TerraLex Cross-Border Guide to Cross-Border Labor & Employment Guidance

Labor and employment is a provincial subject under the Constitution of the Islamic Republic of Pakistan. Each provincial legislature has enacted labor laws that apply to the businesses operating within its territorial limits. Labor laws for the federal capital territory are enacted by the Federal legislature (i.e., Majlis-e-Shoora or Parliament). In some cases, the federal labor laws may also apply to the businesses operating in the provinces. Labor laws enacted in the provinces and the federal capital territory are similar in scope. However, in certain aspects, they differ from each other.

The applicability of labor laws on the businesses depends upon multiple factors, including, inter alia, the type of industry in which a business is operating, the number of its employees, and the nature of work being performed by its employees.

Typically, labor laws apply to lowly paid employees performing manual or clerical work. They do not apply to executive and managerial employees and those doing intellectual work.

There are three main types of employment status: 1. Workers or workmen; 2. Executive and managerial employees; and 3. Independent contractors.

Workers are lowly paid “blue-collar” employees who perform skilled or unskilled manual or clerical work. Workers are further divided into six categories: permanent workers, temporary workers, contract workers, probationers, apprentices, and badlis (substitute worker who temporarily works in place of an absent worker). Labor laws are enacted mainly to protect this category of employees.

Executive and managerial employees and those employees whose work involves the independent application of mind and use of intellectual abilities and specialized knowledge are generally excluded from the application of labor laws. Their employment is mainly governed by the terms and conditions contained in their employment contracts. However, certain labor laws may also apply to them, in addition to workers.

The labor laws do not expressly distinguish between a worker and an independent contractor. However, the courts have laid down certain tests for determining whether an individual is a worker or an independent contractor. Like an employee, an independent contractor is not entitled to any statutory protection under labor laws.

Labor laws generally prohibit the employment of workers through third-party contractors. The manpower agreements are not allowed and the workers hired through third-party contractors are deemed to be the employees of the business for whose benefit they are rendering services and which exercise ultimate control over them.

Foreign nationals who wish to live and work in Pakistan require a work visa. Initially, a single-entry work visa for three months is issued on the basis of a valid employment offer from an employer in Pakistan. A covering letter and an undertaking of the employer company in Pakistan are required to be submitted along with the visa application. Subsequent extension of a work visa for up to two years with multiple entries is granted based on the letter of recommendation issued by the Board of Investment (BOI) of the Government of Pakistan.

The written terms of employment should be provided to every worker at the time of his or her appointment which should conform to the requirements of labor law. A worker cannot contract out any of the statutory rights to which he or she may be entitled under labor law and an agreement to this effect shall be null and void.

The expression “wages” means all remuneration, capable of being expressed in terms of money, payable to a person in respect of his or her employment and includes basic pay and all statutory and non-statutory allowances and any bonus or other additional remuneration of a similar nature. However, it does not include certain payments such as any contribution paid by the employer to any pension fund or provident fund, and any traveling allowance or the value of traveling concession paid to a worker.

Labor laws prescribe certain minimum rates of wages payable to workers in the respective provinces and regulate the time and manner of payment of wages. The rate of minimum wages varies from province to province. The rate of minimum wages also varies depending upon the classification of workers and the industries in which they work.

The wage period cannot exceed one month. Wages should be paid before the expiry of the 7th day after the last day of the wage period in respect of which the wages are payable. In case of termination of employment, the wages earned by an employee should be paid before the expiry of the 2nd working day from the day on which his or her employment is terminated. Wages should be paid in current currency through cross cheque or bank transfer without deductions of any kind except certain permitted deductions.

In businesses where the industrial relations acts are applicable, Where a collective bargaining agent has been elected or designated in a business, the collective bargaining agreement may only be concluded between the employer and such collective bargaining agent.

A collective bargaining agreement may be concluded in respect of an industrial dispute i.e., any dispute or difference connected with the employment or non-employment or the terms of employment or the conditions of work of any person. A collective agreement should be in writing and signed by the parties and a copy thereof should be forwarded to the conciliator and the relevant governmental authorities.

A collective bargaining agreement will be binding on all parties to the industrial dispute, including heirs, successors, or assignees of the employer. Where the collective bargaining agreement is entered into between the employer and the collective bargaining agent, it will be binding on all the workers in that business.

In the event the employer and trade unions are unable to reach an agreement on the terms to be included in the collective bargaining agreement, the matter will be settled through conciliation, arbitration, or adjudication by the labor court. Any difficulty or doubt as to the interpretation of a collective bargaining agreement or any dispute thereunder will also be referred to and settled by the labor court or labor tribunal.

In all businesses having five or more employees, each employee is required to be insured with the Employees' Old-age Benefits Institution (EOBI). The employers and employees must make monthly contributions to EOBI at the specified rates. An insured person upon reaching the age of 60 years (55 years in case of a female) is entitled to receive a monthly old-age pension from EOBI. In case of death of an insured person, his or her surviving spouse will be entitled to a life pension.

Businesses operating in certain industries are required to register themselves with the relevant Social Security Institution (SSI) and to make a monthly contribution to SSI at a specified rate in respect of each of their workers drawing wages below a specified amount. The secured workers (or, where applicable, their dependents or legal heirs) are entitled to receive certain benefits from SSI such as sickness benefits, maternity benefits, free medical care, injury benefits, disablement pension, disablement gratuity, survivor’s pension, and/or death grant.

The federal and provincial governments have issued various standing orders which apply to almost all businesses. One of these standing orders requires that in case of termination of a worker on any ground other than misconduct, he or she will be paid: (i) a statutory gratuity equal to one-month salary or wages for each completed year of employment; (ii) salary, or wages in lieu of one month advance notice period (where applicable); and (iii) salary or wages for any outstanding leaves. Another standing order requires certain employers to pay an annual profit bonus to the workers at a specified rate. Certain employers are obligated to have all permanent workmen insured against natural death and disability and injuries arising out of contingencies not covered by labor laws.

The federal and provincial industrial relations laws entitle the workers to form and join trade unions and associations of their own choice. These laws also require that in every business employing 50 persons or more, the management will set up a Workers Management Council (WMC) consisting of not less than six members in which the workers’ participation will be 50%. Where women are employed as workers in a business, their representation on the WMC will not be less than the proportion of their numerical strength in the total workforce.

The workers’ representatives may participate in all the meetings of the WMC and all matters relating to the management of the establishment, except commercial and financial transactions, may be discussed in such meetings. The management will not take any decision on the following matters without WMC’s written approval:

• Framing of service rules and policy about promotion and discipline of workers;
• Changing physical working conditions in the establishment;
• In-service training of workers;
• Recreation and welfare of workers;
• Regulation of daily working hours and breaks;
• Preparation of leave schedule; and
• Matters relating to the order and conduct of workers within the establishment.

In case of a disagreement between the management and the workers’ representatives on WMC, the matter will be taken up by the collective bargaining agent for bilateral negotiations with the employer and if such negotiations fail, the matter will be settled by the labor court.

The usual period of work of an adult employee should not exceed nine hours a day and 48 hours a week. An adult employee cannot be required or permitted to work continuously for more than six hours unless he has been allowed an interval for rest or meals of not less than one hour. The period of work of an adult employee should be so arranged that inclusive of the interval for rest or meals, it should not spread over more than ten hours in winter and 11 hours in summer.

In certain specified circumstances, an adult employee may be required or permitted to work overtime for more than nine hours a day and more than 48 hours a week, but so that the total number of hours so worked by such employee does not exceed 150 hours in any one year.

When an employee is required to work overtime, the wages payable to such employee in respect of such overtime work must be calculated at double the ordinary rate of wages payable to him.

Typically, the following leaves and holidays are admissible to an employee:

• Annual leave: Every employee will be allowed annual leave with full wages for 14 days in a year;
• Casual leave: Every employee will be entitled to casual leave with full wages for ten days in a year.
• Sick leave: Every employee will be entitled to sick leave with full wages for a total period of eight days in a year.
• Festival holidays: Every employee will be allowed ten days of festival holidays with full wages in a year.
• Weekly holiday: Every employee will be allowed one day off each week as a weekly holiday.
• Maternity leaves: A female employee is entitled to 4-week pre-natal and 12-week post-natal leaves. However, in some provinces, maternity leave is admissible for 12 weeks i.e., 6-week pre-natal and 6-week post-natal leaves.

The working period and holiday entitlement of employees working in factories and large businesses may vary, in particular, where an employee is engaged in work which, for technical reasons, must be continuous.

Labor law prohibits termination of employment of a worker on any ground except through a written order which must explicitly state the reason for such termination. A worker may challenge the termination of his or her employment before the labor court which will determine the validity of such action.

One month advance notice or salary in lieu thereof is required for terminating the employment of a permanent worker for any reason other than misconduct.

For termination of employment of a permanent or a temporary worker on the ground of misconduct, the employer must follow a specified procedure laid down in the relevant labor law. The procedure includes communication of allegations to the worker in writing, holding an independent inquiry into the alleged misconduct, and providing an opportunity to the worker to defend himself or herself in person or through a fellow worker. Pending an inquiry into alleged misconduct, a worker may be suspended for a specified period. However, he or she will be paid full wages during such suspension period. The labor law defines various acts constituting misconduct that may result in termination of employment.

Labor law prohibits an employer from closing down the business (except in certain exceptional circumstances) or terminating the employment of more than 50% of the workers without prior permission of the labor court or, where applicable, the provincial government.

Labor law also prescribes an order which should be followed by an employer while retrenching the workers belonging to a particular category and provides the retrenched workers a preferential right in case of a re-hiring by the same employer within a specified period.

The law does not contain any transfer of business provision. The employees do not automatically transfer to the new owner in case of the sale of a business. There should be a fresh agreement between the new employer, the employee, and, where applicable, the old employer to transfer the employment of the employee to the new owner. However, a fresh employment agreement will not be required in the case of the sale of shares of a company as, in that case, the employer will remain the same. Similarly, a fresh employment agreement may not be required in case of a court-approved scheme of amalgamation or restructuring of companies where the employees may be automatically transferred to a newly created company under the court’s order.

The labor law provides various modes for the resolution of disputes between an employer and workers such as negotiations, mediation, arbitration, and adjudication by the labor court. In practice, however, any employment disputes are taken to and resolved by the labor court, or in the case of trans provincial businesses, by the National Industrial Relations Commission.

The disputes between an employer and an executive or managerial employee are typically decided by the civil courts except in cases where the parties have agreed for settlement of disputes through arbitration.

All significant statutory rights of the workers under the labor laws have been described above. However, apart from these rights, the workers may be entitled to several other rights during employment, including the right to a safe and healthy working environment, the right to be compensated for any work-related injuries, and the right to protection against harassment of women at workplaces.

Under a federal labor law as well as certain provincial labor laws, a child means a person who has not attained the age of 14 years, and an adolescent means a person who has completed his 14th but has not completed the 18th year of his age. However, in the Punjab Province, a person who has not attained the age of 15 years is considered a child while a person who has attained the age of 15 years but has not attained the age of 18 years is considered an adolescent.

The employment of children is generally prohibited. Likewise, adolescents may work subject to several limitations, including total work hours, maximum spread-over, and timing of work. An adolescent cannot be employed or permitted to do any hazardous work.

The law prohibits discrimination against transgender persons and persons with disabilities in employment matters. Certain provinces have enacted laws that prohibit discrimination in employment matters based on gender, religion, political affiliation, sect, color, caste, creed, and ethnic background.

The labor law does not prohibit the outsourcing of a part of business operations or related functions. However, personnel supply or manpower agreements are not recognized and enforced by local courts. A local court will treat the workers hired through and/or kept on the payroll of a third-party contractor under a personnel supply or manpower agreement to be in the employment of the entity for whose benefit they are rendering services and will hold such entity responsible for the discharge of statutory obligations in respect of such workers. The local courts have formulated certain criteria to distinguish between the workers hired by an independent contractor and the workers hired by an entity through a third-party contractor.

The law prohibits contracting out of any statutory right of a worker under the labor laws. The statutory rights under the labor laws are the minimum rights that cannot replace or take away more favorable conditions of employment ensured to the workers under any agreement, custom, usage, or award.

The employers should make sure that they comply with their statutory obligations under the labor laws, otherwise, they may face the workers’ claims before the labor courts as well as investigation and inquiries by the provincial labor departments.