Welfare of Terminated Employees – Curse or Boon

Recently, on 7^th February, 2020 a bill has been introduced in Rajya Sabha titled – The Terminated Employees (Welfare) Bill, 2020 (“TEW Bill”).

Applicability 

The TEW Bill applies to:

Rights/Benefits To Terminated Employees 

• A terminated employee would get benefits where his/her employment is terminated for the reasons of winding up of the organization or the establishment due to various reasons including inter alia economic slowdown, change in technology, owners or directors becoming insolvent, change in government policies, etc.
• The key benefits cover unemployment compensation and health insurance benefits for a period of 9 months including notice period.
• The unemployment compensation shall not be less than 60% of the gross salary which includes provident fund, gratuity, leave encashment, etc. along with health insurance benefits on the same terms which prevailed during his employment for such period.
• In case of default, employer is liable to pay an interest @ 12% per month for such delay.

Impact of the TEW Bill on Organisations

Employers would be required to create a “corpus fund” to which at least 5% of the net profit of the organization must be credited and used for the welfare of terminated employees.

TEW Bill further proposes that the corpus fund will also be utilised for:

• payment of expenditure in connection with the education of the children of the terminated employees.
• medical facilities, free of cost, in such a manner as may be prescribed.

It is also proposed that Central Government will provide adequate funds to carry out the objectives of this Bill. The amount proposed is INR 10,000 crores per annum for recurring expenses and INR 5,000 crores for non-recurring expenses. No further information is provided under the TEW Bill, about the mechanism of spending these amounts, etc. which is unusual.

Impact of the TEW Bill on the Industries 

• In addition to spending on CSR under the Companies Act, now companies need to further create a corpus fund of 5% of net profit will affect the ability to expand the business.
• This may slowdown the overall hiring process specially in IT, BPOs and other mass recruiting organisations (that hire in excess of their needs) given the cost of termination of an employee.
• The practice of hire and fire would certainly be under scanner and the industry needs to revisit the hiring process and exit process keeping in mind the TEW Bill, if and when passed.
• Industries may consider increasing the notice period to ensure smooth transitions, but the question arises whether employees are really benefitted from such provisions or further suffering losses, since currently employees are entitled to 100% of gross salary during notice period but now as per proposed bill it would be 60% gross of gross salary. 

Conclusion

TEW Bill is seemingly introduced for employee benefits as a benevolent legislation. It is interesting to note that the TEW Bill does not provide any protection to employees from wrongful or other termination. It only deals with rights available to them post termination.

The manner in which the TEW Bill is introduced creates various anomalies, ambiguities and will certainly have a huge impact on businesses if brought in “as is”. Particularly in the scenario of codification and simplification of employment laws in India.

The need for a separate law, creating a separate class of employees to which this Bill applies belies the creation of The Industrial Relations Code, 2019 as proposed.

While on one hand the intent is to create codification and simplification of employment and labour laws but on other hand introduction of such legislation creates turbulence in the eco-system of compliance and affects industries small and large.

– Nitin Jain, Partner