The Industrial Employment (Standing Orders) Act, 1946, has long served as a cornerstone in regulating the conditions of employment in industrial establishments across India. These "standing orders" essentially define the terms of employment, ensuring a degree of clarity and fairness between employers and employees. However, with the evolving economic landscape and the emergence of new employment models and sectors, the need for updates became apparent. This led to the Industrial Employment (Standing Orders) Amendment Act, 2016, bringing in crucial changes.

In this blog, we'll delve into a detailed comparison of the original 1946 Act with the 2016 Amendment, focusing on three key aspects: the legal recognition and benefits for fixed-term employees, the extension of the Act's purview to the burgeoning IT and service sectors, and the introduction of tailored model orders for non-manufacturing establishments.

Fixed-Term Employment: From Ambiguity to Equal Footing

One of the most significant changes introduced by the 2016 Amendment revolves around the concept of fixed-term employment.

The 1946 Scenario: The original Act did not explicitly recognize "fixed-term employment" as a distinct category of workmen. Employment relationships were generally classified into categories like permanent, temporary, probationers, badlis, and casual workers. This lack of specific recognition often left fixed-term employees in a grey area, potentially leading to uncertainties regarding their rights and benefits compared to their permanent counterparts. While employers did engage individuals for specific durations, their legal standing within the framework of the Standing Orders Act was not clearly defined.

The 2016 Amendment: A Paradigm Shift: The 2016 Amendment brought in a much-needed clarity by formally introducing the category of "fixed-term employment workman." Initially targeted towards the apparel manufacturing sector, the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018, subsequently extended this provision to all sectors covered under the Act.

This marked a significant step in acknowledging and regulating this prevalent employment model. The amendment goes beyond mere recognition. It mandates that fixed-term employees are entitled to equal working hours, wages, allowances, and other benefits as permanent workmen for the same work or work of a similar nature. Furthermore, they are now eligible for all statutory benefits, such as provident fund, gratuity, and other social security benefits, on a pro-rata basis depending on their period of service, even if this period doesn't meet the standard qualifying period stipulated in the respective statutes.

This provision aims to eliminate the disparity in treatment between permanent and fixed-term employees performing similar work, ensuring a more equitable employment landscape. It's important to note that the termination of service due to the expiry of the fixed-term contract does not necessitate any prior notice or payment in lieu thereof, which is a distinct characteristic of this employment category.

In essence, the 2016 Amendment addressed a significant lacuna in the original Act by providing legal recognition to fixed-term employment and ensuring that these employees receive benefits on par with permanent employees on a pro-rata basis, fostering a more standardized and fair approach.

Extension to IT & Service Sector

The Indian economy has witnessed a monumental rise in the IT and service sectors, encompassing BPOs, software companies, startups, and various other knowledge-based industries. Let's examine how the 1946 Act and the 2016 Amendment address the applicability to these sectors.

The 1946 Act - The original Act primarily focused on "industrial establishments," traditionally understood as manufacturing units, factories, mines, and similar entities employing a certain threshold of workmen (initially 100 or more, later reduced to 50 in some states). The definition of "industrial establishment" under the Act was not always clear-cut in its application to the burgeoning IT and service sectors. This ambiguity often led to debates and interpretations at the state level regarding the Act's applicability to these newer forms of businesses.

The 2016 Amendment: No Direct Inclusion: It's crucial to note that the 2016 Central Amendment did not directly extend the application of the Industrial Employment (Standing Orders) Act, 1946, to the IT and service sectors nationwide. The primary focus of the amendment remained the introduction and regulation of fixed-term employment.
Model Orders for Services: Tailoring Guidelines for a New Era

The Act provides for Model Standing Orders in its Schedule, serving as templates for establishments to adopt and get certified. Let's see how the 1946 Act and the 2016 Amendment address the need for sector-specific guidelines, particularly for the service sector.

The 1946 Act: Manufacturing-Centric Models: The Model Standing Orders under the original Act were primarily designed keeping in mind the operational realities and employment practices prevalent in manufacturing and traditional industrial establishments. While they covered fundamental aspects like classification of workmen, working hours, leave policies, termination procedures, and disciplinary actions, they lacked specific provisions tailored to the unique characteristics of the service sector, such as remote work, flexible timings, client interactions, and the nature of service delivery.

The 2016 Amendment: No Specific Service Sector Models: The 2016 Amendment did not introduce distinct Model Standing Orders specifically for the service sector. The changes brought about by this amendment were primarily centered on the introduction and regulation of fixed-term employment.

The growing significance of the service sector and its distinct employment practices have highlighted the need for tailored guidelines. The Industrial Relations Code, 2020, acknowledges this requirement and contemplates the formulation of model standing orders specifically designed for the service sector. However, as this Code is still awaiting full implementation, the Industrial Employment (Standing Orders) Act, 1946, even with the 2016 Amendment, does not currently offer distinct model orders tailored for non-manufacturing establishments. Establishments in the service sector, where the Act is applicable (either directly or through state-level extensions), generally need to adapt the existing Model Standing Orders or formulate their own, ensuring they align with the principles of the Act and undergo the process of certification.

Conclusion
The Industrial Employment (Standing Orders) Amendment Act, 2016, undeniably marked a progressive step, particularly in recognizing and safeguarding the rights of fixed-term employees by ensuring they receive benefits comparable to their permanent counterparts. However, it did not directly address the extension of the Act's application to the rapidly expanding IT and service sectors or introduce tailored model orders to cater to their unique operational and employment nuances.

While state-level exemptions have played a role in the IT and service sectors, a more comprehensive and uniform approach at the national level is anticipated with the eventual implementation of the Industrial Relations Code, 2020, which aims to broaden the scope and introduce sector-specific guidelines. As the Indian economy continues to evolve, a dynamic and responsive legal framework governing employment relations remains crucial to ensure fairness, clarity, and productivity across all sectors. The journey of refining workplace rules is ongoing, and the comparison between the 1946 Act and the 2016 Amendment highlights both the progress made and the ground yet to be covered.

However, the evolving employment dynamics in the IT and service sectors have prompted state-specific actions. For instance, the Karnataka government has historically granted exemptions from the provisions of the Industrial Employment (Standing Orders) Act, 1946, to IT, ITeS, startups, BPOs, and other knowledge-based industries. These exemptions, often subject to specific conditions related to grievance redressal mechanisms and information sharing with the labor department, have been periodically renewed. Similar approaches, though with variations, have been adopted by other states as well.

Therefore, while the 2016 Central Amendment did not explicitly bring the IT and service sectors under the ambit of the Act, the legal landscape for these sectors is characterized by state-level exemptions rather than a direct inclusion through this particular central legislation. The Industrial Relations Code, 2020, which is yet to be fully implemented, proposes to broaden the definition of "industry" and extend the applicability of standing orders to the services sector, potentially leading to a more unified framework in the future.