On 31 July 2020, the governor of Karnataka promulgated the Industrial Disputes and Certain Other Laws (Karnataka Amendment) Ordinance, 2020 (Ordinance) with immediate effect. The Ordinance introduced significant changes to three important labour laws: the Industrial Disputes Act, 1947 (IDA), the Factories Act, 1948 (Factories Act) and the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA). These changes are aimed at improving the ease of doing business in, and attracting investments to, Karnataka.
Chapter V-B of the IDA requires `industrial establishments' that employ 100 or more workmen to comply with specific obligations, including government approval prior to implementing any lay-off, retrenchment or closures of establishments. `Industrial establishments' include factories, mines and plantations as defined in the Factories Act, the Mines Act and the Plantations Labour Act respectively.
Under the Ordinance, Chapter V-B now applies only to industrial establishments in Karnataka that employ 300 workmen or more. Industrial establishments that employ between 100 to 299 workmen are exempted from having to seek the government's prior approval (among other things) in implementing any lay-off, retrenchment or closure of establishments.
The Factories Act applies to power-aided factories employing at least 10 workers and non-poweraided factories employing at least 20 workers. The Factories Act requires such factories to comply with strict obligations, including registration and licensing requirements, and restricts overtime to 75 hours per quarter.
Under the Ordinance, the Factories Act now applies only to power-aided factories employing at least 20 workers and non-power-aided factories employing at least 40 workers in Karnataka. This means that more factories are exempted from the registration and licensing requirements (amongst other requirements) under the Factories Act.
The Ordinance also increased the overtime limit per quarter from 75 to 125 hours in Karnataka. This will allow employers that are covered under the Factories Act to quickly respond to any increased demand for production.
The CLRA applies to, inter alia, establishments employing 20 or more workmen and requires the principal employer of such establishments to register in order to employ contract labour.
The Ordinance increased the threshold for the applicability of the CLRA to establishments in Karnataka employing 50 or more workmen.
Given the current economic environment, many employers are having to consider restructuring their workforce. The Ordinance provides some relief for employers who are now exempted from prior government approval requirements under the IDA, which can be cumbersome.
Additionally, the changes to the Factories Act and the CLRA will reduce compliance costs for employers who are now exempted from the relevant registration and licensing requirements. The amendment to the CLRA in particular will allow employers to engage contract labour more easily, which reduces the costs and risks involved in termination of employment.