IT/ITES in Karnataka Get Labor Law Exemption for Five More Years

Posted by Written by Archana Rao Reading Time: 3 minutes

The state government of Karnataka has extended the exemption for knowledge-based companies (in the IT/ITES industries) from provisions of the Industrial Employment (Standing Orders) Act for an additional five years, starting from June 10, 2024.

On June 10, 2024, the Karnataka government issued circular No. LD 328 LET 2023, announcing a five-year extension of the exemption for IT/ITES companies from certain provisions of the Industrial Employment (Standing Orders) Act. This decision came after previously considering ending the concession.

In 2023, Karnataka state labor minister Santosh Lad had indicated that the government might not continue the exemption. The latest decision to extend the exemption has elicited both praise and concern from the IT and ITES industries in Karnataka. An estimated 1.5 million individuals work in thousands of knowledge-based companies in Bengaluru, Karnataka.

While circular No. LD 328 LET 2023 exempts IT/ITES companies from provisions of the Industrial Employment (Standing Orders) Act, it specifies that once the labor codes come into effect, the provisions of the Industrial Relations Code, 2020, will apply to these companies.

READ: India’s New Industrial Relations Code and its Impact on Labor Law

State-based employers’ association welcome the exemption

Karnataka Employers Association (KEA) President BC Prabhakar has praised the exemption, stating it would significantly boost the development of the IT and ITES industries in Bengaluru and across Karnataka. Prabhakar believes that such a decision will facilitate ease of doing business and draw in more software businesses to Karnataka.

At the 2023 Bengaluru Tech Summit, Chief Minister Siddaramaiah noted that Karnataka hosts about 5,500 IT/ITES companies and approximately 750 multinational corporations (MNCs), contributing around US$85 billion to the nation’s exports. In 2022, Bengaluru was home to 400 of the Fortune 500 companies, many of which are leading IT/ITES MNCs.

Prabhakar mentioned that the KEA had requested that the government maintain the exemption until the Industrial Relations Code 2020 is implemented.

The BPO, IT, ITES, startups, animation, gaming, and computer graphics industries are all covered by the exemption. The Industrial Employment (Standing Orders) Act, 1946, one of the key labor welfare laws in the nation, regulates a number of employment-related issues, such as appointment, termination, and dismissal. 

The latest notification maintains the same conditions prescribed since 2014 for IT/ITEs companies to qualify for exemption under the Industrial Employment (Standing Orders) Act, 1946. These conditions are:

  • Form an Internal Committee under the prevention of sexual harassment law in India.
  • Notify authorities of disciplinary actions like discharge or dismissal, etc. 
  • Constitution of Grievance Redressal Committee to address grievance of any employee.
  • Submission of information on service conditions to authorities.

READ: Annual Compliance for Employers in India Under Prevention of Sexual Harassment (POSH) Legislation

Exemption draws mixed reactions

The notification restates that in order to handle any complaints or grievances from employees, establishments must set up internal committees in accordance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, in addition to forming grievance redressal committees made up of an equal number of representatives from the employer and employees.

The Industrial Employment (Standing Orders) Act, 1946 mandates that employers in industrial establishments clearly define the conditions of employment and make these conditions known to their ‘workmen’.

The Act applies to all industrial establishments with 100 or more employees, as defined in Section 1(3). Under Section 2(i), ‘industrial establishments’ include:

  • The Railway Industry.
  • Industrial establishments as mentioned in Section 2(ii) of the Payment of Wages Act.
  • Factories as defined in Section 2(m) of the Factories Act.
  • Establishments of contractors who employ workers to complete a contract for a person who owns an industrial establishment, as per Section 2(e)
    Workers as defined in the Industrial Disputes Act, Section 2(s), which includes all manual, clerical, skilled, and unskilled trades.

While KEA has applauded this decision, the All-India Trade Union Congress (AITUC) criticized the government for acting unilaterally and announced plans to take legal action. According to M. Satyanand, general secretary of AITUC, Bengaluru, the state’s IT industry is almost 40-years old, is no longer in its infancy, and does not require incentives.

Lack of adherence by exempted companies

One significant requirement in the latest ‘Standing Order’ exemption notification is that companies must notify the relevant Deputy Labor Commissioner and Commissioner of Labor of any disciplinary actions involving their employees, including suspension, discharge, termination, demotion, and dismissal. Additionally, companies must provide information to labor officials regarding their employees’ working conditions.

However, local trade unions have noted that companies have not adhered to the restrictions set when the Standing Order exemption was granted in 2019. The state had previously granted exemptions to IT, ITES, BPO, and KPO firms from labor regulations. A notification on January 25, 2014, exempted these companies from the Industrial Employment (Standing Orders) Act, 1946, and this exemption was extended for another five years on May 25, 2019.

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