Understanding the New Labour Codes

In 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.[1] The government replaced these Bills with new ones in September 2020.

The Parliament of India passed the four labour code bills –

• the Occupational Safety, Health and Working Conditions Code, 2020;
• the Industrial Relations Code, 2020;
• the Code on Social Security, 2020 and
• the Wage Code 2020

merging 24 central labour laws in a major boost to labour reforms.The government has now merged 29 central laws into four codes. In August 2019, Parliament had passed the first of the codes, the Wage Code.

The Industrial Relations Code, 2020, bring new rules for hiring and firing of labour in mid-sized and large industries, making retrenchment easier. This effectively brings the north American hire-and-fire model to the Indian hinterland economy in the hope that businesses recoup and add more jobs on a net basis. The Codes replace the following 29 central Acts. Table 3 lists the Acts which are being subsumed by the four labour codes.

Table 3: The Acts which are being subsumed by the four labour codes 

Sources: Existing Central Acts; PRS India.

Table 4 lists some Acts which regulate some aspects of labour but have not been subsumed by the Codes.

Table 4: Some Labour Laws that have not been subsumed by the new Labour Codes 

Sources: Existing Central Acts; PRS India.

Provisions of the Codes

What are the changes in hiring-firing rules?

The reforms allow industries flexibility in hiring and retrenchment. They will make industrial strikes more difficult by clamping new conditions and also expand the social security net for both formal and informal workers. Under the Industrial Relation Code, the government has allowed companies with up to 300 workers to fire workers or shut plants without the prior approval of the government. Hitherto, prior approval had been required. Firms with more than 300 workers need to still apply for approval.

However, if the authorities do not respond to their request, the retrenchment proposal will be deemed to be approved. Earlier labour laws required a 30- to 90-day notice period before retrenching “workmen”, which is a class of mainly shop floor workers. In the case of manufacturing units, plantations, and mines with 100 or more workmen, lay-offs also required government approval.

What are the new workplace safety rules?

The Occupational Safety, Health and Working Conditions Code, 2020, amends laws regulating occupational safety, health and working conditions of employees. The code empowers a state government to exempt any new factory from the provisions of the Code to create more economic activity and jobs. It fixes the maximum daily work limit at eight hours a day.Women will be entitled to be employed in all establishments for all types of work and in case they are required to work in hazardous or dangerous operations, the government may require the employer to have adequate safeguards in place prior to employment.

Retrenchment

Establishments hiring 100 or more workers need government permission for closure, layoffs or retrenchments. It has been argued that this has created an exit barrier for firms and affected their ability to adjust workforce to production demands. The Industrial Relations Code raises this to 300, and allows the government to further increase this limit by notification.

Coverage and Labour Law Enforcement

Most labour laws apply to establishments over a certain size (typically 10 or above). Size- based thresholds may help firms in reducing compliance burden. However, one could argue that basic protections related to wages, social security, and working conditions should apply to all establishments. Certain Codes retain such size-based thresholds. Multiplicity of labour laws has resulted in distinct compliances, increasing the compliance burden on firms. On the other hand, the labour enforcement machinery has been ineffective because of poor enforcement, inadequate penalties and rent-seeking behaviour of inspectors. The Codes address some of these aspects.

The Codes create enabling provisions for web-based inspections (which may be accompanied by randomized inspections) in some cases and third-party certification (for notified classes of establishments in some cases) and create some provisions for common registers and returns. However, details have been left to delegated legislation. Further, in certain cases, such as Code on Social Security, compliance reporting on different aspects (such as provident fund and insurance) may continue to be required to be made to different authorities.

The Codes also increase the quantum of fines and imprisonment in several cases and allows for compounding of offences in certain cases. With regard to dispute resolution, the Industrial Relations Code removes the requirement for reference to the government and publication of award in the gazette and replaces industrial courts/tribunals with two-member labour tribunals (with one judicial and one administrative member).

Contract labour

Labour compliances and economic considerations have resulted in increased use of contract labour. However, contract labour have been denied basic protections such as assured wages. The Codes do not address these concerns fully. However, the Industrial Relations Code introduces a new form of short-term labour – fixed term employment.

Currently, contract labour provisions apply to establishments/contractors hiring at least 20 workers. The Code on Occupational Safety and Health increases this threshold to 50 workers. Further, it prohibits contract labour in core activities except in certain circumstances (which includes any sudden demand in work). It also specifies a list of non-core activities where the prohibition would not apply. This includes: (i) sanitation works, (ii) security services, and (iii) any activity of an intermittent nature even if that constitutes a core activity of an establishment. As regards liability of the contractor, the Code leaves the conditions for grant of contractor license to rules. Further, it shifts the primary responsibility of providing welfare facilities from the contractor to the principal employer. It also provides for automatic absorption of contract workers into the establishment of the principal employer where they are engaged through an unlicensed contractor. The Industrial Relations Code introduces provisions to employ fixed term labour.

Emerging Category – Gig and Platform Workers

The Code on Social Security introduces definitions for ‘gig worker’ and ‘platform worker’. Gig workers refer to workers outside the “traditional employer-employee relationship”. Platform workers are those who are outside the “traditional employer-employee relationship” and access organisations or individuals through an online platform and provide services.

In addition to traditional freelance work, independent work would include emerging digital platforms which provide opportunities for task-based “crowd-work” (e.g., freelance work over digital platforms) and “on-demand work” (e.g., taxi and restaurant aggregators). One of the questions the Codes need to address is whether any distinction must be drawn between self-employed persons (e.g., freelancers) who exercise independent control over their work (including terms of service, scheduling and payment terms), and self-employed persons who predominantly work with a single platform which may exert some degree of control over the terms of their work (e.g. aggregators). If so, the Codes will also need to consider the extent to which various provisions that provide rights to employees should be extended to the latter category.

Note that workers in the gig economy are typically classified as independent contractors and thus are not provided the protection of various labour laws, including social security benefits.[2] Globally, some regions have defined principles by which to identify employer- employee relationships which may be mis-classified as independent contract work. For example, California passed a Bill in 2019 which classifies certain independent contractors as employees and entitles them to certain benefits such as health insurance, if the hiring company fails to prove that: (i) the tasks performed by the person fall outside the usual course of the company’s business, (ii) the company does not exercise control over the manner in which the person performs their tasks, and (iii) the person is customarily engaged in a trade or occupation of the same nature as that involved in the work performed. [3]

The Code also defines unorganised workers which include self-employed persons. The Code creates provisions for different schemes for all these categories of workers (and defines the role that aggregators may be expected to play in some of these schemes). However, there may be some overlap between these three definitions which may result in lack of clarity on the applicability of social security schemes to these different categories of workers. We have illustrated this issue in our Legislative Brief on the Code.

Trade Unions

There are several registered trade unions but no criteria to ‘recognise’ unions which can formally negotiate with employers. The Industrial Relations Code makes provisions for recognition of a negotiation union with 51 per cent membership. In the absence of such support, a negotiation council may be formed. However, the Code does not clarify how vote will take place. Further, no changes have been made to the extent of participation of outsider (up to 33 per cent, subject to a maximum of five members). Up to 50 per cent may be outsiders in unorganised sector unions. However, the Code weakens collective bargaining rights by requiring a two-week notice for strikes.

The Industrial Relation Code lays down new conditions on the right of workers to go on strike. Unions will now have to give 60 days’ strike notice. If proceedings are pending before a labour tribunal or the National Industrial Tribunal, workers cannot go on a strike for 60 days after they are concluded.These conditions apply to all industries. Earlier, workers could go on strike by giving between two weeks and six weeks of notice. Flash strikes are now outlawed.

Shortcomings of the New Codes

• Establishment has a narrow definition and does not include agricultural enterprises where most of the labour force is Definition of employees also does not include ASHA and Anganwadi workers and definition of unorganized workers does not include agricultural workers.

(Industrial Establishment means an establishment is an establishment in which any industry is carried on. Industrial disputes act 1947 section2 defines Industry as: ‘business, trade, undertaking, manufacture or calling of employers and includes services, employment, handicraft industrial occupation, in Bangalore water Supply and Sewerage Board v R. Rajappa Industry was defined by a triple test:

1. Systematic and organized activity
2. With the cooperation between employers and employees
3. For the production and distribution of good and services whether or not capital has been invested for this activity

Thus Agriculture since it does not stand the test, it is not included in the definition of establishment.

Code on social security Clause2 (26): Leaves out the Asha and Anganwadi workers: this has been pointed out by Standing Committee on Labour. In the same clause the qualification mentions the wage ceiling to identify who is an employee can be an exclusionary measure. The standing committee has said that ; the first proviso to the clause stipulating that the wage ceiling for employees for the purpose of applicability for chapter III and IV to be notified by the government appeared to be restrictive in nature in terms of coverage’ adding that ‘prescribed low wage ceiling of Rs. 15000 for EPF and Rs. 21000 for ESIC would exclude many informal workers in the formal sector.

UIDAI annual report 2019 states till 31st March 2019 123crore Aadhar cards have been generated. The repost also mentions the estimated population of India to be around 133.51crores (A conservative estimate. Some estimates suggest population to be over 137crores), thus according to government own admission about 10crore people in India still do not have aadhar identification,

• The codes also put up a threshold limit of 80work days for women to avail maternity

(As per section 142 ant employee in the unorganized sector seeking maternity benefit under the code will have to establish her identity and the identity of the person nominated to receive maternity benefits in the event of their death through Aadhar number. Without Aadhar no woman will be able to avail maternity benefits. UIDAI annual report 2019 states till 31st March 2019 123crore Aadhar cards have been generated.The report also mentions the estimated population of India to be around 133.51crores (A conservative estimate. Some estimates suggest the population to be over 137crores), thus according to government own admission about 10 crore people in India still do not have aadhar identification.

Chapter IV clause 60(2) says that no women working in an establishment would be eligible to avail maternity benefits unless she has worked for a period of not less than eighty days in the twelve months immediately before the date of delivery. ILO report suggests women in India mainly work not for economic independence but out of economic necessity, thus largely undertake unproductive work under economic compulsion, thus go on to take temporary stand-by jobs, out of the total female workforce the female main workers (that work all year round) is only 14.65%, hence more than two-third of women due to requirement of at least 80days of prior work requirement world by excluded from maternity benefits.

• Minimal minimum wage: The wage code sets the wage at 178 per day, which is only two rupees higher than previous national minimum wage and way lower than the wage stipulated by 7th Central Pay Commission (Rs.700) and committees of Labour ministry itself. Further, national floor wage could start a race in the states to keep the minimum wage, this negative competitive federalism can result is an economic disaster.

(For instance this was observed in Okhla Industrial Area in Delhi in 2015, where businesses shifted out of Okhla to Haryana and Uttar Pradesh to take advantage of lower minimum rates prevalent there. Pre-2015 both the central and state government could have fixed the minimum wages. In 2015central government stipulated that the state governments alone can fix minimum wages. The Wages prevalent in Okhla Delhi were 35%-25% higher than neighboring states of Haryana and UP, for example after revision the wage for unskilled work of loading and unloading trays was Rs. 348 per day in Delhi and only Rs. 249 in UP, many of the manufacturing units shifted out of Delhi stating ‘whenever there is an increases minimum wage rate, it’s a disincentive for the workers working to continue to work in the factories they only seek intermittent work )

• Over-delegation of legislation:Traditionally the legislature enacts the law stating the general principles and policies and delegates the rule making to the government allowing flexibility but not so much as to undermine the core principles of the legislation.The codes delegate various essential aspects of the law to the government giving over-flexibility which can be misused. For example: In increasing the threshold for lay-offs, retrenchments and closure, for setting applicability for different social security schemes, for specifying standards and working conditions to be provided by establishments under occupational safety code.

• Overlapping definitions: Social security code introduces definitions for gig workers, platform workers and unorganized workers including self-employed persons, creating provisions for different schemes for all these categories of workers in doing so the code refers to many other legislations, thus there can be overlapping resulting in lack of clarity.

(Building worker’s definition in Code for social security, employee’s definition in code for industrial worker are very similar, thus overlaps are present. Many similar overlaps in definitions and explanations are found.)

• All workers not covered under the codes: for example the industrial relations code applies to all establishments with separate threshold for layoffs, retrenchments and closure requirement whereas code on social security and occupational safety is applicable on establishment over certain size. Experts have suggested that basic provisions like social security and safety should be applicable to all establishments irrespective of size.
• Wide discretion to the government in providing exemptions: Industrial relations code provides the government with the power to exempt any new industrial establishment or class of establishment from any or all of its provisions in public interest. Public interest can be interpreted broadly and thus the code gives excessive discretion to the government.
• Jurisdiction of government over PSUs: The codes specify that the central government will continue to be the appropriate government for a central PSU even if the holding of the central government in that PSU becomes less than 50%.
• Low unionization in unorganized sectors is not addressed: National commission on Labour 2002 had suggested that provisions should be made to enable the workers in unorganized sector to form unions and register these unions to enhance the workers collective bargaining power.

Data suggests that over 50% of Indian workforce is illiterate. Only a third of the regular, non-agricultural workers are unionized, with wide disparity countrywide (91% in Mizoram and only 19% in Delhi). Moreover with the law books being in English language exclusively with minimal vernacular translation, keeping such a high bar (51%) for validating a union is nothing but an attempt to dilute the collective bargaining power of the workers and is a ruling in favor of the big businesses.

• Does not provide an upper limit on the proportion of fixed term and ad-hoc contract workers: whereas ILO has suggested that this leads to overexploitation of these workers.

(Vietnam, Brazil and China allow only two successive renewals of fixed term contracts. Philippines and Botswana limit the duration of such contracts up to a year. Brazil and Indonesia also has limits for hiring Ad-hoc employees in core activities, whereas China has fixed the use of such to be not more than 10% of the total workforce. ILO in its report titled ‘Non-standard Employment around the world’, mentions that for the period of 2004- 05 in India contract workers made up for 31% of the workforce whereas casual workers made up 56% of the workforce)

Footnotes:

[1]. List of Central Labour Laws under Ministry of Labour and Employment, Ministry of Labour and Employment.

[2]. “Strengthening social protection for the future of work”, International Labour Organisation, February 15-17, 2017.

[3]. Assembly Bill No. 5 (amending the Labour Code and the Unemployment Insurance Code).