Employment in India
Tips to Avoiding Common Pitfalls
Sue Snyder
Jackson Walker L.L.P.
100 Congress Avenue, Suite 1100
Austin, Texas 78701
512.236.2240
ssnyder@jw.com
Global Business at Work
(Is this you?)
Current Statistics
1. In the last 10 years, more than 10 million high tech jobs have
been created in India
2. 75% of all Western financing institutions use Indian
outsourcing
3. India currently has 50 million University Graduates, which is
increasing at a rate of 3 million per year
So . . . What should you look out for?
Tip #1 – Know the Level of
Employee You are Hiring
• Two Levels of Workers’ Rights
– Workmen (manual, clerical, skilled, unskilled,
technical, operational)
– Non-Workmen (managerial, supervisory or
administrative functions)
• Extensive Regulation Workmen Workers
– Minimum wage, dispute settlement, work
conditions, dearness allowances (cost of
living), gratuity payments, paid leaves, etc. –
This adds up!
Tip #2 – Watch for Retrenchment
Issues with Workmen
• Probationary Period (6 Months)
• Retrenchment – Termination of an
employee for reason other than
punishment for bad behavior
– Often Need Notice – (i.e. going to terminate
plant, etc)
– Can’t Change by Contract
Tip #3 – Use Contracts/Independent
Contractors When Possible
• Non-Workmen are Generally Controlled by
Contract
• ICs are governed by Contract
– Modified “Control Test” – “Integration Test”
– Arms Length
– Additional Clients
– Terms should consider: terms and conditions,
where perform, who provides equipment, right
to reject goods
Tip #4 – Know your Competitors
• Non- Competes are Generally
Unenforceable
• Enforceable during employment
• Restraint of Trade Issues
• Bond Agreements can Minimize Costs, but
not affect transition
• Confidentiality – Fiduciary Duty?
Tip #5 – Protect your IP
• Typical laws (patent, trademark, design,
copyright – not trade secrets)
• Can get injunctive relief quick but final resolution
5-14 years.
• SEPARATE AGREEMENTS
– Works made for hire not applicable to ICs
– Agreements only for 5 years and only India unless
state otherwise
– Need to use in first year unless agreement
contemplates lapse
Tip #6 – Guard against Baksheesh
• Foreign Corrupt Practices Act (Also OECD/UN
Convention Against Corruption/Country Legislation)
– Prohibits payments (promises to pay/authorizations to pay any
benefit) to Foreign Officials by any Covered Person to influence
the official to assist in a business advantage (Knowledge and
intent can be inferred; Applies to indirect influence as
well (contractors, etc.); Exceptions – expressly legal
in written country’s laws/ facilitation/expenditures)
• Contractors considered your responsibility
• Increased Enforcement (More enforcement actions
initiated by the DOJ/SEC in the last 7 years than in the
whole first 23 years)
Tip #7 – Understand the Implications of
a Business Structure
• Types: India private or public limited
company, joint venture, liaison or
representative offices, branch offices,
acquiring existing company, license to an
Indian company for fees
• Notifications to Close a Business
Requirements
Tip #8 – Understand the Tax
Implications
• Huge Implications of creating a “Permanent
Establishment” (Subjective Determination)
• Taxability of a Foreign Company that has a PE is Higher
than for an Indian Company
• Can Locate in Free Trade Zones, Electronic Hardware
Technology Parks, Software Technology Parks, Software
Export Zones – may have exemption from local taxes,
subsidized utilities, no import restrictions, tax holidays
• Explore effective tax structures – double taxation
avoidance agreements with countries such as
Singapore, Cyprus, Mauritius
• Watch US Foreign Income Tax Changes
Tip #9 – Watch the Export Trap
• Deemed Export Laws
• Information and technology covered by
exports
• Same rules Apply
• Increasing Enforcement
Tip #10 – Beware of Currency
Fluctuations
• Main regulator of Indian exchange control
laws is the Reserve Bank of India
• The Foreign Exchange Management Act
regulates inflow and outflow of foreign
currency
• Indian Rupee is convertible on the current
account and non-convertible on the capital
account
Additional Thoughts
• Concurrent Jurisdiction
• Unable to escape certain laws
• Unable to decide on venue often!!
What Does All this Mean?
• Carefully enter the employment field
• Consider international law when hiring of
employment or services
• Structure the arrangement in the best method to
get your work done
• Pick employees very carefully
• There is no one set way to set up a business
Sample Laws to Consider
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Human Resources Laws/Immigration Laws
Business Regulation Laws
Tax Laws (numerous treaties and domestic laws)
Export Laws (Export regulations (EAA, IEEPA, Arms Export Control Act), Trading with the Enemy
Act, Specially Designated Nationals List (Agencies – Commerce’s Bureau of Industry & Security,
Dept of State, Drug Enforcement Admin, Fish and Wildlife Service, Dept Energy, Nuclear
Regulatory Commission, Department of Agriculture, Office of Foreign Assets Control))
Custom Laws /Tariffs/VAT (domestic, WCO, WTO, Foreign laws)
Foreign Direct Investment Laws/Capital Registration
Currency Laws (e.g. Currency and Monetary Transaction Reports
/Foreign Bank Account Reports/Exchange Controls)
Anti-Corruption Acts (e.g. FCPA, OECD)
Boycott Laws (e.g. WTO, EAR)
Treaties/Trade Agreements/Custom (e.g. GATT, UN, WTO,
Convention on Contracts for the International Sale of Goods,
WIPO, WCO, NAFTA, US-Korea FTA, NY Convention)
Liability Issues/Risk of Loss/Product Liability/Title, etc.
IP laws/Enforcement
Many Executive Orders
Employment Considerations
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Speed (Increasing)
Skilled Talent (10-15% availability)
Productivity Costs
Transition Costs
Local Import and Tax Implications
Organizational Interfaces
Current Factors
• Higher Oil Prices (transportation costs for
goods)
• Falling Dollar
• Rising Wages (annual wage inflation (320%))
• Increased Enforcement Legal Regulations
• Constantly Changing