Labour law reforms

Unit 5 – Labour Law Reforms in India

1. Understanding the new labour law reforms in India

Labour laws are an integral tool that guarantees the social welfare of workers and provides guidelines for employers to follow. Historically, the Government of India and the Ministry of Labour and Employment have implemented multiple such labour laws to ensure the safety of workers and to protect their rights. A healthy workplace naturally improves its organisation’s productivity, which has positive implications for economic growth.

2. Unification of labour laws

While these laws offer much-needed benefits, the sheer volume of laws has led to compliance complexity. The complexity is magnified because of the vast number of states in India, and the fact that both the central and state governing bodies had the right to create these regulations.

As a result, there are over 100 state laws and 40 central laws regulating different aspects of labour like industrial disputes, working conditions, social security, and wages. By simplifying this system to four new labour codes bringing together different aspects of labour, the ministry aims to make compliance easier and ensure uniformity in labour laws.

These codes take a framework-based approach to encompass the vastly different scenarios in the workplace, and they are expected to be implemented at one go by financial year 2023 to 2024. In this article, we will see an overview of the four newly proposed codes, and also review all the regulations that are getting replaced.

3. Objectives of Labour Reforms 

• Simplification of labour laws 

The Second National Commission on Labour recommended the consolidation of central labour laws. The Commission observed that there are a number of laws at the centre and state levels dealing with the subject. Also, some laws have become archaic as they contain provisions that have lost importance today. The Commission proposed to consolidate these laws so that the system is transparent and the terms and definitions are interpreted uniformly. 

• Creating jobs for labour

The main challenge in front of the government is to create more job opportunities for the labour as well as protect the rights of workers and create an environment to facilitate output and growth, leading to job creation. With this proposed reform, workers will be able to get protection in terms of minimum wages, social security as well as health and safety standards. 

• Coverage of establishments

As per the Sixth Economic Census (2013-14), almost 79% of the labour is working in establishments with less than ten unregulated workers. Current laws apply to establishments with 10 or more people working as labourers. Low numeric thresholds create adverse incentives to the establishment as they tend to remain small in size in order to reduce the compliance burden of labour regulations. To promote the growth of smaller establishments, some states have already amended their laws to increase the threshold. For example, Rajasthan has increased the limit from 10 to 20 workers for the applicability of the Factories Act, 1948. 

In order to promote the small industries, the Committee had recommended a separate law for small scale industries with less stringent provisions for payment of wages, welfare facilities, social security, retrenchment and closure, and resolution of disputes.  The proposed reform has made clear that the labour codes on wages and industrial relations will be applicable to all establishments. In contrast, limited exceptions and the codes on social security and occupational safety shall continue to be applicable to establishments over a certain size. As per the proposed Occupational Safety Code, the applicability thresholds of 10 or above will not be applicable to those establishments which are involved in hazardous activities. The Code on Social Security will enable the government to implement schemes to benefit unorganised workers and gig and platform workers. 

• Thresholds for lay-off, closure and retrenchment

Under the Industrial Disputes Act, 1947, there is a requirement that factories, mines and plantations that have employed 100 or more workers have to obtain prior permission before closing down, laying off or retrenching workers, which has created exit barriers for firms. The Committee recommended increasing this limit, and in the Industrial Relations Code, the limit is increased to 300 workers. However, the provisions related to notice and compensation requirements as specified under the 1947 Act are retained intact. The Code further allows the government to increase the threshold by notification, as and when required.  

• Labour Enforcement 

Due to multiple labour laws, the establishment ended up doing numerous compliance modifications, which ultimately increased the compliance burden on them. The Codes address these aspects, and a unified Code will really help in reducing the burden of compliance on the establishments. 

• Contract labour

Because of complex labour compliances, it was observed that the establishments prefer to hire contract labour in order to avoid them. The contract labour is denied with basics such as assured wages. The reformed Code does not address this concern, but the Committee has proposed to introduce a new form of short-term labour for fixed-term employment. 

• Trade Unions

Although there are a lot of registered trade unions, there are no criteria to ‘recognise’ them as to who can formally negotiate with the management as per the present Act. The Industrial Relations Code creates provisions for the recognition of unions with 51% membership.

• Delegated Legislation

Following delegated legislation, the new Codes have delegated many key aspects, like the applicability of social security schemes and health and safety standards, to rule-making to the government, making the law-making process faster easier. 

4.  Labour Law Reforms 

1. Code on Wages, 2019

The Code on Wages, 2019, is a significant reform that consolidates four previous labour laws: the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976. This comprehensive code aims to streamline and simplify wage legislation in India, ensuring uniformity and transparency across sectors. One of its key provisions is the introduction of a universal minimum wage that applies to all employees, regardless of their industry or geographic location. This move is intended to protect workers from exploitation by ensuring they receive fair compensation. Additionally, the Code mandates the establishment of a national floor wage, which will serve as a baseline for state governments to set their minimum wages. By requiring timely payment of wages and preventing gender-based wage discrimination, the Code on Wages seeks to create a more equitable work environment for all Indian workers.

2. Code on Industrial Relations, 2020

The Code on Industrial Relations, 2020, merges three critical labour laws: the Industrial Disputes Act, 1947, the Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946. This reform aims to foster a more efficient and flexible framework for resolving industrial disputes while protecting workers’ rights. One notable change is the introduction of fixed-term employment, which allows employers to hire workers for a specific duration with the same benefits as permanent employees. This provision aims to provide flexibility to employers while ensuring job security for fixed-term workers. The Code also raises the threshold for requiring government permission for layoffs, retrenchments, and closures from establishments with 100 workers to those with 300 workers. This change is intended to make it easier for businesses to adjust their workforce in response to economic conditions. Furthermore, the Code mandates the formation of a Grievance Redressal Committee in every industrial establishment with 20 or more workers, providing a structured mechanism for employees to address their grievances and ensuring prompt resolution of workplace issues.

3.  Code on Social Security, 2020

The Code on Social Security, 2020, unifies nine existing laws related to social security, including the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and the Employees’ State Insurance Act, 1948. This Code aims to extend social security benefits to a broader range of workers, including those in the unorganized sector, gig workers, and platform workers. It introduces the concept of a Social Security Fund, designed to provide a range of benefits such as health insurance, maternity benefits, and pensions. The Code also simplifies the registration and compliance process for employers, reducing administrative burdens and enhancing the portability of social security benefits. This means that workers can retain their benefits even when they change jobs or move to different locations. By expanding the coverage and improving the efficiency of social security systems, this Code seeks to provide a more robust safety net for all workers, particularly those in vulnerable and non-traditional employment forms.

4.  Occupational Safety, Health and Working Conditions Code, 2020

The Occupational Safety, Health and Working Conditions Code, 2020, amalgamates 13 existing labour laws, including the Factories Act, 1948, and the Mines Act, 1952. This Code aims to provide a safer and healthier working environment across various sectors by setting comprehensive standards for occupational safety and health. It mandates essential provisions such as cleanliness, ventilation, and safety equipment, which are crucial for maintaining a safe workplace. The Code introduces new definitions for hazardous processes and stipulates stringent safety measures to protect workers engaged in high-risk occupations. Additionally, it extends its coverage to all establishments employing 10 or more workers, thereby broadening the scope of safety regulations. The Code emphasizes the importance of regular occupational health and safety audits and mandates the appointment of safety officers in larger establishments to oversee the implementation of safety protocols. By consolidating multiple laws into a single code, this legislation aims to simplify compliance, reduce regulatory overlap, and ensure that a higher standard of workplace safety is uniformly applied across industries.

Together, these four labour law reforms represent a comprehensive overhaul of India’s labour regulatory framework. They aim to balance the interests of workers and employers by simplifying existing laws, expanding the scope of worker protections, and introducing new measures to address the evolving dynamics of the labour market. These reforms are designed to enhance the welfare of workers, ensure fair treatment, and support the growth and flexibility of businesses in an increasingly competitive global economy.

5.  Impact of Labour Law Reforms in India

• Enhancing Worker Protections and Benefits

The recent labour law reforms in India, particularly through the introduction of the four labour codes—the Code on Wages, the Code on Industrial Relations, the Code on Social Security, and the Occupational Safety, Health and Working Conditions Code—have had a significant impact on worker protections and benefits. These reforms aim to ensure that workers receive fair compensation, have access to social security benefits, and work in safe and healthy conditions. The Code on Wages, by mandating a universal minimum wage and introducing a national floor wage, has helped in protecting workers from exploitation and ensuring they receive a fair wage. The Code on Social Security has expanded the coverage of social security benefits to unorganized sector workers, gig workers, and platform workers, thereby providing a broader safety net and enhancing financial security for a larger segment of the workforce.

• Streamlining and Simplifying Labour Laws

One of the most notable impacts of these reforms is the simplification and consolidation of numerous labour laws into four comprehensive codes. This streamlining reduces the complexity of compliance for businesses and makes it easier for them to understand and adhere to labour regulations. By merging multiple overlapping and sometimes contradictory laws, the reforms have created a more coherent and consistent regulatory framework. This simplification is particularly beneficial for small and medium-sized enterprises (SMEs), which often struggle with the administrative burden of complying with numerous regulations. The reduction in regulatory complexity is expected to encourage greater compliance with labour laws, ultimately benefiting workers by ensuring better enforcement of their rights.

• Promoting Flexibility and Ease of Doing Business

The labour law reforms have also been designed to promote greater flexibility for businesses and improve the ease of doing business in India. For instance, the Code on Industrial Relations raises the threshold for requiring government permission for layoffs, retrenchments, and closures from establishments with 100 workers to those with 300 workers. This change provides businesses with greater flexibility to adjust their workforce in response to economic conditions without facing excessive bureaucratic hurdles. Additionally, the introduction of fixed-term employment contracts allows employers to hire workers for specific durations with the same benefits as permanent employees, providing flexibility while ensuring job security for fixed-term workers. These measures are expected to attract more investment and spur economic growth by making it easier for businesses to operate and manage their workforce.

• Improving Workplace Safety and Health Standards

The Occupational Safety, Health and Working Conditions Code has significantly impacted workplace safety and health standards in India. By consolidating 13 existing laws and setting comprehensive standards for occupational safety and health, the Code ensures a higher level of safety and health protection for workers across various sectors. The mandatory provisions for cleanliness, ventilation, safety equipment, and the appointment of safety officers in larger establishments help in creating safer working environments. Regular occupational health and safety audits, as mandated by the Code, ensure continuous monitoring and improvement of workplace safety standards. These measures not only protect workers from workplace hazards but also contribute to enhancing productivity and reducing the incidence of work-related injuries and illnesses.

• Expanding Social Security Coverage

The Code on Social Security has had a profound impact on expanding the coverage of social security benefits in India. By unifying nine existing laws related to social security, the Code simplifies the registration and compliance process for employers and enhances the portability of benefits. This means that workers can retain their social security benefits even when they change jobs or move to different locations. The introduction of a Social Security Fund to provide benefits such as health insurance, maternity benefits, and pensions to unorganized workers, gig workers, and platform workers is a significant step towards inclusive social protection. This expansion of social security coverage ensures that a larger segment of the workforce has access to essential benefits, thereby enhancing their financial security and well-being.

• Balancing Interests of Workers and Employers

The labour law reforms aim to strike a balance between protecting workers’ rights and promoting the interests of employers. By providing a clear and consistent regulatory framework, the reforms reduce the potential for disputes and litigation between workers and employers. The establishment of Grievance Redressal Committees in industrial establishments ensures that workers have a structured mechanism to address their grievances, promoting a harmonious work environment. At the same time, the reforms provide businesses with the flexibility to manage their workforce more effectively, which is crucial for sustaining economic growth and competitiveness. This balanced approach is expected to foster a more cooperative and productive relationship between workers and employers, contributing to overall economic stability and growth.

6. Challenges and Implementation Issues

While the labour law reforms have the potential to bring about significant positive changes, their successful implementation poses certain challenges. Ensuring that all stakeholders, including employers, workers, and government agencies, are aware of and understand the new provisions is crucial. Effective implementation will require robust enforcement mechanisms, adequate training for labour inspectors, and awareness campaigns to educate workers about their rights. Additionally, the success of these reforms depends on the willingness of state governments to adopt and adapt the central codes to their specific contexts. Addressing these challenges is essential to realizing the full benefits of the labour law reforms and ensuring that they contribute to creating a fair and equitable labour market in India.

Conclusion 

The recent labour law reforms in India represent a significant step towards modernizing and improving the country’s labour regulatory framework. By enhancing worker protections, simplifying compliance, promoting flexibility for businesses, improving workplace safety standards, and expanding social security coverage, these reforms aim to create a more balanced and equitable labour market. While challenges remain in their implementation, the overall impact of these reforms is expected to be positive, contributing to the well-being of workers and the growth and competitiveness of businesses in India.