This Just In: Start-ups to Enjoy Exemption from Rigorous Application of Labour Laws for Initial Three Years

Harish Adwant

The Government proposed a wide range of reforms for start-ups at the ‘Start-up India, Stand-up India’ Conference which was held on January 16, 2016.  India Today has reported it here and the Start-up India Action Plan of the Department of Industrial Policy and Promotion (DIPP) is available here. Pursuant to this Plan, the Ministry of Labour and Employment has now officially exempted start-ups from the compliance with nine labour laws for an initial period of three years. This move is intended to promote and incentivise the start-up industry.

The DIPP has, in its Notification[1] dated 17th February, 2016 (the Notification) defined the term ‘start-up’. The Notification also lays down a procedure and set of requirements for formal recognition of start-ups via DIPP’s mobile application. As per the notification,

“To bring uniformity in the identified enterprises, an entity shall be considered as a ‘startup’-

  1. a) Up to five years from the date of its incorporation/registration,
  2. b) If its turnover for any of the financial years has not exceeded Rupees 25 crore, and
  3. c) It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;

Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘startup’;.”

In light of this definition, Shankar Aggarwal (Secretary to the Ministry of Labour and Employment) addressed a letter to the heads of autonomous institutions such as the Employees’ Provident Fund Organization (EPFO), Employees State Insurance Corporation (ESIC) and the Labour Commission requesting them to desist from any unwanted interference related to labour law compliance in the functioning of start-ups. This letter was also sent to Rohan Nanda (Secretary to the Ministry of Skill Development and Entrepreneurship) who took immediate action and notified similar relaxations vis-à-vis the Apprentices Act, 1961. The letters can be accessed here.

The nine labour laws which shall be temporarily inapplicable to start-ups, as per the statement, are as follows:

  1. Industrial Disputes Act, 1947,
  2. Trade Unions Act, 1926,
  3. Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996,
  4. Industrial Employment(Standing Orders) Act, 1946,
  5. Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979,
  6. Payment of Gratuity Act, 1972,
  7. Contract Labour (Regulation and Abolition) Act, 1970,
  8. Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and
  9. Employees’ State Insurance Act, 1948.

“…Ministry of Labour & Employment has issued an advisory to the States/UTs/Central Labour Enforcement Agencies for a compliance regime based on self-certification and regulating the inspections under various Labour Laws,” said Bandaru Dattatreya, Labour Minister in a written statement to Rajya Sabha.

The exemptions from inspections under the aforementioned labour laws shall apply to start-ups, provided they furnish a self-declaration for the compliance of these nine labour laws for the first year, commencing from the date of establishment of the start-up.

Moreover, from the second year onwards, up to 3 year from the setting up of the units, such start-ups are required to furnish self-certified returns. At the end of three years, they would be inspected only when very credible and verifiable complaint of violation is filed in writing and the approval has been obtained from Central Analysis and Intelligence Unit of the Labour and Employment Ministry.

The Labour Minister clarified that the aforementioned scheme should not be viewed as an unqualified exemption from labour law compliance. Instead, it is meant to provide a favourable administrative mechanism to regulate inspection of the start-ups. Further, these measures are also intended to substantially relieve entrepreneurs from bureaucratic delay and arbitrariness. Lastly, he mentioned that relaxation should not be construed as a blanket exemption from compliance of labour laws and punitive action shall be taken on receipt of credible complaints against those start-ups whoviolate even these relaxed norms.

Himanshu Aggarwal, head of Aspiring Minds, a job and skill mapping company, said that start-ups are likely to create more than 100,000 jobs in 2016 and 225,000 jobs in 2018. “Start-ups will be the mainstay of job growth for the next five years. The Start-Up India initiative has the potential to propel this further.” Aggarwal said.

[1] Notification No. [F. No. 5(91)/2015-BE. I]

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