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Reservation in Employment in the Private Sector: The Conundrum and the need for clarification

Contributed by: Samvad Partners

If laws were to be symbolized with material objects, labour legislations would undoubtedly be represented with a sharp double-edged sword, with its constant aim to strike a delicate balance between the needs of a burgeoning economy and the social aspirations of its subject. Treading this perplexing path, is the Haryana State Employment of Local Candidates Act, 2020 (“Local Candidates Act”) which recently received the assent of the Governor of Haryana on February 26, 2021.

While not yet in force, the proponents of the Local Candidates Act have touted that this legislation would provide employment opportunities to the local candidates of the state. On the other hand, the opponents of the legislation have raised concerns over the challenges associated with the implementation of the Local Candidates Act, its consequences and its constitutional validity, amongst other things.

Keeping the questions on its constitutional validity aside, it is noteworthy that the Local Candidates Act, which is already preceded by comparable legislations in the states of Maharashtra, Andhra Pradesh and Karnataka, is a clear signal for a similar chain of legislations to be enacted throughout the country in the near future. In such a scenario, it is imperative to analyze the effect of such a legislation on the socio-economic fabric of the nation.

The Local Candidates Act casts a wide net in terms of its applicability. It covers entities constituted in the form of companies, societies, limited liability partnerships / partnerships, trusts or any person employing ten or more persons on salary in the manufacturing or service sector. It intends to provide 75% reservation for local candidates in positions offering less than Rs. 50,000 as ‘gross monthly wages’ (or such other wages as maybe notified) in the state of Haryana, for a period of 10 years from the date of it being notified. A ‘local candidate’ has been defined in the Local Candidates Act as a candidate who is ‘domiciled’ in the state of Haryana. While employers are free to employ local candidates from any district of Haryana, they have an option to ‘restrict’ employment of local candidates from any district to 10% of the total number of local candidates employed by such employer.

A quick look at these numbers, and 75% seems like simple mathematics, however, this seemingly simple equation becomes complicated due to the nuances involved in its implementation. The two most critical factors determining the applicability of this legislation, i.e., ‘gross monthly wages’ and ‘domicile’ have not been defined in this legislation. Therefore, whether ‘gross monthly wages’ will mirror the construct of ‘wages’ contained in the existing wage-legislations (taking into account the standard exclusions such as allowances, retiral benefits etc.), and whether ‘domicile’ would require a candidate to submit records of residency in Haryana, is something that remains to be seen.

Further, questions are being posed on whether the legislation takes into account the existing positions in which people are already employed prior to the implementation of the Local Candidates Act, while calculating the above-stated thresholds. While there have been public statements from officials stating that people who are already employed in the state will not be impacted by this legislation, the actual text of the Local Candidates Act does not provide any clarity or guidance in this regard.

Another concerning fact is that the legislation fails to take into account the dynamic and varied nature of ‘employment’ prevalent in India. For instance, there is lack of clarity on whether the 75% threshold is inclusive of contract workers and who between the contractor and the principal employer would be considered as the ‘employer’ of such contract workers for the purposes of the Local Candidates Act. Similar concerns are being associated with the silence of the Local Candidates Act on the treatment of non-traditional employment arrangements such as gig-workers, who have recently been afforded with clarity on their rights as working professionals under the Code on Social Security, 2020. As a result, the very matrix for calculating the reservation thresholds prescribed under the Local Candidates Act and the consequent compliances, remains up for debate.

Further, another critical aspect of the Act is the provision of ‘exemption’ from the requirement of providing 75% reservations, as prescribed under the Act. This construct, while especially vital for the numerous start-ups operating within hyper-specialised sectors, is also invariably critical for every entity operating in Haryana.

The Act provides that an employer may seek exemptions from the requirement of providing reservations under the Act by applying to a designated officer appointed under the Local Candidates Act in situations where local candidates do not have the desired skill, qualification or proficiency for a particular establishment/industry. However, unless otherwise specified by any subsequent rules, the Act in itself provides vast discretion to such designated officer to evaluate the attempts of the employer to employ local candidates and thereafter not only to accept or reject such employer’s claim from exemption, but also ‘to direct the employer to train local candidates to achieve the desired skill, qualification or proficiency’.

In light of the fast-paced requirements of the highly technical world that we live in, the practicalities of binding an employer to the cost of training employees to achieve the necessary skills for employment could be highly obstructive to the interest of businesses. It is therefore natural to expect businesses to introduce more stringent restrictive covenants in its employment contracts, as well as require employees to tender longer notice periods for termination of employment. Given how the Indian laws tends to frown upon such restrictions on employees on account of them being unreasonable, there seems an interesting scope for fresh litigation on whether such statutorily mandated training costs should be considered while undertaking a test of reasonability of such restrictive covenants.

Accordingly, while the actual intent or validity of the Local Candidates Act continues to be debated, it is crucial for the relevant stakeholders to participate in understanding the actual meaning and intended implementation of the same. For no matter what side you pick on this debate, the practical implications that it is likely to have on business and operations would undoubtedly play a crucial role in how one proceeds.

Contributed by Samvad Partners

The above article has been authored by Ms. Junaira Rahman(Partner) and Ms. Nikita Tanwar(Associate).

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