Karnataka government considers withdrawing tech sector exemptions

At a glance

• The Karnataka government announced in December 2023 that it could potentially end the exemption from the Industrial Employment (Standing Orders) Act of 1946 (SO Act) for the IT/ITeS sectors.
• The impact of this withdrawal may not be significant from the perspective of substantive compliances as many practices are mandated by the model standing orders are already covered under existing laws applicable to the tech sector.
• However, challenges could arise from the procedural requirements of certifying standing orders.
• It remains to be seen whether the exemption will be renewed or not.

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 We would like to express gratitude to Trilegal for their contribution on this publication.

The Karnataka government announced in December 2023 that it could potentially end the exemption from the SO Act for the IT/ITeS sectors. This exemption, first introduced in 1999 and periodically renewed, allows IT/ITeS companies flexibility by exempting them from requirements to draft and certify standing orders setting formal employment conditions, in compliance with model standing orders. The current exemption expires in March 2024.

The impact of this withdrawal may not be significant from the perspective of substantive compliance as many practices mandated by the model standing orders are already covered under existing laws applicable to the tech sector. However, challenges could arise from the procedural requirements of certifying standing orders, which not only includes a process akin to collective bargaining (and could therefore provide a platform for employee grievances) but also requires companies to conduct comprehensive assessments to identify employees categorised as ‘workmen.’

It remains to be seen whether the exemption will be renewed or not. As stakeholder negotiations continue, IT/ITeS companies should, nonetheless, proactively plan for the potential revocation.