization is permanently closing down its business. Such narrow understanding would leave out cases where employment of the worker has been terminated because of redundancies. Cases of redundancy are instances where the company no longer requires a specific type of work which the employee was performing previously or when the company has changed the location of production process and no longer requires services of the employee.
  5. Vague ground of dismissal: The Bill states that if cessation of the employment is happening because of reasons like “proven misconduct”, then in such case, an employee shall not be eligible for benefits under the Bill. There have been several cases where an employee is dismissed for “misconduct” after internal committee hearings but the nature of such proceedings and independency of the internal committee members is always questionable. In the absence of any transparent and independent process to determine the guilt of the employee, the organization might resort to such internal committees to deny to the employee the benefits of the Bill.

The Bill correctly highlights the lacunas in the existing regime concerning termination of a private sector employee where unemployment compensation is very minimal or absent in most of the cases. Though the Bill is a beneficial piece of legislation, the enforcement of the Bill seems to be highly unfeasible. Also, there is high possibility that the Bill will be viewed as going against the interest of the industry and considering current global slowdown, industry players must be praying that the Bill remains at its present stage itself.

The Bill also goes against the government’s intention of improving India’s ease of business doing ranking and such provision will be seen as creating unnecessary hurdles for the businesses as implementation of the Bill would require substantial policy changes. Clarity must be provided in regards to certain terms of the Bill and exceptions must be made for loss incurring organizations.

Also, the requirement of having five percent of corpus funds for the welfare of the employees (which is in addition to CSR) is too high and must be brought down owing to competitive economic market. The Bill may also have an impact on employment generation as the industry might be cutting down on hiring owing to the costs involved in termination of an employee.    

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