Labour Laws are basically Employment Laws which includes within it’s purview the administrative rules, employment standards and precedents which address the legal rights and restrictions on working people and their organizations.
The Indian Labour Legislations owe its existence to the British Imperialism as most of the labour legislations were enacted prior to India’s independence. The post independence enactment of important legislations in the areas of employee security and welfare derive their origin partly from the vision of independent India’s leaders and partly from the provisions in the Indian Constitution and international conventions like the International Labour Organization (ILO). The labour legislations were also enacted keeping in mind the international standards on Human Rights and United Nations.
International Labour Organization (ILO) was one of the first organisations to deal with labour issues. The ILO was established as an agency of the League of Nations following the Treaty of Versailles which ended World War I. The prominent French socialist Albert Thomas became its first Director General. The International Labour Organization became a member of the United Nations system after the demise of the League in 1946.
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WHY DOES INDIA NEED LABOUR REFORMS?
We need to delve into the fact as to why India needs labour reforms.
The government of the day is supposed to create required institutions, incentives and structures for economic growth. Hence the need for laws, constitution and regulations. No law exists in isolation, its efficacy, utility and success depends upon the prevailing environment in which the implementing agencies operate. This is true for all laws including the plethora of labour laws enacted over a period of several decades. Besides, any law or regulation enacted in the past needs to be revisited and updated with changing times and requirements of the society.
Therefore, a need was felt to simplify the labour laws and make them in tune with the current economic environment. The three bills passed by Parliament relate to occupational safety, health and working conditions, industrial relations and social security. Along with the earlier enacted Wage Act, these four codes subsume in the 44-odd central laws enacted during the past several decades. The labour reform bills that replace archaic labour laws with codes have been pending for a long time. The current three bills were presented in Parliament in December 2019 and were referred to the Parliamentary Standing Committee for examination. After holding detailed consultation with stakeholders, the committee submitted its report to Parliament making several recommendations.
The government accepted 174 of the 233 recommendations of the standing committee on labour and incorporated them in these three codes. The most contentious of all the codes, the Code on Industrial Relations seeks to consolidate and amend laws relating to trade unions, conditions of employment in industrial establishments or undertaking, investigation and settlement of industrial disputes. The Industrial Relations Code has raised the threshold for requirement of a standing order — rules of conduct for workmen employed in industrial establishments — to over 300 workers. The Code on Social Security, 2020, consolidated laws relating to social security and ensures extension of social security to all employees and workers both in the organized and the unorganized sector.
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The Social Security Code enables the creation of a National Social Security Board which will take on the responsibility of formulating suitable schemes for unorganized workers, gig workers, platform workers and migrant workers. It also brings these sections of workers under the ambit of social security schemes that include life and disability insurance, provident funds, health and maternity benefits and skill up gradation. The codes also provide for issue of appointment letters to workers, digitizing payment of wages and their free annual medical checkup.
THE KEY ISSUES IN LABOUR REFORMS IN INDIA
Labour falls under the Concurrent List of the Constitution. Therefore, both Parliament and state legislatures can make laws regulating labour. The central government has stated that there are over 100 state and 40 central laws regulating various aspects of labour such as resolution of industrial disputes, working conditions, social security and wages. The Second National Commission on Labour (2002) found existing legislation to be complex, with archaic provisions and inconsistent definitions. To improve ease of compliance and ensure uniformity in labour laws, the National Commission on Labour recommended the consolidation of central labour laws into broader groups such as (i) industrial relations, (ii) wages, (iii) social security, (iv) safety, and (v) welfare with respect to the working conditions. 
In the year 2019, the Ministry of Labour and Employment introduced four Bills on labour codes to consolidate 29 central laws. These Codes regulate: (i) Wages, (ii) Industrial Relations, (iii) Social Security, and (iv) Occupational Safety, Health and Working Conditions. While the Code on Wages, 2019 has been passed by Parliament, Bills on the other three areas were referred to the Standing Committee on Labour. The Standing Committee submitted its reports on all three Bills. The government has replaced these Bills with new ones in September 2020. Am discussing here some of the key issues related to labour laws and the provisions in the four new Codes.
Simplification of labour laws
The 2nd National Commission on Labour (NCL) recommended consolidation of central labour laws. It observed that there are numerous labour laws both at the centre and in states. Further, labour laws have been added in a piecemeal manner which has resulted in these laws being ad-hoc, complicated, mutually inconsistent with varying definitions, and containing outdated clauses. For example, there are multiple laws each on wages, industrial safety, industrial relations, and social security; some of these laws cater to different categories of workers, such as contract labour and migrant workers while others are focused on protection of workers in specific industries such as cine workers, construction workers, sales promotion employees, and journalists.
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While the Codes consolidate and simplify existing laws to some extent they fall short in some respects. For example, the Codes on occupational safety and social security continue to retain distinct provisions of each of the laws that these Codes subsume. For example, while the Occupational Safety Code contains provisions on leaves for all employees; it continues to retain additional leave entitlements for sales promotion employees for e.g. earned medical leave for 1/18th of time on duty. Similarly, while the Codes rationalize definitions of different terms to a large extent they are not uniform in all respects. For example, while the Codes on wages, occupational safety and social security contain the same definition of ‘contractor’, the code on industrial relations does not define the term.
Facilitating job creation while protecting work
The 6th Economic Census (2013-14) reported that there were 5.9 crore establishments in India employing 13.1 crore people of which 72% were self-employed and 28% hired at least one worker. A total of 79% workers were in establishments with less than ten workers. The central challenge to labour regulation is to provide sufficient rights to workers while creating an enabling environment that can facilitate firm output and growth leading to job creation.
Firms should find it easy to adapt to changing business environment and be able to change their output and employment levels accordingly. At the same time, workers need protection of assured minimum wages, social security, reduction in job insecurity, health and safety standards, and a mechanism for ensuring collective bargaining rights. This would also require a labour administration that effectively manages conflicts and ensures the enforcement of rights.
It has been argued much that firm sizes have remained small in India because of:
- Labour rigidity which arises from the fear of having to take prior permission for retrenchment or closure even if businesses are not viable or lack of an easy exit option, and
- High administrative burden since multiplicity of labour laws has resulted in multiple inspections, returns and registers. This has constrained growth of firms. Amongst registered factories, the Annual Survey of Industries from 2017-18 indicates that 47% factories employ less than 20 workers but provide only 5% of employment and 4% of output. Further, high administrative burden has resulted in corruption and rent-seeking.
In order to get around the rigidities in hiring and firing that constrain the ability to adjust to production demands businesses have increasingly used contract labour. The share of contract workers in factories among total workers increased from 26% in 2004-05 to 36% in 2017-18 while the share of directly hired workers fell from 74% to 64% over the same period.
However, it has been observed that rights of contract labour to wages and social security dues have not been enforced to the same extent as that of permanent workmen and they face precarious working conditions. Further, various studies have observed that labour enforcement in India has been weak and has not protected workers adequately. The success of collective bargaining has been low because of lack of recognition to bargaining agents and the coverage of labour laws has been inadequate. The Periodic Labour Force Survey Report (2018-19) indicates that 70% of regular wage or salaried employees in the non-agricultural sector did not have a written contract; 54% were not eligible for paid leave while 52% did not have any social security benefit.
Further the studies have shown that ultimately firm growth and job creation may also depend on several other key factors which include infrastructure development, access to finance, availability of skilled manpower, boost in skill up-gradation and reduction in overall corruption. However, one could argue that current laws have neither benefited industries as they have constrained firm growth nor workers due to lack of formalization and weak enforcement. Expert committees have made recommendations to address this issue. Thus the various aspects of these recommendations and the provisions in the four new labour codes include the following:
The Code on Occupational, Safety, Health and Working Condition (OSH&WC Code) seeks to regulate health and safety conditions of workers in establishments with 10 or more workers and in all mines and docks. The new code subsumes and replaces 13 labour laws relating to safety, health and working conditions including the Factories Act, 1948; Mines Act, 1952; Dock Workers Act, 1986; Contract Labour Act, 1970; and Inter-State Migrant Workers Act, 1979. The Code on Industrial Relations seeks to consolidate and amend laws relating to trade unions, conditions of employment in industrial establishments or undertaking, investigation and settlement of industrial disputes. The Industrial Relations Code has raised the threshold for requirement of a standing order — rules of conduct for workmen employed in industrial establishments to over 300 workers. The Code on Social Security, 2020, amends and consolidates laws relating to social security with the goal to extend social security to all employees and workers either in the organized sector or the unorganized sector.
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The Parliament had already passed the Code on Wages in 2019 and rules were also later notified by the government. Replying to the debate on the three labour reforms bills, the Labour Minister Santosh Gangwar said, ‘The purpose of labour reforms is to provide a transparent system to suit the changed business environment. Gangwar also added that states have been given flexibility to tweak labour laws as per their need. The minister also told the House that as many as 16 states have already increased the threshold for closure, lay off and retrenchment in firms with up to 300 workers without government permission.
Code on Occupational, Safety, Health and Working Condition of OSH&WC Code:
Under the Code on Occupational, Safety, Health and Working Condition (OSH&WC Code), the government has permitted single licence for staffing firms to hire workers contract across different location instead of multiple licences needed earlier has come as big complaint related relief for firms. Besides, it has increased the threshold limit of contractor employees from 20 to 50 under OSH Code while opening up hiring of contract workers in all areas will ease the compliance for employers. The OSH&WC Code also provides for full-fledged survey for migrant workers for which the Centre will source data from various agencies and states.
Social Security Code:
The Social Security Code proposes the creation of a National Social Security Board which will take on the responsibility of formulating suitable schemes for unorganized workers, gig workers and platform workers. It also brings these sections of workers under the ambit of social security schemes that include life and disability insurance, provident funds, health and maternity benefits and skill up gradation. The code also proposes the formation of a social security fund to provide social security sums to the three classes of work. There are around 50 crore workers in the country including 10 crore who are employed in the organized sector. The codes also provide for issue of appointment letters to workers, digitizing payment of wages and their free annual medical checkup.
Industrial Relations Code:
The Industrial Relations Code raises threshold on number of employees needed in an organization for retrenchment and closure of establishments without government approval from 100 to 300 significantly improving the ease of downsizing firms based on business cycle. The Industrial Relations Code also introduces new conditions for carrying out a legal strike. The time period for arbitration proceedings has been included in the conditions for workers before going on a legal strike as against only the time for conciliation at present.
THE NEW LABOUR CODES: FOR WHOSE BENEFIT?
Most of the employers have broadly welcomed these codes, hoping that they would make production more competitive. On the other hand, most of the workers, unions and the apex national bodies have criticised these laws.
In addition to the much publicized agri-market bills which stole most of the attention, three labour codes that replaced 29 Central laws were also enacted in the short parliamentary session that ended last October. Together, these labour codes are being heralded as the first set of major labour reforms in the last three decades. Following years of dithering across the entire political spectrum regardless of who has ruled the country since 2004 and a policy approach that can be at best described as wait and watch, the four labour codes were introduced in Parliament in 2019 with approval being obtained only for the Code on Wages. In September 2020, three revised codes were introduced after a Standing Committee of the two Houses vetted the earlier versions.
At the core of the government’s claims is that these enactments will do away with the prevalent vast and cumbersome complexities, facilitate better compliance, bring in effective accountability, and eventually be beneficial to both employers and workers. As PM Modi elaborated, ‘The four labour codes are meant to address the welfare of labour while ensuring ease of doing business for the industry. We need to come out of the mindset that industry and labour are always in conflict with each other. Most employers in line with the Union Government’s position have broadly welcomed these codes hoping that they would make production more competitive. Conversely, most workers, unions and the apex national bodies have criticised both the process of approval and the content of these laws.
A few have gone as far as accusing the Union Government of taking these steps merely to oblige the ‘haves’, while putting the workers increasingly at their mercy. However, unlike with the agri-market laws; in this case the Modi government has not been caught off guard. Bracing itself to face critics, the government is set to ensure these laws get ushered in as soon as the rules get finalized, with 1 April 2021 being targeted as the effective date for the three enactments, as well as the Code on Wages framed last year in lieu of 15 existing Central legislations on the subject. While the workers’ ire is against the new statutes in their entirety, the discontent is directed primarily at the provisions of the new Industrial Relations Code (IRC). These provisions include the ‘hire and fire’ policy, which can now be applied to all establishments with fewer than 300 workers compared to 100 at present, the further extension of the concept of fixed term labour contracts which have now been given legal backing with the power of contract renewal resting exclusively with the employer as well as the move to circumscribe workers’ right to strike by requiring a 14-day notice period before a strike or a closure can be declared.
The fear that fixed term contracts might reduce the number of regular workers has been voiced vociferously by the Biju Janata Dal MP, Bhartruhari Mahtab, and the Chairman of the Standing Committee that had examined the 2019 version of these codes who calls these provisions ‘highly inappropriate and inapposite’. Empowering states to further increase, through notifications the threshold limits for establishments to seek permission before retrenchment also remains a cause of concern. One clear positive aspect of the new Act, however, is its prohibition of the employment of contract labour in any core activity of an establishment. The hundred-year-old institution of unions in India All India Trade Union Congress; which was the first worker body was founded by Lala Lajpat Rai and Joseph Baptista in 1920 has visibly been impacted by IRC. Already worried by the changing employment scenario driven by the growth of the service sector where unionism is almost non-existent, the decline in permanent jobs, and many industries now resorting to outsourced hiring, the IRC poses new challenges. For instance, the requirement of 14 days notice for a strike or closure was hitherto applicable to only public utility services. The notice henceforth would have a maximum validity of 60 days and strikes within 7 days of a conciliation proceeding and up to 60 days of adjudication by a tribunal stand barred.
Furthermore, the definition of ‘strike’ has been amended to include ‘mass casual leave’ with any concerted casual leave on a day of 50% or more of workers henceforth being deemed a strike. The number of unions in an establishment has also been regulated by introducing the concept of ‘negotiating unions’—bodies that must have at least 51% of the workers support. If no union can demonstrate such an extent of representativeness; a ‘negotiating council’ consisting of all unions in the organization will negotiate the labours’ terms of engagement. Permitting the ‘appropriate governments’ to exempt any establishment or a class of establishments from its provisions on public interest grounds and leaving it to the states to prepare the rules for trade unions are other macro issues of concern for worker bodies.
Another major change is the increase in threshold limits from 100 to 300 workers for issuing compulsory standing orders which are legally binding collective employment contracts on matters such as work hours, wage rates, worker–classification, holidays, wage days, termination of employment and grievance redressal mechanisms. Given such orders often prevent against the arbitrary dismissal of employees, the revision will mean such protection would now be available to fewer workers.
The Social Security Code (SSC) and the Occupational Safety, Health Conditions Code 2020 (OSHWCC) also pose problems for worker bodies with their provision on the discretionary granting of exemptions in public interest to an establishment or a class of establishments. Whereas the earlier statutes would only allow for exemptions during public emergencies and for a maximum period of three months. The new indiscriminate exemptions could further reduce the protective cover to labour and tip the scales towards employers. Workers apprehend that chasing greater production would make states gravitate towards ecosystems founded on low wages and longer working hours. The recent action, during the ongoing Covid-19 pandemic of the governments of Gujarat, Madhya Pradesh and Uttar Pradesh to exempt factories from following certain worker protection measures by amending their laws through the issue of ordinances has lent further credence to their fears. The Union Government’s failure to extend social benefits to the entire workforce both in the formal and informal sectors has also been highlighted as a shortcoming of Social Security Code. This is despite the change that now makes it applicable to the gig or the platform economy where workers have the flexibility to perform work on demand and negotiate terms about 1 million people might join the new social security regime in the very first year. Another deficiency pointed out centers on a labour official’s ability to act on and protect the interest of workers. There has been a reduction in the power of labour inspectors to ensure compliance with the new codes through limitations on their ability to reopen old cases of provident fund & Employees State Insurance dues to decide the quantum of PF and ESIC out standings from employers and in determining the penalties for obstructing officials from performing their duties. Occupational Safety and Health Conditions Code which subsumes 13 Acts including the Factories Act 1948 and removes the blanket prohibitions on employment of any class of workers no doubt allows the employment of women in all establishments. But it bars their employment within six weeks of delivery, miscarriage or medical termination of pregnancy.
Maternity benefit can now be claimed only if the worker has put in a minimum of 80 days of employment preceding delivery. The Code while prescribing safety standards and maximum working hours also exempts small establishments from its purview. The threshold limit for application of this law has been doubled and raised to 20 workers in the case of establishments with electrical power and 40 for establishments not using such energy.
As with any new sweeping reforms, questions remain on whether the new labour codes will bring about an appropriate compromise between economic growth and labour welfare. For decades, a degree of overzealous protection in certain labour regulations may well have hampered the trajectory of economic activity. However, in a labour surplus country like India, the contractual relationships also have profound effects on worker interests. All these years, policymakers were expected to work on diligently ascertaining and effecting the right balance between efficiency and equity whether they have succeeded in doing so this time around remains to be seen.
New labour Codes are welcome, but for real labour reforms, laws have to ease at the state level
By initiating labour reforms, the government has taken an important step which is expected to make Indian economy more productive and competitive. Consumption and investments are expected to have improved with exports positively contributing to growth. Better late than never. After much dithering and deferring India has got down to housekeeping in the area of labour laws. While the maze of labour laws has not prevented India from industrializing or attracting foreign investment, it has made entrepreneurs and investors life unnecessarily difficult. For example, lets consider this, out of the 1,536 Acts that govern all economic activity in the country about one-third pertain only to labour while about half of all compliances relate to labour. India’s ranking on the Ease of Doing Business has improved in recent years still it has not created a flood of private or foreign investment.
The simplification of central labour laws would certainly be an improvement but the key is the clarity and practicality of reforms. The consolidation of labour laws in neat bundles of codes is good. Still, they contain much of the old provisions and their micromanagement approach needs to be dealt with. Therefore, to usher in the ‘real labour reforms’, laws have to change at the state level. The existing chaos is a result of too many governments making laws on ad hoc basis for too long. The patchwork of laws has produced a minefield of regulations which can neither be complied with nor implemented. However, some positive signs are already visible; for example, fixed-term employment has already been allowed by 12-13 states and the 300-threshold is already applicable in 16 states. One must not construe it as being unfair to workers as they are entitled to receive all statutory dues that permanent workers in the same unit get. Foreign companies tend to seek protection from the local law rather than protection by it.
Most enterprises in India is unable to bear the cost of compliance and prefer to remain informal. This informality perpetuates low productivity, wages and incomes in the economy. Any easing of labour laws to ease the compliance burden is a positive move. Hopefully, these reforms could start a chain-reaction in the economy. With ease of compliance would come increased formality, which will lead to proliferation of larger enterprises and more organized jobs which in turn will ensure that more firms and workers pay taxes, increasing government revenues. Less than half of India’s GDP comes from revenues of large companies vis-à-vis 70% in most of our peer economies. However, labour law reforms must achieve a balance between the interests of employers and worker else the reforms will remain on paper and people will simply game the new system just as they did before. Some states have swung from too much protection for the labour to too little which can prove counterproductive. Workers would arbitrage laws of different states to find better deals and local enterprises will end up paying perhaps even higher cost to attract and keep skilled labour. But states need to work on those issues they lack so that they do not lose out on the investments on offer.
This must also be accompanied by a complete change in attitude of authorities who need to abide by the spirit of the law as against the current practice of conforming to the letter of the law. Businesses, on their part, need to be more responsible and forthcoming to ensure greater compliance. The new law once implemented would need industries to file just one compliance return for all four codes. The key challenge for labour laws is to achieve a functional and efficient labour market that would promote more formal employment and productivity.
It cannot be a free market because of the asymmetry of power between capital and labour. Therefore, to achieve ease and low cost of doing business; it would be necessary to provide reasonable income and survival security for workers. The new labour reforms assure of such protection, which increases the chances of implementation. By initiating labour reforms, the government has taken an important step which is expected to make Indian economy more productive and competitive.
