The Karnataka Shops & Commercial Establishment Act, 1961 and Rules, 1963 (“S & E Laws”) are applicable to all the shops and commercial establishments in the areas notified by Government of Karnataka.
The Act is enacted for the purpose of protecting the rights of employees.
The Act provides regulations of the payment of wages, terms of services, work hours, rest intervals, overtime work, opening and closing hours, closed days, holidays, leaves, maternity leave and benefits, work conditions, rules for employment of children, records maintenance, etc.
“Shop” means any premises where any trade or business is carried on or where services are rendered to customers and includes offices, storerooms, godowns, warehouses, whether in the same premises or otherwise, used in such connection with such trade or business, but does not include a commercial establishment or a shop attached to a factory.
In accordance with Section 2(g) of the Act, the employee can be any person who has been wholly or for most of the time employed directly in such an establishment or in relation to such an establishment.
“Commercial Establishment” means a commercial or trading or banking or insurance establishment, an establishment or administrative service in which persons employed are mainly engaged in office work, a hotel, restaurant, boarding or eating house, a café or any other refreshment house, a theatre or any other place of public amusement or entertainment.
Section 2(h) of the Act defines an employer as a person who has ownership of the establishment or someone who has control over the affairs of the establishment.
- Each owner, within 30 days from starting the business shall submit application form in form ‘A’ to register the establishment.
- Registration certificate must be displayed on visible place inside the office premises.
- Registration certificate is valid for a period of five (05) years. Before the expiry of the period, renewal application to be submitted for the next period.
- It shall be the duty of an employer to notify to the registration authority, in the prescribed form, any change with respect to any information contained in his statement during registration/renewal within 15 days after the change. Ex. Change in address, change in ownership, change in number of employees, etc.
- After closing the business of the establishment, owner should surrender the registration certificate to the registration authority.
Premises exempted from the operation of the Act
The following premises have been exempted from the operation of this Act by Section 3 of the Act:
- Offices except for commercial undertakings under the control of the Central Government, State Government, or any local authority.
- Railway services, railway dining cars, water transport services, communication services like telephone, telegraph, or postal, any system of public conservancy or sanitization, and Industries which supply electricity or water to the public.
- Establishments like hospitals where sick, infirm, or mentally unfit people are taken care of.
- Offices of banking companies, the establishment of food corporation of India.
- Offices of medical or legal practitioners given that less than 3 employees should be employed.
- Persons who have been excluded from the purview of the Act include any person who is employed at a position of management in any occupation, persons who have intermittent nature of work, clearing and forwarding clerks which are responsible for the dispatch of goods as they are employed in preparatory or complementary work.
Hours of work
A humane work environment
The directive principles embedded in Part IV of the Indian Constitution direct that the state come up with suitable legislation for securing just and humane conditions of work under Article 42 and that all workers should be guaranteed a minimum wage, and working conditions that ensure a decent standard of living along with social and cultural opportunities. The same directives have been followed in all the state acts to ensure that the unorganized sector is regulated properly and no employee working under such establishments is forced to work under inhumane conditions due to his economic difficulties. To ensure the same, the Act provides for the maximum number of hours of work that an employee can be subjected to.
Working hours in a day
Section 7 of the Act provides that no employee can be forced to work for more than 9 hours a day and 48 hours a week. Further, no child between the ages of 14 and 18 should be allowed to work for more than 5 hours a day. Furthermore, Section 9 of the Act provides that there should be at least 1 hour for the rest of the employees in such a way that the employee doesn’t have to work for a stretch of more than 5 hours continuously. Section 10 enumerates that, inclusive of such periods of rest, the total time for which an employee has to be in the establishment spread over a day shall not exceed 12 hours a day.
The proviso to Section 7 also provides that there can be overtime working hours for an employee, however, the total number of work hours should not exceed 10 in a day, inclusive of such overtime. The provision provides an exception to such a rule on days of stock-taking and preparation of accounts. The proviso to such proviso provides that overtime hours should not exceed 50 hours in a period of continuous 3 months. Further, Section 8 provides that such overtime work is entitled to wages at a double rate than normal wages where the provision also defines what constitutes “normal wages”.
Section 12 of the Act provides for a mandatory holiday every week. There should be a day that has been specified by the employer at the beginning of the year that will be the day of the weekly holiday. The notice regarding such a day should be placed in a conspicuous part of the establishment. The employer shall not alter such days more than once every 3 months and shall also inform the inspector about such alterations. Further, the employer can seek permission from the state government to make his establishment function for a whole week, ensuring that each employee in the establishment gets to rest for one whole day in a week. The employee should not be called to an establishment for anything related to the work on such a day, and no wages shall be deducted due to such a weekly holiday.
The Act provides for basic annual leaves with and without wages and how the same should be computed in ratio to the working days. However, the Act makes it clear that if a contract, award, or agreement between the employer and employee entitles the employee to more leave than what has been mentioned in this Act, then no such right of the employee should be prejudiced by the Act.
The computation of paid leaves should be at a rate of one day for every 20 working days in the case of an adult and 15 working days in the case of a child between the ages of 14 and 18 years. Paid leaves also include maternity leave not exceeding 12 weeks. It is pertinent to note that Article 43 of the Indian Constitution provides for the directive policy of state-making laws for providing maternity leave. Paid leaves can also include leaves of up to 12 days on account of sickness, accident, or any other reasonable cause during the first 2 years of continuous employment.
The paid leaves that have been earned but not taken as per the above computation can be carried forward to the succeeding year; however, the number of paid leaves carried forward should not exceed 45 days. In the case of unpaid leave, there is no such limit on carry forwarding.
The Act further provides that paid leaves that are not taken make the employee entitled to cash benefit equivalent to the same on discharge or dismissal from his employment. Such wages for untaken paid leaves can also be recovered through the initiation of proceedings under the Payment of Wages Act, 1936. Further, the Act also lays down an elaborate procedure that should be followed for applying for leave.
Impact of This Law on the Retail Sector
The act has been designed to regulate the retail trade in the state. The main objective of this law is to ensure that the retail sector is carried out in a fair, transparent and healthy manner. This law has a number of provisions which will have a significant impact on the retail sector in Karnataka.
Some of the key provisions of this law are as follows:
- There is a limit on the number of shops that an individual can own. In addition, there is a ceiling on the total number of employees that an establishment can have
- The act requires all shops to get registered with the authorities. In addition, all shops must display a valid license certificate or permit in front of their premises
- There is a ban on unfair business practices such as charging higher prices for similar goods than those sold by competitors, discriminating against customers based on race, religion or caste etc.
Protection of children and women in such establishments
Article 24 of the Constitution of India prohibits the employment of children in any factory, mine, or other hazardous form of employment. However, it is Section 24 of the Act that prohibits the employment of children under the age of 14 in any establishment.
Section 25 of the Act before the Amendment of 2020 contained a prohibition on the employment of women during the night in any establishment; however, the state government could have exempted only information technology services-related establishments from the operation of this Section upon such establishments fulfilling requisite conditions pertaining to transportation and security of women. However, Section 25 was substituted by amendment on 19th October 2020 whereby, all establishments were able to employ women during the night given that they follow a set of 16 conditions enumerated in the Section and also provides cancellation of registration certificate as an effect of non-compliance with any condition in Section 25.
Section 30(3) of the Act provides that, in contravention of Sections 24 and 25 of the Act, the employer should be liable to punishment of imprisonment from 3 to 6 months on the first offence and on any subsequent offence to imprisonment from 6 months to 1 year, and along with or in lieu of such terms of imprisonment, the employer should be liable for a fine that may extend from 10,000 to 20,000 rupees. Section 33A of the Act provides that the labour officer, instead of prosecuting, can compound any of the offences punishable under this Act except for contravention of Sections 24 and 25.
A written complaint made by the Inspector initiates prosecution under this Act. Such a complaint should be made within 6 months from the date of the commission of the alleged offence. Further, only courts of Judicial Magistrate Second Class and above can try such offences.