Compulsory Issuance of Appointment Letter: What does it mean for Employees?

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The Finance Minister, Nirmala Sitharaman, has proposed the compulsorily issuance of appointment letter to every employee including those in the unorganised sector. As a result, informal sector employees would be able to claim some benefits similar to those available to workers in the organised sector. This proposal was part of the package announced yesterday to help labour hit by the coronavirus related lockdown.

Mandatory issuance of appointment letter is a requirement under the Occupational Safety, Health and Working Conditions Code, 2019. This Code was introduced in the Lok Sabha on 23 July 2019. It was then referred to the Standing Committee on Labour on 7 October 2019. The Committee has submitted its report on the said Code on 11 February 2020. The Code is pending to be passed by the Lok Sabha and is not in force yet.

According to experts, an appointment letter would provide a sort of documentary evidence of employment to an employee especially those working in the unorganised sector. Currently, there is no central law that requires mandatory issuance of appointment letter. However, some states do have laws which make it mandatory to provide details of employment in the appointment letter. This would help them claim their rights and the benefits due to them. As per the proposal which is part of the code, the employer would be required to mention details such as salary, working hours, amount of leave available in a year etc. in a prescribed format in the appointment letter.

As per experts the code could also require the employer to communicate any change in the terms of employment via addendum or by issuing fresh letter.

As per the definition of ’employee’ in the Code, employee would include anyone employed for wages by an establishment to do any skilled, semi-skilled, unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work. This would normally include a regular employee, individual hired on fixed term employment contract, factory worker, etc.

ET Wealth Online spoke to different experts on what this proposal could mean for employees and how they are likely to benefit under the proposed law. Here’s what they have to say.

Puneet Gupta, Director, People Advisory Services, EY India says, “As per the Bill on Occupational Safety, Health and Working Conditions Code, 2019 introduced in the Lok Sabha, every employer (covered under the Code) has to issue an appointment letter to every employee on his / her appointment in the establishment. The appointment letter should contain such information as prescribed by the appropriate Government. This will ensure that low-paid employees cannot be paid less as their salary and benefits may need to be provided in the letter. Currently, under some Shops and Establishment Acts (which are specific for each state), such as one applicable in Delhi and West Bengal, there is a specific requirement to issue appointment letter providing salary details. Under the Code, if the employee has not been issued appointment letter before the commencement of Code, he / she shall be issued appointment letter within 3 months of the commencement of the Code.”

Anshul Prakash, Partner, Employment Labour & Benefits, Khaitan & Co. says, “The mandatory issuance of appointment letter emanates from Draft Code on Occupation Safety, Health, and Working Conditions which is currently before the Parliamentary Standing Committee. The mandatory issuance of an appointment letter is intended to ensure that the tenet of employer-employee relationships is recorded in writing for all employees including those in the unorganized sector. Currently, there is no central law that prescribes the requirement of a written appointment letter. Further, to that, the law will state the format in which terms of appointment must be encapsulated. It is expected that any change in the terms of the contract such as salary, benefits, etc. will have to be communicated in writing as well to the employee, once the Code is effective in the future.”

Dr. Suresh Surana, founder, RSM India says, “At present, various labour laws lay down the conditions for working, employment, statutory entitlements such as minimum wage/provident fund/gratuity/bonus and other aspects. While these are minimum legal requirements, in practice, the terms of employment are agreed as contractual arrangement. In the organized sector, the appointment letter or employment contract read with the HR policies constitute the terms of employment. In the unorganized sector, many businesses do not issue any appointment letter. The announcement made indicates that the government proposes that in the new labour laws to be approved by the Parliament, there would be a legal requirement for all the businesses irrespective of their size to issue an appointment letter. This would particularly benefit employees in the unorganized sector and informal economy. This would increase the awareness amongst employees about their entitlements and can be used to resolve disputes or divergent views about the actual arrangement. This would also ensure that the terms of employment, to the extent inconsistent with law such as minimum wage or statutory leave or working hours, will not be legally enforceable.”

Pooja Ramchandani, Partner, Shardul Amarchand Mangaldas and Co. says, “A Compulsory Appointment letter would mean a formal engagement in writing with all employees. The appointment letter will typically contain conditions of employment such as tenure, wages, benefits amongst others. In cases of casual labour it is common not to have a formal letter of appointment. Therefore this will especially benefit this category. This will be an evidence of employment engagement. A formalised engagement will enable employees to demonstrate proof of employment and claim employee benefits and rights.”

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