News

The Maharashtra government has published the Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017 to replace the existing shops and establishment legislation.  This new law, which is yet to come into force, introduces provisions on crèche facilities, casual leave and electronic records and registers.

Background
 
The Maharashtra Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2017 (New Act) was published in the Maharashtra Official Gazette on 7 September 2017.  The New Act has received the Governor's assent and will come into force on such date as notified by the State government.  Once in force, the New Act will replace the 60-year old Maharashtra Shops and Establishments Act, 1948 (1948 Act).
 
The State government has reformed the existing law to align it with the Centre's initiatives on 'ease of doing business' and digitization.  The New Act largely draws its provisions from the Model Shops and Establishments (Regulation of Employment and Conditions of Service) Bill, 2016 (Model Bill), which was approved by the Union Cabinet in 2016.  Though not a binding requirement, State governments were expected to either adopt the Model Bill, or adapt their existing laws to it, after accounting for regional requirements.  Maharashtra is the first State to modify its shops and establishments legislation based on the Model Bill.
 
Key changes under the New Act
 
Applicability of the New Act

1. Substantive provisions would not apply to small establishments

Substantive provisions around working hours, leave, holidays, opening and closing hours, etc., would not apply to small establishments i.e. establishments employing less than 10 workers.  Such establishments would only need to send an intimation regarding the commencement of their business to the authority designated under the New Act, allowing for greater flexibility in their operations.

2. The New Act would be applicable to all establishments in Maharashtra

While the applicability of the 1948 Act is limited only to local areas specified in Schedule I of that Act, the New Act would apply to all establishments in Maharashtra.

3. Applicability of the New Act would be limited to 'worker'

The 1948 Act extends to every 'employee'.  Under the New Act, the term 'employee' has been replaced with the term 'worker' and the definition has also changed significantly.  'Worker' under the New Act has been defined on the same lines as the term 'workman' under the Industrial Disputes Act, 1947 (ID Act).  Persons in 'positions of confidential, managerial or supervisory character' would not be included within the definition of 'workers', and employers would be required to list out such individuals on their website or other conspicuous place in their establishment.  Employers would also have to send a list of such persons to the specified authority. Further, while the 1948 Act applies even to individuals 'employed through an agency' (i.e. contract workers), the New Act would be limited to workers directly 'employed' by the establishment.
 
Increase in the number of days of leave and holidays

While the New Act would decrease the entitlement to annual leave, it will increase the accumulation limit to 45 days (from the current 42 days).  The New Act has also introduced provisions on casual leave that are missing from the 1948 Act.  The number of national and festival holidays would also be doubled from 4 to 8 days.
 
Increase in the overtime limit

Under the New Act, a worker would be able to work overtime for a maximum of 125 hours in a period of 3 months.  This is a significant increase from the 1948 Act, under which employees can work overtime for a maximum of 3 hours per week, i.e., about 36 to 40 hours in a period of 3 months.
 
Obligation to provide crèche facilities

Under the New Act, crèche facilities with suitable rooms would have to be provided in every establishment with 50 or more workers.  An option has been given to a group of establishments to provide common crèche facilities within a radius of 1 km, with the approval of the designated authority.
 
Certain exemptions that are given to IT/ITeS establishments under the 1948 Act will be extended to all establishments

All establishments would be able to remain open on all 7 days of the week so long as every worker is given a weekly holiday.  Further, all establishments will be able to employ women in night-shifts if suitable measures for their protection and transportation are taken.
 
Compliance moved to electronic mode

In line with the Centre's initiatives on 'ease of doing business', the New Act provides for registration and maintenance of registers/records electronically.  Inspections will also be done based on a randomized web-generated inspection schedule and will not be at the discretion of the labour authorities.
 
Significant increase in fines

While the maximum penalty under the 1948 Act is a fine of INR 15,000 (USD 230), fines under the New Act can go up to INR 5,00,000 (USD 7,700).  The New Act also provides for imprisonment in certain cases.  However, opportunity would be given to employers to compound a first-time offense.

Some Concerns
 
Displaying a list of employees in managerial and supervisory role will be a challenge for most organisations

Based on judicial precedents under the ID Act, an assessment of whether an employee is engaged in a confidential, supervisory or managerial role can be quite complex and would depend on the specific roles and responsibilities of an employee.  Further, change in job roles and the consequent reclassification of an employee would require such a list to be updated regularly.  If the employer fails to display or regularly update the list, persons employed in managerial or supervisory roles could possibly be covered by the provisions of the New Act.
 
It is also not clear if the requirement is to list the names of persons employed in such capacities or to merely notify the designations/positions of confidential, managerial or supervisory character.
 
Provision on accrual of annual leave could pose HR challenges

The provisions of the New Act relating to privilege leave are drafted in a manner that a worker would be entitled to 30 days of leave in the first year of employment and 18 days of leave in the subsequent years.  Complying with such a provision could pose challenges from a Human Resources (HR) perspective since employers would have to carefully track the joining date of each worker, and accordingly provide leave entitlements.  Further, it may also be difficult for employers to communicate to employees that their leave entitlement would reduce in subsequent years.  This could lead to a situation where employers extend 30 days of privilege leave to all workers in order to avoid such HR issues.
 
Provisions regarding weekly holiday could be misused

Under the 1948 Act, every employee is entitled to a weekly day off, with the employer being prohibited from having an employee work during such weekly holiday.  Although the New Act also mandates that workers are provided a weekly holiday, employers could have them work on their weekly holiday if a compensatory day off is provided within 2 months.  Consequently, a worker may be required to work continuously for 2 months without any off day.
 
Onerous provisions on crèche

The recent amendments to the Maternity Benefit Act (MB Act Amendment) (Refer to our previous newsletter) introduced the requirement to provide crèche facilities.  Pursuant to the MB Act Amendment, the government is required to prescribe the distance within which crèche facilities are to be provided.  The New Act however makes it mandatory for crèche facilities to be inside the establishment, with the exception that if an approval has been obtained from the prescribed authority, a group of establishments can provide common crèche facilities within a radius of 1 km.  This is therefore likely to be more onerous than the requirement under the MB Act.
 
No provision on termination of service

Unlike the 1948 Act, the New Act does not contain any provision around termination of service of an employee.  This may be a deliberate omission, since the definition of 'worker' under the New Act is aligned with the definition of 'workman' under the ID Act, and the ID Act already contains elaborate provisions relating to retrenchment.
 
No provisions around applicability of other statutes

The 1948 Act extends the provisions of the Industrial Employment (Standing Orders) Act, 1946 (SO Act) and Employees' Compensation Act, 1923 to establishments and employees covered by the 1948 Act.  Presently, commercial establishments with 50 or more employees are required to comply with the SO Act.  However, the New Act does not contain similar provisions relating to the applicability of these statutes to the establishments covered by it, which may change the compliance landscape when the New Act comes into force.
 
Conclusion
 
Once the New Act comes into force, it will provide establishments with greater flexibility in managing their compliances using electronic methods.  However, some provisions such as, crèche, displaying list of persons and computation of leave may pose compliance challenges for employers.  There would also be a greater onus on employers to ensure that compliances are up to the mark under the risk of significantly larger penalties.