Nature of relationships
In contrast to a number of other jurisdictions, India has yet to witness significant litigation regarding characterisation issues of ODE workers. In any misclassification disputes based on the classic employee versus independent contractor question, the focus is on control by the organisation and the worker's degree of economic dependence.
The current nature of workforce engagement in the ODE sector in India has potential for creating co-employment risks. This is because, in practice, organisations (known as principal employers) usually engage their ODE workers for their core activities and continue to exercise material control over them. The use of an ODE platform may not necessarily change the level of control exercised by the organisations over their workers. In addition, contract labourers and independent contractors are frequently economically reliant on the employers. Consequently, if there is litigation in these situations, the co-employment exposure and misclassification risk is relatively high.
While ODE-specific cases have not yet emerged, there have been a number of cases in which independent contractors have been regarded as employees in view of the amount of control exercised. It is not yet clear whether the use of an ODE platform (as opposed to 'direct direction' from the organisation) might change the legal analysis.
In addition to re-characterisation cases, there are instances in India in which contract labourers have claimed permanency of employment with the principal employer. Specifically, Indian tax and social security authorities have been relatively more aggressive in scrutinising these arrangements. Organisations that wish to engage independent contractors should ensure differentiation between the terms and conditions provided to such workers and to their employees in terms of the nature the activities performed, their work profile and their compensation and benefits. It is important that organisations using independent contractors refrain from exercising control over them, not just on paper but also in practice. It is necessary to ensure that there is a clear demarcation in the functioning of employees and independent contractors on almost all parameters. This approach is based on the principle, applicable in other jurisdictions as well, that the characterisation of a working relationship will be based on what occurs in fact as opposed to theoretically.
One potential reason that ODE classification issues have yet to be extensively litigated in India is that the country has a unique law, the 1970 Contract Labour (Regulation and Abolition) Act. This statute regulates the engagement of contract labourers through third-party staffing service agencies and arguably guides practices for established on-demand and contract workers. To the extent that third-party staffing service agencies employ ODE workers and take care of the employment-related obligations, misclassification disputes are less likely to arise.
Indian courts (especially at the lower levels) tend to beneficially interpret laws in favour of workers. Therefore, there is a likelihood that ODE workers would succeed with claims in relation to wrongful termination. The 1947 Industrial Disputes Act requires employers to, inter alia, provide notice and pay severance upon termination. Workers in the ODE can potentially argue that they would be protected by the labour legislation and consequently seek payment of severance or otherwise demand reinstatement of their services.
Dispatchers/employers would have to defend the claims that these ODE workers are independent contractors and not employees by proving that no control was exercised, among the other factors of differentiation outlined. Further, those alleged to be employers would have to prove that the nature of the relationship itself was only to provide services on demand and that the worker was free to accept or reject the work, and also had the ability to take on other activities. This creates potential tensions for effective use of the ODE model, since the 'always available' level of service, which the ODE is based on, may not sit comfortably with the defence upon which organisations claiming to be 'non-employers' would want to rely. More specifically, if all workers are offered too much flexibility about when and how to work, the consumer may not be able to receive prompt or proper service.
Health and safety and liability issues
India has not yet enacted comprehensive or codified legislation addressing occupational health and safety issues and the employer's related 'duty of care' for commercial establishments. Indian laws on occupational health and safety acknowledging the diverse challenges faced by different sectors are mostly scattered and industry specific.
The Employees' Compensation Act makes the employer liable to pay compensation to the employee if he or she suffers personal injury or certain occupational diseases by reason of an accident arising out of or in the course of employment.
The application of this legislation extending to ODE workers seems unlikely, although it has not yet been thoroughly considered, and as such we have not come across any substantive cases where courts have held the employer liable for any health and safety issues relating to ODE workers.
IP protection and confidentiality
As in other jurisdictions, there are IP issues that arise in India when engaging workers as independent contractors. In particular, copyright law in India deems the employer to be the owner of copyright (in certain works, such as literary works, as well as other recorded forms) created by its employees, unless there is a contract to the contrary. However, any IP created by independent contractors/contract workers would have to be specifically assigned to the employer or party engaging the worker. This could potentially become an issue based on the amount of IP created by these workers and reinforces the need for appropriate contract wording in applicable cases.
With respect to confidentiality, apart from contractual measures to impose confidentiality obligations on workers, the best way to ensure confidentiality is to have working procedures that restrict the flow of information and monitor employee or contractor use of company property. With the ODE model, however, it can be difficult practically to implement these measures as ODE workers typically work outside the employer's premises and are often subject to less control and supervision.
Social security and tax issues
Social security obligations in India vary, based on the nature of the engaged workforce. Employers are not currently required to make social security contributions for their independent contractors. However, the government has proposed a Code on Social Security which would ensure that all persons working, including independent contractors, are covered by social security. At this stage, this law is still in draft form and has yet to be enacted.
Market trends and emerging issues
Mainstream employers in India have yet to fully incorporate ODE relationships into their operations. These employers still typically use traditional methods of engaging their workforce, such as direct employment or through a third-party contractor agency. The use of contractor agencies remains predominant in India, especially in traditional sectors. The differences that have arisen between traditional employers and employers or organisations that work with the ODE system are that the former continue to follow practices such as fixed working hours (such as a nine to six schedule) and provide minimal flexibility to their employees in the manner in which they function. By contrast, the latter (organisations and employers engaging ODE workers) allow flexibility to their employees in their work, and in certain instances have got rid of fixed working hours and formal leave policies.
It has largely been service companies in India that are most focused on the issues related to the ODE sector. Traditional companies use predominantly the contract labour model. This is perhaps in part because the established use of staffing agencies has a degree of certainty that the ODE model does not yet provide. In this regard, while the government has proposed a number of changes in employment law, none of them are directed towards or relate to the ODE sector.
One prospect for market change in India arises because of the thriving startup economy. In this regard, the initial wave of Indian information technology (IT) work related mainly to outsourcing. This has since transformed to focus on a variety of technology work, based on a large number of substantial investments, both by established blue chip companies and venture funding. These billions are no longer solely directed at low-level support or processing. Instead, there is an ecosystem in India focused on early-stage growth companies. It is likely that these startups will generally avoid direct employment and as a result, it is expected that there will be an increasing number of workers engaged either indirectly through staffing services agencies or through the ODE model.
Originally published by IBA Global Employment Institute.
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