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
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:
- 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.
- 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.
- 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.
- 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
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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.
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.