Aaditi Sinha*

Source : Cristiana Couceiro

The essay examines the statutory framework for unilateral changes to employment contracts under Section 9A of the Industrial Disputes Act, 1947, focusing on its implications for employer-employee relations and workplace autonomy. It integrates judicial precedents and existing scholarship to evaluate the effectiveness of Section 9A in protecting workers’ rights, in light of the inherent power imbalance present in such a relationship. It argues that the mechanism of prior notice does not adequately deal with the problem of unilateral changes and lack of employee consent. Collective bargaining is losing its charm and effectiveness at the time when the doctrine of good faith is absent in the Indian contractual jurisprudence. Therefore, there is a complete lack of statutorily mandated norms to ensure consent of the employees to the changes made in their contracts by employers.

I.                Introduction

In employment contracts, the ability to unilaterally change the terms of a contract raises critical questions about consent, fairness, and the inherent power imbalance between employers and employees. Current scholarship is limited to ‘at-will’ contracts in other jurisdictions. Further, there is some literature on consent in employment contract, also highlighting the problem with unilateral changes. In India, the legal framework is addressed in a brief and cursory manner, giving simply an account of what the law permits the employers to do. While Indian courts have delved into the power of the employer to make changes in employment contracts, caselaw remains restricted to defining matters that fall under ‘conditions of service’ and whether ‘notice’ as per law was adequately given (See here, here, and here). There is an evident gap–a critical analysis of power conferred onto employers under the Industrial Disputes Act 1947 (‘the Act’) is warranted in light of contract law principles. Given that the Industries Relation Code, 2020, which seeks to replace the Act still retains the provisions in question in their entirety adds to the urgency to bring to light certain problems inherent in them.

This essay attempts to fill this gap by critically examining the provisions of the Industrial Disputes Act and their implications on employment contracts. Part II offers a brief look into §9A of the Act, which confers powers onto the employers to make changes to the contract. Following this, Part III discusses the nature of employment contracts, highlighting how the assumption of equal bargaining power between employers and employees is flawed and how the use of Standard Form Contracts (‘SFCs’) compounds this imbalance. Lastly, Part IV addresses the implications of unilateral changes on consent, arguing that despite statutory allowances, employee consent to such modifications remains essential to maintaining fairness in the employment relationship. Lastly, Part V concludes the discussion.

Therefore, this essay argues that the current legal provision (§9A of the Act) is inadequate to protect employees from fair unilateral changes in employment contracts. The power imbalance inherent in employment contracts necessitates stricter statutory safeguards to ensure that unilateral changes, even when permitted by law, do not undermine the principles of fairness and consent that underpin contract law.

II.             Unilateral Modifications under the Law

Unilateral changes to the contract occur when one party, without the consent of the second party to the contract, amends, modifies, or alters the said contract. It is settled that unilateral changes in any contract, employment contracts included, shake the foundation of contract law–it disregards the sacred value of consent in a voluntary act of partaking in a contract. However, unilateral changes are not entirely prohibited. There are two ways unilateral changes can be made–either when it is permitted under a statutory provision or when the contract itself includes a clause empowering one party to make unilateral changes. This essay is restricted to the first provision–when the law governs the procedure of changes in employment contracts.

§9A of the Act permits an employer to alter the conditions of service for a workman, provided that a 21-day notice is given. Here, three critical elements warrant consideration–the conditions of service outlined in the Fourth Schedule, the definition of a workman, and the statutory notice requirement. The conditions of service are confined to matters enumerated in the Fourth Schedule, such as wages, leave policies, and adjustments in the number of employees. The necessary implication is that matters not listed in this schedule can be unilaterally changed by the employer. This provision is also specifically applicable only to employment relationships involving a workman, as defined in §2(s) of the Act, which encompasses workers within the lower tiers of the organized sector. Consequently, when an employer seeks to modify the conditions of service for these workmen, the law mandates a 21-day notice.

Here, a fundamental issue arises, striking at the core of contractual principles–consent of the employee to the proposed changes. In the next section, I will demonstrate how these issues undermine legal protection for workmen on the basis of contract law principles. I will focus on the inherent power imbalance in employment contracts that uniquely positions the issue of unilateral changes and consent, and therefore, warrants particular analysis of legal provision mentioned above.

III. The Illusion of Equal Bargaining Power

In common law, commercial contracts are acts of volition. Parties enter into such contracts with informed consent–it involves knowledge of the terms of the contract and that of the effects of it. However, literature over time suggests that employment contracts are at a different pedestal–to assume mutual consent when there is evidently one party in a superior position than the other is flawed. Mishel calls this an equal-power assumption, which is to assume that both employer and employee have the same power to accept or reject any contractual relationship. Thus, employment contracts are also known as “at-will” contract, i.e., both the employer and employee can exit or terminate the contract at their will. Here, either party is at liberty to modify the terms on which their performance of the contract will stand. However, scholarly work has noted that this presumption of voluntariness of employment contracts is a legal fiction.

To understand this in the context of Indian jurisdiction, a look at how employment contracts are determined in India is a must. The Supreme Court (‘SC’) has held that to establish a contract of service, the following considerations are required–

• The existence of a right of a master to not only direct the servant to work but also the manner in which the work is needed to be done,
• Economic control over the worker’s subsistence, skill, and continued employment, and
• Whether the person engaged has done so in business of his own account.

While complete control over every aspect of employment is not necessary—particularly in cases involving skilled labor—the test still requires an evaluation of the degree of control exerted by the employer. Based on this, it becomes clear that the employment relationship is inherently unequal. When an employee is so reliant on the employer for economic sustenance, it is misleading to assume that the employee is truly “at-will” to terminate or renegotiate the contract. In contrast, the employer occupies a significantly stronger position, with the power to supervise, direct, and unilaterally alter the terms of employment.

Additionally, in a day and age where SFCs are widely in use by employers, the inherent lack of negotiation provided by SFCs highlights the double inequality suffered by the employee. SFCs, also known as adhesion contracts or boilerplate contracts, are pre-drafted agreements where one party sets the terms and the other party typically has little to no ability to negotiate or modify the terms. The Law Commission (‘LC’), in its 103^rd report, detailed the problems arising out of the use of SFCs–fine print language allows certain terms to slip in, like exclusion or exemption clauses, and the weaker party cannot bargain individual terms. Therefore, their signature on the contract does not denote informed consent.

Furthermore, the SC in the case of Central Inland Water Transport Corporation (1986) recognized the disparity in power within employment contracts through the ICA. It held that contracts between parties with unequal bargaining power (an employer-employee relationship in our case) may be unconscionable. This imbalance, often due to the economic disparity between the parties, leaves the weaker party with no real choice but to accept the terms formulated by the stronger party. It was held that in such cases, Indian courts may intervene to prevent injustice and ensure fairness. The law, therefore, cannot allow employers to unilaterally impose terms that are one-sided and unreasonable.

However, the Court acknowledged that since these contracts often involve SFCs entered into with numerous employees, it would be impractical for each individual to challenge them under §16 of the ICA. Instead, as these contracts affect a broad group of people, rendering them void under §23, which deals with contracts opposed to public policy, is a more appropriate remedy. While the LC has noted the lack of proper provision in the ICA for unconscionable contracts and recommended inclusion of a specific section for the same, such an amendment has not been made to date.

Thus, employment contracts are uniquely placed in an unequal ground with disproportionate bargaining power due to inherent power disparity and use of SFCs. It confers powers to the employer, which she can wield while hiding bad faith. This is why it is essential to protect the employee’s contractual actions, particularly when the employer is authorised to make changes to the terms. One possible solution could be to consider the option of requiring consultation and consent along with notice before modifying the conditions of service. This is further elaborated in the subsequent section, where I demonstrate that the legal provision under the Act, when viewed through the lens of the inherent power imbalance in employment contracts, fails to adequately safeguard employees. It neglects the element of consent, disregards the erosion of collective bargaining power, and lacks incorporation of the doctrine of good faith, all of which are essential to ensuring fair and equitable protection for employees.

IV.           The Role of Consent in Contract Modification

As has been mentioned in Part II above, while §9A of the Act provides that notice must be given, there is no requirement for the employee to explicitly consent to the changes. Thus, the power to modify the terms of an employment contract effectively bypasses the fundamental requirement for mutual consent when altering a contract. It is generally accepted that any alteration, particularly a material change, traditionally requires the agreement of all parties involved. By disregarding this requirement, the integrity and fairness of such modifications come into question. Hereby an important question arises: Is the consent given at the formation of the contract presumed to extend to all future changes?

It might be argued that by entering into the contract, the employee is aware of the employer’s authority to make changes and thus consents to these changes at the outset. However, this argument is flawed for primarily two reasons–one grounded in the interpretation of the referred section and one in principles of contract law. The latter reason can be discussed, for it makes the former reason even clearer. Any significant modification to the terms of a contract fundamentally requires mutual consent. While the law may permit a contract to include provisions allowing one party to alter specific terms, such powers are not absolute; they are limited to certain matters enumerated in the clause.

Even if the employee is aware, at the time of contract formation, that the employer holds the legal authority to alter conditions of service, this does not imply that the employee has consented—or will consent—to all potential changes. To assume that the employee’s initial consent (to the contract) extends to every subsequent alteration (empowered under the Act) conflates the nature of consent. Moreover, presuming consent in situations where changes may be detrimental to the employee raises further ethical concerns.

Moreover, this argument fails to take into account the 21-days’ notice required under §9A of the Act. The law intended the employees to be informed of the changes proposed. Does this mean that this time period is there for the employees to collectively bargain against the change proposed? The answer is affirmative as §10 of the Standing Order Act requires that before the Certifying Officer approves of the draft changes, consent of the trade union must be taken. It is also worth considering the Indian courts’ approach to the doctrine of acquiescence, which holds that if an employee, despite having a right, does not protest against an adverse change, this may imply consent. This all seems to imply the direction that employees do have an option to consent to the changes, albeit impliedly.

Although §9A implicitly relies on collective bargaining as a means for employees to contest unilateral changes, the universally observed decline of unions renders this safeguard ineffective. In such a context, reliance on collective bargaining is only illusory. So, the 21-day notice period prescribed under §9A only ostensibly aims to provide employees with an opportunity to respond to proposed changes. However, this provision falls short of ensuring meaningful consent, as it neither statutorily mandates consultation nor empowers employees to negotiate effectively.

Additionally, other jurisdictions rely on the doctrine of good faith in employment contracts. The doctrine entails that in a contractual relation, the parties have to act honestly, fairly, and with reasonable care in relation to the other party. This acts as another safety valve in case employers make changes in employment contracts. However, it has been argued that the ICA lacks such a doctrine in general. While attempts have been made to read the doctrine into the ICA, it is unclear how far such an understanding would help the employees against unilateral changes. The Karnataka Platform-Based Gig Workers (Social Security and Welfare) Bill, 2024, under §12, introduces provisions aimed at ensuring fair contracts between gig workers—who are classified as independent contractors rather than employees—and the platforms they work for. Notably, the bill permits workers to terminate their contracts without facing adverse consequences if they disagree with proposed changes. While this provision warrants deeper analysis, particularly regarding its implications for genuine consent, the requirement of fair contracts provides a foundational safeguard. It compels employers to avoid making changes in bad faith that could be deemed unfair or unfavorable to workers.

Given this lacuna, the next provision in the Act, that is §9B, is even more riveting–it empowers the appropriate government (union or state) to exempt the application of §9A for industries where it prejudicially affects the employers to such an extent that it causes serious repercussions on the industry concerned, and public interest requires such an exemption. This was seen in the case of Workmen v. Sur Iron and Steel Co. (P) Ltd. (1969), where the court held that protests against lack of notice of changes made to items in the Fourth Schedule were not valid, as the industry was exempted by an order from the government of West Bengal. However, this leads to another question of how exactly the government can be permitted to balance the interests of employers and employees, particularly when the latter have the lower end of the bargain in contracts.

Therefore, what the law actually stipulates is that the employer has the right to modify the contract with due notice. However, given the inherent power imbalance in employment contracts and the ineffectiveness of collective bargaining, the law must be interpreted with additional sensitivity. Consequently, if an employer wishes to exercise their power to alter the terms, the employee’s specific and informed consent to that change should still be required, without it being assumed or left to the option of collective bargaining.

It might be argued that for employers, requiring consent from every employee for every contract modification would hinder operational flexibility, especially when the modification is minor. However, requiring consent does not preclude necessary changes but ensures that such changes are made equitably and transparently. Nonetheless, on a more practical ground, the employers have to adhere to the 21-days’ notice for changes to the employment conditions listed in Schedule IV anyway. Such a period can be utilized to engage in a consultation and similar processes with the employees.

V. CONCLUSION

From the above discussion, it is clear that unilateral changes to employment contracts pose significant challenges to the principles of consent and fairness in contractual relationships. Given the inherently skewed relationship under employment contracts along with a decline in collective bargaining, the excessive reliance on SFCs severely limits the ability of employees to negotiate such modifications. In this context, §9A of the Act, while not entirely allowing such changes, provides a statutory framework. However, it does so without sufficiently addressing the issue of specific and informed consent of the employees. Therefore, ensuring fairness in employment contracts requires a careful balance between the employer’s operational flexibility, which is reflected in ease of modifications, and the employee’s right to fair treatment, grounded in the principles of contract law.

Lastly, it is noted that there are a number of solutions to the issue–codifying a consultation mechanism and ensuring codetermination rights, to name a few. Given that there are significant differences in and challenges faced by different countries, suggestions on solutions for the issue mentioned above require deeper analysis. As the scope of this essay was limited to highlighting the problem of consent and its lack thereof in the notice requirement under the Act, a thorough exploration of potential solutions is warranted in the future.

*Aaditi Anand Sinha is a second-year BA LLB (Hons.) student at the National Law School of India University, India.