Boost for Karnataka IT industry! Five-Year Exemption from Industrial Standing Orders Act

Anhad Law
Aug 25
4 min read

As a latest development, the Government of Karnataka through a notification issued on June 10, 2024 (“Notification”), has exempted ten (10) significant industries viz. Information Technology (“IT”), Information Technology enabled services (“ITES”), Startups, Animation, Gaming, Computer Graphics, Telecom, BPO, KPO, and other knowledge based industries from the applicability of Industrial Employment (Standing Orders) Act, 1946 (“IESO Act”) for a further period of five years despite stiff oppositions from trade unions.

This exemption is a significant development in the State of Karnataka, providing far-reaching consequences across the IT sector in Karnataka in terms of the flexibility available to the companies in framing employee related policies resulting in a boost for innovation.

What are Standing Orders?

The IESO Act as applicable in the State of Karnataka, applies to industrial establishments where fifty (50) or more workmen are employed at any point in time.

The IESO Act inter-alia requires employers to formally define the conditions of employment, including, appointment, dismissal, hours of work, wage rates, shift working, suspension allowance, transfer, etc. of employees, as part of the standing orders.

In industrial establishments, employers are mandated to adopt draft standing orders that include provisions related to various employment aspects, such as work timings, leave policies and procedures, termination processes, notice periods, definitions of misconduct, and the rights and liabilities during temporary work stoppages or closures. These standing orders must be certified by the Labour Department, and employees are allowed to raise objections to specific clauses during the certification process.

However, the requirements under the IESO Act have been viewed as not only burdensome but also outdated, especially given the evolving nature of certain industries in today’s world. The IESO Act's stringent and detailed stipulations are often seen as not aligning with the dynamic and flexible operational needs of modern businesses, thereby creating challenges for employers to comply with these regulatory standards while maintaining efficient and adaptable work environments.

Why is the Exemption Significant?

The exemption from the Standing Orders Act allows IT/ITES companies and startups in Karnataka more autonomy in designing their work models. This can be particularly beneficial for these sectors, which often operate in a fast-paced and dynamic environment. For example, it provides them with the freedom to:

· Flexibility in Work Arrangements: Companies can have greater flexibility in offering work-from-home options, flexible work hours, and other contemporary work arrangements that are attractive to talent in the IT and startup sectors.

· Streamlined Hiring: Exemption from the IESO Act's rigidities allows companies to foster a more agile work environment, crucial for innovation and attracting top talent.

· Scaling Operations: Startups, especially, can benefit from the exemption as they scale their operations and workforce.

· Focus on core business: Reduced compliance burden frees up resources for companies to focus on their core business activities.

· Focus on Innovation: By reducing administrative burdens, the exemption can help companies channel their resources towards fostering a culture of innovation and growth.

Conditions Apply?

It is important to note that the Notification has been accompanied by certain conditions that employers need to adhere to in order to avail the exemption. These conditions are:

1. That each workplace constitutes internal committee as per the Sexual Harassment of Women at Workplace Act, 2013;

2. That each establishment constitute a Grievance Redressal Committee consisting of equal number of persons representing employer and employees;

3. That each establishment intimate information about all the cases of disciplinary action like suspension, discharge, termination, demotion, dismissal etc., of its employees to the Jurisdictional Deputy Labour Commissioner and Commissioner of Labour in Karnataka;

4. That any information regarding service condition of the employees is sought by the Jurisdictional Deputy Labour Commissioner and Commissioner of Labour shall be promptly and fully submitted by every employer within the reasonable time frame;

Nationwide Applicability?

This notification is specific to the state of Karnataka. Other Indian states have their own regulations regarding the applicability of the IESO Act to IT/ITES companies and startups.

For e.g. Government of Telangana has on June 06,2024 issued a notification exempting all information technology enabled services (ITES) and Information Technology Establishments in Telangana State from the provisions of Sections 15,16,21,23 and 31 of the Telangana Shops and Establishments Act,1988 for a period of four (4) years with effect from May 30,2024 subject to certain conditions.

Looking Ahead

The extension of the exemption from the IESO Act is a positive step for the IT/ITES sector and startups in Karnataka. It provides much-needed clarity and flexibility for businesses, fostering a more conducive environment for innovation and growth and allows them to operate with greater flexibility and agility, which can be crucial for their growth and success. However, it is essential for employers to stay informed about the specific conditions attached to the exemption and ensure compliance with all other relevant labour laws.

Given the high number of exempt industries in Karnataka, the ongoing exemption from the IESO Act is considered a vital step to ensure the state remains a top choice for existing and future IT commercial ventures. The continued exemption reflects the Karnataka government's recognition of the IT sector's importance to the State's economy. It remains to be seen if the Central Government's push for uniform labour codes will impact this exemption in the future. Significantly, the Notification makes a reference to the soon to be enacted the Industrial Relations Code, 2020 providing for its applicability in case of its enforcement/implementation.