Exemptions granted to startups under labour laws in India

The Ministry of Labour and Employment (“Ministry”) with the aim to encourage innovation and entrepreneurship through Startup India policy issued an advisory dated 6 April 2017 (“Advisory”) to the States/UTs/ Central Labour Enforcement Agencies for regulating the labour laws inspection system in case of startups allowing them for self-certification (through the Startup India mobile application) and regulating the inspections under nine labour laws for a period of 5 years. The exemptions provided under the nine labour laws are set out below:

1. The Industrial Disputes Act 1947;

2. The Trade Unions Act 1926;

3. The Building and Other Construction Workers’ (Regulation of Employment and Conditions of Service) Act 1996 (“BoCW Act”);

4. The Industrial Employment (Standing Orders) Act 1946;

5. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act 1979 (“ISMW Act”);

6. The Payment of Gratuity Act 1972 (“Gratuity Act”);

7. The Contract Labour (Regulation and Abolition) Act 1970 (“CLRA”);

8. The Employees’ Provident Funds and Miscellaneous Provisions Act 1952 (“EPF Act”);

9. The Employees’ State Insurance Act 1948 (“ESI Act”).

The Ministry vide the Advisory directed the following:

1. For the first year of setting up of the startups, such establishment shall not be inspected under any of the six labour laws (i.e. BoCW Act, ISMW Act, Gratuity Act, CLRA, EPF Act and ESI Act), subject to any receipt of credible and verifiable complaint of violation, as mentioned in the paragraph below. These startups shall be required to submit an online self-declaration of compliances under the six labour laws mentioned above.

2. Startups shall be allowed to submit self-certified returns (under the Unified Shram Suvidha Portal under the nine labour laws stated above for the Central sphere). From the second year onwards, up to five years from the setting up of the unit, such startups shall be taken up for inspection only when credible and verifiable complaint of violation is filed in writing and the approval has been obtained from at least one level senior to the inspecting officer or from the Central Analysis and Intelligence Unit (CAIU), as the case may be.

Further, the Ministry of Skill Development and Entrepreneurship vide letter dated 15 January 2016, has taken similar action to incentivize startups engaging apprentices under the Apprentices Act 1961 read with the Apprenticeship Rules 1992 (“Apprentices Rules”). As per the Apprenticeship Rules, an establishment shall be inspected by an Officer not below the rank of Assistant Apprenticeship Adviser after prior approval of the Central or the State Apprenticeship Adviser. In the first year of setting up of startups, inspection shall be completely dispensed with against self-declaration. From the second year onwards up to the next three years, startups shall be taken up for inspection only when credible and verifiable complaint of violation has been filed in writing and the approval has been obtained from the concerned Apprenticeship Adviser.

CONCLUSION

The exemptions provided to startups does not relieve them from complying with the labour laws as mentioned above. However, the exemption provides for a gestation period for startups in order for them to get accustomed to the labour laws and the concerned enforcement authorities. Large scale inspections lead to slowdown in investment and are often used for harassment of entrepreneurs. Therefore, self-certification on compliance of labour laws has come up as a viable solution to promote the startup ecosystem.

 The article is contributed by Anshul Prakash (Partner) and Abhimanyu Pal (Associate), Khaitan & Co