Pakistan Employment and Labour Law 2017

APRIL 7, 2017 BY LWP 9 COMMENTS

5th Edition, Published by Global Legal Insights

1 General labour market and litigation trends

The Pakistani labour market’s litigation matters pertain mainly to blue-collar issues, including termination, unfair
dismissal, discrimination, as well as disputes involving trade unions and workers’ rights organisations.  With the influx
of multinational companies and NGOs in the region during the past two decades, we have seen courts give much
more importance to what is agreed between the employer and the employee in the employment agreement.

The most recent case which confirms the unwillingness of the courts to interfere with an employment agreement’s
terms is Muhammad Rasheed vs. H. Ohashi Chief (Representation) Of Toyota Tsusho Corporation,1 where a
grievance petition was dismissed on the basis that the appellant had already agreed in writing to the terms of the
appointment letter, stating that the employee could be terminated by giving three months’ notice, or three months’
gross salary in lieu thereof.  Also the fact that there were only seven (hence fewer than 20 employees) at the
workplace, the operation of S.33 & 47—Industrial and Commercial Employment (Standing Orders) Ordinance (VI of
1968), S.1 (4)(a) & S.0.12 which pertain to termination of service, was excluded.

In Shaukat Ali vs. Chief Executive PESCO,2 the question of legal and economic justice in labour laws arose with
regard to the operation of S.O.13 (3)—Khyber Pakhtunkhwa Industrial Relations Act (XVI of 2010), S.37.  The matter
involved the withholding of back benefits, and it was argued that such an action amounted to discrimination.  The
court upheld this view, stating that the Industrial Relations Act, 2010 was basically a beneficial legislation, which
provided for protection of rights of labour classes; its object amongst others was to ameliorate the conditions of
workers; such legislation had to be construed liberally and beneficially.  It was also stated that a narrow interpretation
of the meaning and metaphor of the Industrial Relations Act, 2010 would defeat the manifest objective of legislation,
hence time-barred de novoproceedings and withholding of back benefits were held to be illegal and unlawful, and an
appeal was allowed on this basis.  This is a positive trend as far as workers’ rights are concerned and the fact that the
weaker party was the ‘worker’ in this regard meant their rights had to be balanced against the legal arguments by the
state entity that was the employer.

2015 has been the year when constitutional rights were raised with regard to labour matters.  In the case
of SAKHAWAT vs. FEDERATION OF PAKISTAN through Secretary, Ministry of Law and Justice and Parliamentary
Affairs,3 the appellant sought to invoke S. 5—Constitution of Pakistan, Arts.199, 141 & Item No.32 of the Fourth
Schedule in a constitutional petition involving reemployment after retrenchment of disabled persons.  The petitioners
sought to contend that benefit of the 2% quota allocated to disabled persons in view of the provisions of the Disabled
Persons (Employment and Rehabilitation) Ordinance, 1981 that was promulgated to rehabilitate disabled persons
through employment.  The court held that the appeal be allowed because this is a type of beneficial legislation
seeking to compel public and private sector organisations to maintain quotas for employing special/disabled persons. 
Even though this Ordinance could not be strictly called a law for workmen only, its real purpose was to provide
employment to disabled persons.  The court agreed that if the employees’ termination was on the ground of
retrenchment, had not left any stigma on their service record and if the law entitled them to be retained in
employment on certain conditions, and they fulfilled the requisite criteria, their services could not be retrenched. 
Based on this, the High Court directed the authorities to first apply the quota under the said Ordinance to the
petitioner’s case and, after maintaining the 2% quota in case petitioners’ services remained protected, the petitioners
should be re-employed.  This judgment seems like a welcome change, with the judges taking the initiative to protect
the rights of disabled persons.

Most of the recent cases involving labour disputes also centre on the status of a workman, that is, to determine the
real status of a worker, by delving into questions such as:

 whether he was an employee of an establishment or a contractor (the criteria was whether the establishment
had administrative control over the worker);
 whether the worker was based at the establishment for the work done;
 whether the establishment had the power to reinstate and dismiss the worker;
  whether the work required to be performed by the worker was of a permanent nature and the same was
related to the process of manufacturing before the finished goods were sent into market;
 whether payment for the worker’s service was made by the establishment;
 whether the goods that the worker helped to manufacture, when marketed, brought proceeds to the
establishment itself;
 whether the worker had been performing his duties and providing labour in connection with the
manufacturing process; and
 whether the contractor was a genuine person and had not been set up merely to deny the worker of the
benefits under the labour laws .  A recent example of such a case4 was Allied Precision Engineering
Products (Pvt) Ltd. vs. J. Handa Khan Maree.5

Finally, where on the one hand the courts have been playing a dynamic role in helping counter unfair labour
practices, they are also likely to dismiss such a claim where the alleged allegation of unfair labour practice committed
against the appellant on account of his lawful trade union activities, is difficult to discern (M. Shafi. vs. United Bank
Limited 20116).

2 Redundancies, business transfers and reorganisations

Redundancy and business reorganisations are also a major legal issue in the Pakistani labour market, as a lot of
problems can arise when employees are faced with unexpected budget cuts or organisational changes at their
workplace.  While the majority of such claims are settled out of court, when the matter does go to court, it is because
of a failed negotiation of any redundancy package, and the court also advises on Compromise Agreements which
employees are usually required to sign.  Important recent cases in this regard include Muhammad Jan vs. Nasim Gul,
General Manager Shaheen Airport Services, Peshawar,7 in which case we saw an interesting application of the
retrenchment/redundancy rule: ‘the last come had to go first’, which had been provided by S.O.13 of West Pakistan
Industrial and Commercial Employment (Standing orders) Ordinance, 1968.  In this case the employer, having failed
to show that the employee was the last person appointed and in case of retrenchment/redundancy, he should be first
to go, that contention of the employer was liable to be rejected.  The appeal of the employee against termination of
his service was rightly accepted, with direction that he would be reinstated in service with back-benefits, while the
appeal filed by the employer against the order of reinstatement of the employee, was dismissed.8  By contrast almost
two decades ago, the courts were much more likely to uphold industrial disputes involving retrenchment in the favour
of the employer.  In one such case back in 1983, Naseebuddin vs. Rehman Agricultural Manufacturers
Company,9 the court showed that it was much more likely to allow such decisions to occur at the ‘discretion’ of the
employer.  In many cases, a ‘demotion’ or offering of a lower post was also not seen as a problem, where the higher
post had become redundant.  (See Utility Stores Corporation of Pakistan Ltd. vs. Abdus Sattar.10)
3 Business protection and restrictive covenants
Non-disclosure, non-compete and non-circumvention agreements have become fairly common here in the last two
decades, as more and more foreign companies set up base in Pakistan.  The courts, however, do not take too kindly
to restrictive covenants, which affect the bread and butter of an unemployed person, especially if the appellant is
seeking to enforce a rather vague and generalised clause.  A key example of the same is the case of Exide Pakistan
Limited vs. Malik Abdul Wadood.11

In this case, while seeking to invoke Ss. 54 & 57— of the Contract Act (IX of 1872), S.27 and the Civil Procedure
Code (V of 1908), O.XXXIX, Rr.1 & 2 in order to get an interim injunction for the grant of such a restrictive covenant
on the ground that the defendant had executed an agreement undertaking not to work for a period of two years with
any competitor of the plaintiff once he left the job, the plea raised by the plaintiff was that during employment with the
plaintiff, the defendant had acquired confidential information.  The court struck down the plea, stating that the
restrictive covenant between the parties was too vague, generalised and hence void.  The so-called Agreement did
not specify what particular, specialised information had been divulged to the defendant, which he would be prevented
to use directly or indirectly in employment with another employer.  As the plaintiff had failed to particularise what
confidential information was acquired by the defendant or to disclose what particular trade secret or secret formula or
information was specially acquired by the defendant, other than in his normal course of employment, the restrictive
covenant could not be enforced.

However, a different decision was reached in Al Abid Silk Mills Limited vs. Syed Muhammad Mudassar Rizvi,12 where
a suit for specific performance of a negative or restrictive covenant contained in a letter of appointment, and
injunction to the effect that after leaving employment with the plaintiff, the defendant would not join another
organisation of similar trade for period of 11 months, was sought to be enforced.  The defendant’s plea was that such
restrictive covenant was obtained under coercion, but the court dismissed this claim and said that the contract on
such plea would be voidable and not void, as the defendant during employment had not elected to get such covenant
declared as voidable, hence such a restriction could not be termed to be unreasonable as to time and scope, i.e. for
11 months in a home textile unit.  However, a key deciding factor here was also that the plaintiff had offered three
months’ salary to the defendant ? the court allowed the injunction, subject to the deposit in court of the salary.

In essence, it is common practice for employment contracts (especially those used by multinational companies and
INGOS in Pakistan) to contain a variety of post-termination restrictions prohibiting the departing employee from
soliciting former colleagues, clients and customers, and sometimes prohibiting them from competing for a defined
period following the termination of employment.  However, precedent suggests such a covenant will be successful in
Pakistan only if it is clearly drafted and reasonable in duration and terms.

4 Discrimination protection
The case law on discrimination is rather complicated in this regard.  On the one hand, the court is willing to give the
employer the prerogative to decide as they like whether to retain an employee or retire them at the age of
superannuation, ‘in the absence of any statute, rule or agreement, it was a latitude or liberty’,13 as was the case
in Abdul Majeed vs. Dandot Cement,14where the employer was clearly going through a financial crisis and had
negotiated contracts after the age of superannuation with some, but not all of the employees.  It was held that in the
light of financial crises of the employer establishment, the settlement was rescinded and as a consequence beyond
60 years, no extension would be allowed for the petitioners.  It was justified that when the services of some of the
employees were extended, the said agreement had ceased, and there was no agreement in the field, so the
extension in the services of some employees could not be termed as DISCRIMINATION; rather it was the discretion
of the employer to extend the services of some of the employees on attaining the age of superannuation.  In the
circumstances, the aggrieved employees therefore could not rely upon and seek the benefits of the old Agreement
between employees and the employer.

In another recent case, Government of Punjab vs. Abdul Sattar Hans,15 a case involving Arts. 3 & 25 of the
Constitution, it was argued that Federal Government employees and Provincial Government employees should
receive the same emoluments and perquisites if they were performing the same type of duties; that if two different
pay scales were given to Federal Government employees and Provincial Government employees, it could amount to
extracting LABOUR and exploitation under Art. 3 of the Constitution, and that although the Provincial Government
would have to bear an extra financial burden, service structure and financial constraints could not stand in the way of
the Constitution.  However, the court struck down this claim, saying that different employers with different financial
and other resources employed both sets of employees, and this did not amount to discrimination.

In a 2013 case, the court took a more lenient view against an individual state employee who claimed that no impartial
enquiry was held against him to prove an allegation of accepting illegal gratification, and allowed the appeal on the
basis that the employee had been discriminated against, as another employee against whom a similar allegation of
tampering with a meter was levelled, was removed from service, but subsequently reinstated with all benefits.  It was
argued that the facts of said other employee’s case and the employee were identical (MEPCON vs. Arshad Aziz16),
and it was discrimination to give the appellant a lesser legal right of appeal.

Arts. 25 & 27 of the Constitution are an oft-pleaded provision of the constitution in discrimination cases and is often
used when pay scales are discriminatory or unfair (see 2013 PLC 262).  Equal pay is governed by s15 of the West
Pakistan Minimum Wage Rules, 1962, which requires employers to give regard to the principle of equal remuneration
for work of equal value between men and women when it comes to fixing wages.  However, there is no specific law in
the country to deal with equal remuneration.  The Pakistan Regulations on Fair Treatment involve the Constitution of
Pakistan, 1973 (as amended in 2012), the West Pakistan Minimum Wage Rules, 1962, and the Protection Against
Harassment of Women at Workplace Act, 2010.

5 Protection against dismissal

Termination of employment can involve resignation, dismissal or redundancy.  The main law governing termination of
employment in Pakistan is the Industrial and Commercial Employment (Standing Orders), 1968.  Other relevant
legislation in the field includes the Industrial Relations Act, 2012; Provincial Industrial Relations Acts; and the Shops
and Establishments Ordinance, 1969.  The Standing Orders Ordinance is applicable to all industrial and commercial
establishments employing 20 or more workers now or on any day during the preceding 12 months.  This ordinance
may be extended to other classes of establishments (employing even less than 20 workers) by provincial
governments through notification.  An exemption to the above rule is granted in the case of smaller industrial
establishments (employing between 20–49 workers) in the following four provisions.  As discussed liberally under
‘General labour market and litigation trends’ above, a frequent issue of litigation is whether a person comes under the
ambit of the ordinance to be able to benefit from these provisions.  This has generated interesting case law reflecting
on the nature of temporary and ad hoc workers and their rights.  As per the law, for termination simplicity, a notice of
termination is mandatory for permanent employees.  A notice of one month must be served before severing the
employment relationship, or payment of one month’s wages in lieu of notice may be provided (Section 12.1).

A common cause of conflict and litigation is when the termination initiated by an employer is based on fair or unfair
grounds.  The law requires a written employment termination letter, stating explicitly the reasons for termination.  This
is applicable to both termination simplicity (under S.O. 12) and dismissal on the ground of misconduct (as the
Standing Orders Ordinance S.O. 15).  Precedent shows that some acceptable and valid reasons for employment
termination (other than misconduct) can be “serious illness, inefficiency to perform the job, financial and economic
needs of establishment”.  Another heavily litigated ground is serious misconduct; provided that the employee is given
an opportunity to respond to the charges levelled against him, this is sufficient enough reason for dismissal.  As per
the Standing Orders Ordinance, a worker whose employment has been terminated for any reason other than
misconduct is entitled to a “severance pay or gratuity” or a provident fund (type of pension) for gratuity.  However, in
the case of NGOs (which are technically not commercial establishments), the application of these rules is still vague.

6 Statutory employment protection rights (such as notice entitlements, whistleblowing, holiday, parental and
maternity leave)
Recent case law like Zainul Abedin vs. Al Abid Silk Mills17 shows that the courts are more likely to set aside notice
entitlements when the employee shows gross misconduct and a blatant disregard for cooperating in the office enquiry
following a dismissal.  Holidays, maternity leave and whistleblowing policies are governed by contractual agreements
between employers and employees.  However, precedent shows that maternity leave is an issue employers tend to
skip upon, until the matter is pushed in the courts.  There is no specific law on whistleblowing, although it would seem
that if such a matter were brought in front of a court, appropriate relief would be provided.  The following laws govern
the area of holidays, gratuity, maternity leave and other rights/entitlements:

 The Industrial and Commercial Establishments (Standing Orders) Ordinance, 1968 (applicable in ICT, Sindh
& Baluchistan).
 Industrial and Commercial Employment (Standing Orders) Ordinance, 1968 (adapted by the province of
Punjab through Amendment Act of 2012).
 The Khyber Pakhtunkhwa Industrial and Commercial Employment (Standing Orders) Act, 2013.
 Payment of Wages Act, 1936 (applicable in ICT, Sindh & Baluchistan).
 Payment of Wages Act, 1936 (adapted by the province of Punjab through Amendment Act of 2014).
 The Khyber Pakhtunkhwa Payment of Wages Act, 2013.
 Factories Act, 1934.
 Factories Act, 1934 (adapted by the province of Punjab through Amendment Act of 2012).
 The Khyber Pakhtunkhwa Factories Act, 2013.
 Shops and Establishments Ordinance, 1969.
 Shops and Establishments Ordinance, 1969 (adapted by the province of Punjab through Amendment Act of
2014).
 Khyber Pakhtunkhwa Shops and Establishments Act, 2015.

7  Worker consultation, trade union and industrial action

In Pakistan, workers are entitled to join a union without previous authorisation; however, they can become members
of only one union at a time.  If a worker joins more than one union at a time, his earlier membership will get
cancelled.  Trade unions and their involvement have also produced interesting case law.  A recent case18 in this
regard shows that courts are willing to recognise trade union membership as a right, which could also be formed in a
non-profit organisation.

There have also been consistent decisions of superior courts that there may not be more than one Collective
Bargaining Agent in an establishment or group of establishments on the basis of a certificate of National Industrial
Commission, on an all-Pakistan basis; and accordingly in a recent case,19 it was held that a certificate of Collective
Bargaining Agent, issued by Provincial Registrar trade unions, giving the status of Provincially registered trade union
as collective bargaining agent, was illegal and without lawful authority.

In another recent case,20 the court gave a very good decision pertaining to labour unions and petitioners who
challenged the constitutionality of the Industrial Relations Act, 2012.  The court criticised the appellants, saying that
they had lost sight of the welfare and interest of workers, whose interest they were supposed to be protecting.  It was
stated that a number of companies and statutory corporations had establishments in more than one province
throughout Pakistan, thus the underlying assumption of a central bargaining agent and industrial relations was that
workers were dealt with in a uniform manner in respect of such companies and statutory corporations.  The court was
not prepared to allow ‘scattered trade unions’, whereby the negotiating power of workers, and also their interest,
would be undermined, if they were dealt with separately or there was more than one collective bargaining agent, and
different terms of employment and conditions of work were negotiated.

It was reasoned that because of such scattering of unfair labour practices on the part of employers, it would become
difficult to contest or to redress worker grievances and it would also become difficult, if not impossible, to negotiate
differences between employers and workers through a single collective bargaining agent representing the same class
of workers in respect of companies and corporations having establishments in more than one province; the
determination of a legal and illegal strike or lockout too, would be fraught with difficulty.  The court dismissed the
request to have more than one trade union henceforth, stating that both the employer and the workers of inter-
provincial establishments would face untold complications and problems if there were a number of collective
bargaining agents representing the interest of the same class of workers, and would “produce impracticable results”
of the kind which were to be avoided as envisaged by the Industrial Relations Act, 2012.

8 Other recent developments in the field of employment and labour law

We can see two different trends in Pakistan, as more multinationals and international NGOs set up base here.  It
would be fair to say that the employment law trends will also be affected by the incoming China-Pacific Economic
Corridor (CPEC) investment, which will create new jobs and new types of contracts.  The first trend is that of
organisations preferring to treat workers as independent contractors, which allows them to outsource services and
give their marketers, legal or business advisers, or even those dealing with social media and advertisements,
recruiters, and even receptionists, work on an independent contract basis.  This trend also includes contracts with
cleaners and lower-ranking staff including cooks and repairmen.

A key question faced by international NGOs is whether a gratuity, severance or any end-of-service or provident fund
applies to them, as they are non-commercial undertakings/establishments.  In this regard, one recent law allows a
gratuity to be claimed by NGO employees working in the KPK region (see the Khyber Pakhtunkhwa Industrial And
Commercial Employment (Standing Orders) Act, 2013) and Khyber Pakhtunkhwa Shops and Establishments Act,
2015.  There is a grey area here with regard to the application of such an act to the rest of Pakistan as, while
international NGOs consider it best practice to provide such benefits, the majority of the local NGOs here are not
paying such benefits.  From a legal perspective, and in any case, an employer is bound to offer only one retirement
benefit out of pensions, gratuities and provident funding.  The logic often provided is that NGOs should focus their
limited funding on poor and deserving people, rather than offering such benefits to employees.  Also, many local
labour studies in Pakistan have shown that severance pay (particularly where multinationals or NGOs are involved)
tends to tempt employees to abuse the benefit, as they are aware of the large amounts of money they will be getting
when the contract is ended.

9 Endnotes
1.   2016 PLC 147 Punjab Labour Appellate Tribunal.

2.   2016 PLC 16 PESHAWAR-HIGH-COURT.

3.   2015 PLC(CS) 385 KARACHI-HIGH-COURT-SINDH.

4.   See also 2011  PLC  292     Ss. 2(xxix) & 25—Industrial and Commercial employment (Standing Orders)
Ordinance (VI of 1968), S.2(1)—Constitution of Pakistan, Art.199—Constitutional petition—Status of ‘workman’,
determination of—Full Bench of National Industrial Relations Commission had held petitioner not to be a ‘workman’
because he was occupying the post of Branch Manager of the Bank.

5.   2011 PLC 286 Quetta-High-Court-Baluchistan case involving Ss. 2(x)(xxx) & 46—Industrial and Commercial
employment (Standing Orders) Ordinance (VI of 1968), S.2(c)(i) & S.O.12—Constitution of Pakistan, Art.199—
Constitutional petition—Termination of service—Grievance petition—Status of worker/ determination of.

6.   PLC 226 NATIONAL-INDUSTRIAL-RELATIONS-COMMISSION.

7.   2006 PLC 444 PESHAWAR-HIGH-COURT.

8.   See also 1992 PLC (CS) 981 where Appellant’s termination was in accordance with S.O.12 (3)—Appellant did not
allege any mala fides  against employer—Retrenchment order passed by employer was bona fide and did not call for
any interference by labour Court or Appellate Tribunal—Appeal against said termination of service was dismissed.

9.   1983 PLC 328 LABOUR-COURT-SINDH.

10.  1981 PLC 95 LABOUR-APPELLATE-TRIBUNAL-PUNJAB.

11.  2008 CLD 1258 KARACHI-HIGH-COURT-SINDH.

12.  2003 MLD 1947 KARACHI-HIGH-COURT-SINDH.

13.  2016 PLC 93.

14.  Ibid.

15.  2015 SCMR 915 Supreme Court.

16.  2013 PLC 417.

17.  2016 PLC 488.

18.  2016 PLC 160.

19.  2015 PLC 125.

20.        2014 PLC 351.