Labour Law 2017 and impact

The Legislature Parliament has recently passed two crucial bills including Labour Bill 2017 and Social Security Bill 2017. Upon receiving formal seal from the president of Nepal, the bill shall come in force as Labour Act and Social Security Act. These laws are most awaited ones with the expectation that they will create new dimension in the labour market by balancing interest of employer and employee. It is expected that sound industrial relation could be managed for the best benefit of both sides.


Could you explain in brief about the labour environment and necessity of introducing Labour Bill in the Legislature Parliament?


Sound industrial relation is landmark for economic development. Industrial disputes are common phenomenon around the world. If they are not settled in timely and proper manner, it becomes serious menace to the society. Hence, they require early solution, if not to eradicate then at least to mitigate them in the very beginning. Employers paid their sole attention in their investments, services and industrial improvements including production and supply whereas employee uses their best efforts in terms of knowledge, skills and labour. Traditional concept of master and servant has been shifted to employer and employee and they are considered to be the two sides of a coin and their equal efforts and satisfaction are must. In this reference, the Supreme Court of Nepal has also pronounced in the case of Hulas Metal Craft v. Ministry of Industry and commerce that there requires balancing the relation between employer and employee as the disputes will have potential risk in the national economy.


In addition, the employer creates a work place that represents a social miniature. Employer provides employment to the large section of society and gets returns from their skill, knowledge and labour. They exist in co-relation. However, in Nepal, we witnessed various events and industrial closures due to the tension between employer and employee. The 2nd people's movement and conclusion of Maoist insurgency in the year 2006 changed the social dimension in affirmative and negative way. The Country became the federal republic whereas the transitional period and political domination gave unfair strength to the employees that jeopardised employers confidence in investment.


The tension was so heightening that many industries were closed down likeColgate Palmolive and Surya Garments. Employer claimed that employee uses all unfair means to claim their demands whereas employees claimed that the decent work environment was not given on priority by the employer. The Labour Act 1992 was more favourable to employee including Labour Court and Labour Office and Department as claimed by the employer and employees claimed that employer were never serious to the employees' rights and kept them supressed without securing social security. On the other side, political interest was equally prevailed over employing political cadres apart from the pressures from high governmental officials.


Termination to the employee was quite difficult or impossible whereas performance from the employee was never tested. In this scenario, the labour practice was on move and going on same pace. Realising this concern, the country thought enact new labour laws replacing existing Labour Act 1992 by addressing the concern and commitment Nepal gave in international level, ILO by addressing all concerns most importantly employer and employee. Resultant to this, recently the Legislature Parliament has introduced a Bill entitled Bill Made to Amend and Codify Labour Related Laws 2017(hereinafter I preferred to say Labour Bill 2017 or “proposed Labour Act 2017”) to enact new Labour Act 2017.


To my best knowledge the Bill has been approved by the Parliament along with Social Security Bill with few minor corrections and is on the process to get President's Seal. Though the process of amending the Labour Act was initiated half a decade ago and I was also personally invited in various dialogue and discourse program of Labour Bill conducted by the Ministry of Labour and concerned stake holders including FNCCI, CNI and Trade Unions in the past, finally bill has been approved by the Legislature Parliament with various provisions of balancing interest and giving equal protection to the employer while securing various rights of employees.


Could you highlight the objective of the Labour Bill and any important terminologies it has come up with?


The Labour Bill has recognized in its preamble that the purpose for proposing to enact Labour Act 2074 is because of the requirement to ensure labourers' rights, benefits and facilities in one side and on the other there requires to balance between the workers and employers by securing their rights and duties for promoting sound industrial relation and elimination of all forms of exploitation to increase in industrial productivity. The Bill has defined the term salary to include basic salary and allowances that employer requires to differentiate in the payroll for avoiding disputes in terms of contribution and payment of benefits based on basic salary. The term enterprise is used to denote employerto include company, private firm, partnership firm, cooperative and other organization registered and operated as per prevailing laws having objective of earning profit or for non-profit. Hence this definition also includes International Non-Governmental Organisation (INGOs) under non-profit enterprises as it was under confusion previously.


The Labour Bill 2017 made mandatory to have employment agreement which requires defining employment terms, services and facilities. The appointment letter is made to be mandatory for the employer and the appointment letter is considered to be employment agreement incase separate employment agreement is not signed. Employer also requires issuing experience letter to an employee once employee completes services with the employer.  The Labour Bill 2017 also states that employment relationship shall be considered to have been created between employer and employee if employment agreement is executed or if employee is hired on oral terms or in reference to emergency employment from the day employee has provided services. The Labour Bill 2017 has defined the meaning of principal employer to mean outsourcing entities which must have license to carry outsourcing business of human resources.


Does the Labour Bill 2017 prohibit any forms of employment against the employer?


Yes, the LaborBill 2017 has also mentioned about certain nature of employment that cannot be tolerated and thus prohibited. The Bill reads that if any terms of employment contract entered by and between employer and employee which is inconsistent with the conditions mentioned in the Labour Act or provides less remuneration and facilities then what is provided by the Labour Act or Rule, such terms shall be considered to be the terms/contract against the law and such provisions shall be considered to be void to the extent of such inconsistencies. Apart from this the Labor Bill also prohibits direct and indirect forced labour and employment of children.

The Bill has pronounced end discriminations in the workplace based on religion, colour, sex, caste and ethnicity, origin, language or belief or other any related basis. Moreover it has also emphasized that the discrimination shall not be made in terms of remuneration on equal value of work and while defining the term equal value of work, the Bill mentions that the equal value of work shall be based on the nature, the timing of work, efforts utilized by employee, their skill and the production from the work employee has executed.


The Labor Bill 2017 is said to introduce various categories of employment with various conditions? Could you explain how these categories have been made?


Yes, for the first time the new Labour Act is coming with category of various types of employment such as regular employment, work based employment, time/tenure based employment, emergency employment, part time employment, apprentice and training based employment.  Regular employment is mentioned as employment other than work based employment, time based employment and emergency employment. Work based employment is an employment with defined work or services to be executed by employee in particular time. Time based employment is fixed term employment where employee is assigned to work by fixing certain time or to complete certain work within the tenure given. These employees may also be called as project based employee in INGOS as INGOs operates for certain specified project with specified tenure and work and upon closure or conclusion of the project, employees could be automatically terminated in not renewed.


The emergency employment is where employee is hiredto work or completes tasks in seven days or less than seven days within a period of one month and the part time employment is where employees works for 35 hours or less than 35 hours to complete work assignments and prohibits the conversion of full time employees into the part time employees and theirremuneration are fixed on hourly basis or as per the parttime employment. However, the Bill requires employer to arrange gratuity, provident fund or social security for the part timers.


The Labour Bill 2017 has introduced new forms of engagement which is called as apprentice or interns that employer may keep. However, before keeping such apprentice, employer requires to enterinto an agreement with educational organization which has approved course and credit for apprentice. Nevertheless, such apprentice shall not be considered to be an employee for apprentice tenure. Apart from this, if the employer keeps any one as apprentice and the provisions of apprentice does not fall under approved course design; such apprentice shall be considered to be employee, hence new labour law requires employer to confirm if apprentice is part of approved syllabus of educational organisation or not.


Training based employment on the other side are employees hired for one year for training purposes and not the employee itself. Such employee however entitled for minimum remuneration, sick leave, gratuity, provident fund, and insurance and social security benefits.The employer shall not be compelled to keep such person under employment upon completion of the training. And, if kept as employee, the probationary period shall not be applicable to such employee.


Is there any separate provisions made for non Nepali citizens who desireto work in Nepali entity, foreign investment companies, international organisations or INGOs.


Yes, the Labour Bill 2017 has clearly spelt out the conditions for non Nepali citizen to work in Nepal. Following the provision of Immigration Act 1992 which restricts foreigner to use their visa for other purposes then for which it is granted, the Labor Bill 2017 mentions that the employer shall not employ non- Nepali citizen without obtaining prior approval from the Labour Department. Nevertheless, the employer may employ skilled or highly skilled non Nepali citizen subject to unavailability of human resources in Nepal even after publication of advertisement in national level daily newspaper. The Bill states that this provision shall not applicable to non Nepali citizen bearing diplomatic immunities or came to work in Nepal under any treaty conventions or agreement with government of Nepal that exempts from work permit.


The authority granting work permit is Labour Department. The Labour Department may grant work permit to the Managing Director/CEO/Country Director, Chief of the Project of the organisation operated by foreign aid or foreign investment and to the technical person serving for 3 months or less than three months and such employees may repatriate their earning in foreign currency.


The Bill also states that the employment agreement entered by and between employer and Non-Nepalese citizen shall be made in English or in other languages that is legible to employees by confirming service terms, conditions, facilities and the remuneration, terms of services and facilities of the foreign employee shall be fixed by time based or work based employment contract and such remuneration, terms of services and facilities shall not be below than as prescribed by the law.  Regarding tenure of employment of non Nepali citizen, the Labor Bill 2017 states that if term employment for Non-Nepalese citizen is fixed in the employment agreement it shall be accordingly, if not, the term shall be deemed considered to for 3 years. The Bill does not mention about the maximum term of employment where at the Labour Act 1992 has the provision that for skilled technical post its 5 years tenure and for highly skilled employee its 7 years. 


Is there any additional benefits and leave facilities introduced by the LaborBill ?


TheLabor Bill 2017 has come up with various additional provisions of benefits and leaves in comparison to Labour Act 1992. To state few, festival allowances are one which was not mandatory previously. The Bill states that employee shall get remuneration within the time period mentioned in the agreement and if not as per the payment calendar maintained by the employer and that shall not be longer than one month after the employee is entitled to get remuneration. However, employee worked for one month or less shall be paid within 3 days of work completion and employee on emergency shall be paid immediately after the completion of work.  Regarding festival allowances, employee shall be provided with festival allowances on annual basis equivalent to one month basic salary for the celebration of festival as per the religion, culture and tradition of an employee. Unless employee request festival on some occasion, the employee shall be provided festival at the time of VijayaDashami (BadaDashain).


Regarding leave facilities, the proposed, the Bill confirms that “leave is not a matter of right; but it is only a privilege’. The Bill  also stipulates that any leave employee is granted except to sick leave, obsequies leave, pregnancy leave; other leaves are privileges and cannot be claimed as right. The Bill confirms that employees are entitled to get 1 day leave in a week as weekly holiday and 13 days leave as public holiday which includes Labour Day on May 1st of each year. However, in female employee's case, female employees are entitled to one additional leave of 14 days in International Women's Day. Employees shall also be granted substitute leave if they are made to work continuously beyond the schedule of weekly and public holiday and such leave shall be granted within 21 days from the date they workedwhich was meant for weekly or public holiday.


Paid home leave at the rate of one day for every twenty days that s/he works and provisioned and 12 days paid sick leave shall be granted. If an employee has served for one year or less than that, such leave shall be provided on pro rata basis.  Obsequies leave of 13 days are granted to an employee who requires observing obsequies in case of death of parents with full pay. The Bill has also provisioned reserve leave where employee may reserve 90 days home leave and sick leave for 45 days which shall be paid after the completion of his/her services.


Is there any special provisions made for female employees in the Labor Bill 2017?


The Labor Bill 2017 has come up with various provisions for female employees with the aim for giving them an opportunity to balance home and work along with protection of their reproductive health right. To name few, the Bill avoids any forms of discrimination in terms or sex, caste, religion and ethnicity. The Bill ensures that the pregnant employee’s remuneration and facilities shall not be deducted in any terms and adequate working environment, work place shall be provided. It further states that an efficient work and services shall be procured from pregnant employee and no discrimination in terms of payment shall be made.


The Bill also ensures that if any female employees are engaged in the work after sun set or before sun rise, transportation facilities shall be arranged by the employer from home-work-home. The Bill has clearly spell out about the sexual harassment that may be committed against female employee and the consequence leading to the termination.


Regarding leave facilities, female workers shall be provided pregnancy leave facilities for 14 weeks that she may take before or after her delivery. Pregnancy leave has been made compulsory to the female employee. The Labour Bill also confirms that pregnant employee shall compulsorily take pregnancy leave two week prior to the delivery and shall take at least 6 weeks compulsory leave after delivery. Apart from this, pregnancy leave shall be payable for 60 days only and remaining leave shall be unpaid leave.  In case doctor prescribes that the woman after delivery or the new-born baby requires more leave for medical care, than employee shall be granted one month unpaid leave or such leave shall be adjusted in other leave too.


The Bill has first time recognised the status of pregnant women whose foetus is dead prior to delivery. It says if 7 months or more than seven months foetus is born dead or aborted; such pregnant employee shall get pregnancy leave of 14 weeks before or after such incident has happened. It also provides that in case an employee is dead after giving birth to her child before completion of 60 days pregnancy leave, such reserve leave shall be granted to the husband of the deceased mother  for the purpose of taking care of newly born baby.  Leave to male employee are also granted as paternity leave with full remuneration for 15 days to care the wife.


Additionally female employees are also granted obsequies leave for 13 days incase they observe obsequies in case of the death of her mother or father. This provision is first time introduced for female employee as previously such leave was granted incase of death of father in law or mother in laws or husbands only.


Could you explain the social security’s available to employees as introduced by the Labor Bill 2017 and Social Security Bill 2107?


The Labor Bill 2017 has first time made compulsory to the insurance provision as earlier it was optional though there was protection against injury sustained by employees. The Bill confirms that employer after deducting Ten percentage of the basic salary of employee, employer shall add Hundred percentage equivalent amount of such salary deducted from employees and shall deposit the amount as provident fund. Such amount shall be maintained from the date of employment and shall be deposited in the name of the employee at the Social Security Fund and incase Social Security Fund is not in operation the employer shall deposit the amount as it think fit for that period. In case, where the employee cannot deposit the money by adding of its part, then the employer has to add Ten percentage of that employee's remuneration and should be paid to him/her regarding gratuity. The Bill has made mandatory that employer has to deposit 8.33% of the remuneration of the employee in the Social Security Fund as gratuity for every month in the name of the employee from the date of joining the employer. In case where the employee cannot deposit the money, then the employer has to add 8.33% of employee's salary and should be paid to him/her.


The employee receiving pension shall not be paid gratuity. The gratuity provision shall be applicable from the date the Labour Act comes into force.Regarding insurance, the Labour Bill has made compulsory insurance provisions such as medical insurance and accidental insurance.  The Labor Bill states that the employer shall provide medical insurance facility to each employee to the amount of Rupees One Hundred Thousand annually (US$ 1000 approx.). The insurance fee/charge shall be paid jointly (50:50) by employee and employer. Further the employer has to arrange for accidental insurance of any kinds of accidents to the amount equivalent to Rupees Five Hundred Thousand annually. The liability for the payment of insurance premium shall be divided wherein employee shall pay 25% and 75% payment shall be paid by the employer. If any employee dies or gets physically or mentally incapable from the accident then the whole sum is compensated either to the employee or to the right holder of that employee as per the existing law. In case of the grievous hurt or incapability, the employee must be compensated as per the degree of incapability.


As you said previously, the Labour Bill 2017 has the provision about the out sourcing of employees. Could you highlight how this has been provisioned?


For the first timeLabour Bill has made provision regarding out sourcing of employees. It has come up with the provision that the employer may hire outsourced employee from registered and licensed outsourcing entity. The outsourcing entities requires to ensure all benefits and facilities of employee as employer and has to confirm that outsourced employees are provided all means of health and safety measures by the employer.  The Bill states that in case employer requires hiring employees via outsourcing entities, such outsourced personnel shall be employed for other works then main works relating to business or services. Main work is defined as work directly related with the work for which employer is established. The Labour Bill also confirms that there shall be the relationship of employer and employee between out sourcing entity and outsourced employee. The employer shall engage outsourced employee based on the out sourcing agreement and such agreement shall confirm that outsourced employee shall receive minimum remuneration and benefits. The Bill mentions that if the employer found that the outsourcing entity is not providing the minimum remuneration and benefits as prescribed by Labour Act, the employer is obliged to inform for the same to Labour Department or Labour Office. It means that employer is obliged toensure that out sourced employees are given minimum benefit by the outsourcing entity. By this provision, employee working as outsource is protected against suppression of any kinds of benefits and privileges by the out sourced entity.


Could you explain the grounds of termination of employment as introduced by the Labor Bill 2017?


The Labour Bill 2017  has clearly mentioned various grounds of employment termination such as  termination based on  tenure and work completion where employees may be terminated upon completion of time and the work which as normally known as project based employment. This provision has ensured INGOs and other entities who work on project based or contingency work that they may terminate employee based on the project or contingency of the budget available. Apart from this employees on emergency services shall be terminated at the will of employer. Termination could also happen if employee voluntarily resigns.


The Bill has introduced one important provision of terminating employee based on performance evaluation.  The proposed Act says that in case the work performance evaluation demonstrates unsatisfactory performance and low standard of an employee for three consecutive periods, such employee may be terminated. However before termination, the work performance evaluation must be conducted fairly.


Employee may also be terminated on health reason. If any employee requires medicating for long period due to physical disability, injury or grievous hurt caused in the course of business, the employer may terminate such employee on prolong health reason. However termination cannot be made for the period of one year from the date of such injury and the employer shall pay full salary for that tenure except not provided by Social Security Fund.


Apart from this, employees may also be terminated on the ground of redundancy or layoff. The Bill also states that if any organisation requires to close down due to economic depression, merger of organisations which makes employee more than required  or for any other reason organisation required to close down partially or fully the employer may redundant such employee. However before doing so 30 days prior notice shall be furnished to employees or Trade Union. The redundancy shall be carried by conducing discussion with the Trade Union or Labour Relation Committee and notice shall be given to Labour Office. The Bill has mentioned about the priority to lay off employees whom is to be started from foreign employees/expats, employee who is punished more on the ground of misconduct, employees whose work performance is low standard and employee who is recent in employment incomparison tothe one who employed earlier. The compensation for the redundancy is based on the number of years worked multiply by monthly basic salary.


You mentioned about the performance evaluation of employee, could you explain how the Labour Bill 2017has addressed this issue?

One of the major parts for employer’s suppression was their inability or difficulty in terminating employees. The Bill for this reason for the first time introduced that employee may be terminated if their performance is not satisfactory for three consecutive years.  The Bill states that any organisation where 10 or more than 10 employees work, such organisation may conduct performance evaluation of employees once in a year. However determination of performance evaluation and criteria should be reasonable and justifiable and employees shall be given information about such evaluation in advance. Upon making performance evaluation the employer should assign its officers todiscuss about the strength and weakness of such employees and should give an opportunity for improvements. Incase employee expresses his/her dissent such dissent should be recorded and employer shall have to review such dissents. In case employee fails to demonstrate his/her performance to the satisfactory level as designed by employer on fair and reasonable ground for three consecutive years, such employee may be terminated.


IS there any other instrumental provision that the Labour Bill 20177 has introduced and you want to mention here?

The Labour Bill 2017 has introduced some instrumental provision including the just labour practice to be carried by the employer and the Trade Union. The Bill obliges employer to avoid any kinds of activities or labour practices that are not fair and just to the employees. It says employer shall not do or cause to do non-compliance or prohibition of employment related laws. It prohibits any restrictions made to enjoy employment rights and presenting of false evidence with and intension to punish any employee. Any act that creates problem to any employee and any interventions made to trade union, its operation and administration are prohibited. It restrict employer to continue lock out even after declaration of illegality and prohibits any kinds of provocation to employee with intention to create differences and rivalry are absolutely prohibited.


The Bill also prohibits Trade Union to indulge into an activity by giving pressure or warning to employee for taking membership or withdrawing membership of any Trade Union. Trade Union are prohibited from raising any kinds of donation and support forcefully from the employer, calling strikes at the private residence or another organization of employer apart from workplace, hurting employer, employees or his/her representative to fulfill the demand or to force them to do other illegal activities and wilful harm on the property of the employer is prohibited.

The Bill has identified various duties of employees apart from the provisions of misconduct and indulging into sexual harassment that lead to take disciplinary action of reprimand, warning, suspension, deduction of one day salary, withholding of annual increment or promotion and termination. The Bill avoids negligence act of employee, use of safety measures and compliances of directives, submission of personal details etc.


What are the means of settlement of industrial dispute introduced by theLabor Bill 2017? Could you also state the provisions of collective bargaining as provisioned?


In each organisation their employees have various kinds of dispute. Some of them may be personal dispute with the employer and some dispute may be the concern of all employees which we call in law collective disputes. If any personal dispute of an employee rises regarding employees given rights, employee may give written application to employer and such personal dispute requires to be resolved by employer within 15 days of application unless extended on mutual consent.The Labour Bill 2017 has provisioned about the settlement by mediation too.

Regarding collective disputes, the Bill states that each organisation having 10 or more than 10 employees shall have Committee on Collective Agreement which will submit the demand that relates to the overall benefit of employee to the employer. However the demand couldnot be made against the Constitution, baseless allegation or unproven matters, matters that assassin the character of employer or employee, unrelated matters of the organisation and the matters which has been settled by collective Bargaining Agreement and the time has not been elapsed. The Bill says that the disputes shall be settled by discussion and mediation within 30 days by establishing Labour Mediation Tribunal. The Committee on Collective Agreement may also call for strikes for settlement of dispute however 21 days prior notice required to be furnished to the employer, Labour Office and District Administrative Office. It prohibits those employees who are assigned for security, guard and rotation to participate in the strike during their work time.


After several recourse, discussion, mediation and intervention, if the Collective Bargaining Agreement will be entered by and between employer and Committee on Collective Agreement. The Collective Bargaining Agreement shall be in force for the term specified in the agreement and if not, shall be in force for two years at least. If strike is called without notice, the employer may lock out the organisation upon obtaining approval from Labour Department by giving 7 days advance notice to employees and if found unreasonable the Labour Department may also call off the lockout.The Labour Bill also mentions that if strikes found to be invalid employees shall not be paid for the term of strikes and if lock out is declared to be invalid, employer has to pay employee for the period of lock out.


What would you expect the situation would be when the Bill comes in to force as Act of Parliament?


One of the major concerns of the entrepreneurs in the past was about the rigid provision of labour laws and conventional attitude of concern department including Labour Court and inconsistent court decisions.  The government in its various reports and the researchers' findings was that the labour was one of the constraints for the overall economic development of the country apart from policy uncertainty, power shortage and high cost of transportation and corruptions at all level.  However, the Labour Bill 2017 has attempted to create sound industrial environment by ensuring confidence based on various progressive and protective measures for the employer and the creating of win and win situation between employer and employee as they both complements eachother. We can predict that the new labour law that is going to be enacted soon will raise confidence on all investors or industrialist at home or abroad whereas the employees full dedication and return of that dedication are also secured. So let we hope that one the Labour Bill takes its entry as Labour Act 2017, the new law will help in changing the working dimension of Nepal by ensuring the Nepali workers have the decent work environment and the employers have full faith, trust and confidence towards their investment return without any opportunity of being under jeopardy of employees' unfair demands.

(This interview was published in Nepalipatra on 28 August, 2017. Nepal Tax Online has a special package covering immigration and expatriate tax issues for subscription. Details are available in our pricing page under INGO-Premium.)


Saroj Krishna Ghimire

Saroj Krishna Saroj Krishna

About me

Saroj is an Attorney at Law and an Assistant Professor of Law at Tribhuvan University, Nepal. Saroj has advised high profile clients on investment and corporate matters and appears in all level of courts in large scales commercial litigation. He is one of the dynamic young lawyers of Nepal and have worked as local counsel for largest law firms worldwide. He advises international clients and immigration issues in Nepal Tax Online.

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