Borderless workforce and global mobility: Indian legal considerations

Ajay Singh Solanki

AZB & Partners, Mumbai, Maharashtra

ajay.solanki@azbpartners.com

Devershi Mishra

AZB & Partners, Mumbai, Maharashtra

devershi.mishra@azbpartners.com

Introduction

Due to technological advancements, organisational dynamism and evolving workplace cultures, new forms of global workforce arrangements are emerging that go beyond the traditional idea of an individual physically working amidst the four walls of an office space. These new arrangements include virtual assignments (where an individual is engaged by a foreign entity but primarily works from his home country), employment of international employees (foreign individuals under international assignment) and digital nomads (individuals who work remotely from abroad).

The biggest advantage of borderless hiring is access to a global talent pool. By expanding search beyond local candidates, organisations can go beyond competing with local businesses in hiring a skilled workforce. Additionally, borderless hiring fosters diversity, leading to creative insights and innovative problem-solving. A borderless workforce tackles business challenges from a global perspective through out-of-the-box thinking. Moreover, hiring international talent remotely eliminates the complexities of visa sponsorship. However, borderless hiring comes with its own challenges. Finding international talent that aligns with an organisation’s culture can be difficult. While there may not be shortage of skilled professionals globally, those who fit well within organisational culture may be rare. Building relationships and fostering team bonding can also be challenging. Additionally, there is a higher risk of attrition with employees who have not relocated to work for the company. While this broader access to global talent introduces some hiring challenges, these can be addressed with putting well-designed processes and policies in place.

With a borderless workforce in a globalised world, the future of work seems to be already here! This is reason enough for organisations to have greater awareness and understanding of employment law, social security, tax, exchange control and immigration law requirements before moving forward.

Indian legal considerations

While an organisation may want to have a borderless and mobile workforce, there are certain legal considerations that it may need to be mindful of before it treads into this domain.

Employment law and exchange controls

As India is a foreign exchange-controlled jurisdiction, a foreign entity needs to have a local presence (subsidiary, branch, liaison office, project office, joint venture etc) to engage employees. This poses a challenge for foreign entities not having a presence in India but intending to quickly engage individuals as employees. It may require a fair amount of time and effort to incorporate a legal entity or set up a liaison or branch office.

Legal risks with navigating traditional legal challenges in a new business environment

To navigate the aforesaid traditional legal challenge in a global business environment, foreign entities often resort to engaging consultants in India or using the services of a professional employer organisation (PEO) or an employer of record.

Though there are no legal restrictions in implementing these alternatives, there are certain legal risks that could arise. If the consultants or PEO-engaged workforce are deemed to have a direct employment relationship with a foreign entity (classic misclassification/co-employment risk) by virtue of them working under the direct instructions, supervision and control of the foreign entity, then these arrangements may be considered a sham, and the foreign entity could be considered to be in violation of Indian exchange control law provisions.

Furthermore, from a tax law perspective, there could be permanent establishment (PE) exposure for the foreign entity in India in such arrangements. PE analysis is largely dependent on the specific facts and circumstances of each case but is a critical issue that organisations should address before implementing such alternative routes.

Reciprocity in enforcing foreign courts judgments or arbitral awards

As an agile organisation with a borderless workforce, employees may be working in various foreign jurisdictions. However, in case of a dispute, legal issues may arise with respect to enforcing a judgment of a foreign court or award of an arbitral tribunal in the host country. Disputes are unfortunately inevitable and they become more complicated when dealing with a borderless workforce. Organisations need to be aware of rules relating to reciprocity between countries in enforcing a judgment of a foreign court or award of an arbitral tribunal, before commencing a relationship with an employee in another jurisdiction.

Duty of care for mobile workforce

India’s law relating to employees’ compensation, the Employee’s Compensation Act 1923 (ECA) has extra-territorial applicability in cases where an Indian employer’s employees are working or travelling outside India. The ECA mandates compensation payable by certain employers covered under the law and reimbursement of actual medical expenses to employees for personal injuries caused by accidents arising out of and in the course of employment.

Likewise, India’s law on prevention of sexual harassment of women at workplace, the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013, extends the concept of workplace to any place visited by the employee arising out of or during the course of employment. In a borderless and mobile workforce scenario, an employer’s liability may extend to any place from where the employee is working.

Immigration law

If foreign individuals are travelling to India on a certain category of visa such as a business visa or tourist visa, there are restrictions under the Indian immigration law with respect to such employees working as employees in India.

Social security

Social security law related considerations are critical as well when engaging a borderless workforce. Depending on the salary payment arrangements, the employer needs to consider whether any social security contributions arise in the home and host country. Notably, India has signed social security agreements with 20 countries, including several European countries.

Foreign nationals employed with an Indian entity are treated as ‘international workers’ under India’s most prominent social security law, the Employees’ Provident Fund and Miscellaneous Provisions Act 1952, necessitating compliance with the statutory requirements.

In a recent landmark ruling in April 2024, the High Court of the State of Karnataka, in Stone Hill Education Foundation v Union of India, declared the special provisions relating to international workers as unconstitutional. The impugned provisions prescribed that the provident fund contributed to by international workers should be based on their entire salary. This is notably different from the treatment of domestic (Indian) workers for whom contributions are required to be made on a particularly low wage ceiling.

The Karnataka High Court ruled that international workers cannot be treated differently as compared to domestic (Indian) workers and therefore cannot be made to contribute to the provident fund based on their entire salary. Therefore, the provisions relating to differential treatment of international workers have been struck down.

A new global business environment involving frequent cross jurisdictional movement of employees requires a more balanced and fair approach on treatment of employees in various jurisdictions. This case is a typical example of courts opining on a traditional legal issue to ensure that equal treatment is meted out to employees irrespective of their nationality.

Bottom line

‘Vasudhaiva Kutumbakam’ ('the world is one family!'), a Sanskrit phrase, is more relevant than ever in the era of a globalised world. This holds equally true for the new age workplace.

In today’s digital world, organisations with international teams, empowerment, open dialogue and inclusive working systems are essential. It is crucial to analyse and plan the current and future talent pool of the organisation. Similar to the Indian traditional legal scenario, in several jurisdictions there are legal challenges in implementing a truly borderless workforce. Understanding how to successfully engage a borderless workforce while meeting the traditional legal requirements in different countries has become increasingly important to have a competitive advantage in this globalised market.