Sue SnyderJackson Walker L.L.P.

100 Congress Avenue, Suite 1100Austin, Texas 78701

512.236.2240ssnyder@jw.com

Employment in IndiaTips to Avoiding Common Pitfalls

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• 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

• 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 (3-20%))

• Increased Enforcement Legal Regulations

• Constantly Changing