By - Aurelia Menezes on August 2, 2022
States across the country are currently engaged in implementing the new updated labour policies that have been approved by the Central Government. The following addresses some questions employers and employees have in terms of how the new codes will affect them, major changes, drawbacks and how businesses will be affected.
The labour codes are a codification of the existing labour laws with suitable amendments legislated by Parliament. This has been considered the most major labour reform in recent years whereby 29 erstwhile labour legislations are amalgamated into four comprehensive labour codes namely (“Labour Codes”):
There has been a pressing need to update the provisions of the codes since many aspects of the labour laws trace their origin to the era of the British Raj. However, with changing times, many of them have been rendered moot or have no contemporary relevance. Rather than protecting the interests of workers, these provisions became difficult for them. The outdated web of legislation was so dense that workers had to fill in four forms to claim a single benefit. The present government has thus repealed these laws; 29 Labour Laws have been codified into 4 Labour Codes.
The Second National Commission of Labour, which submitted its report in 2002, highlighted the multiplicity of labour laws in India and recommended that they be codified into a few cohesive ones that function at a central level. While discussions were held on it, however, no serious initiative was taken in this direction during the time period from 2004 to 2014.
From 2015 to 2019, the Ministry of Labour and Employment organized 9 tripartite discussions in which Central Trade Unions, Employers’ Associations and representatives of state governments were invited to give their opinions/suggestions on labour reforms. All four Bills were also examined by the Parliamentary Standing Committee which gave its recommendations to the Centre .
The labour codes help in simplifying compliance by ensuring a single licensing mechanism for industries. Previously, the industries were required to apply for licenses under different laws. The introduction of technology in creating national databases has ensured workforce formalization, which is a primary step toward providing welfare benefits. Furthermore, the ambit of workmen/employees has been widened to cover all those who were previously not offered coverage under the labour laws.
Uniform definitions for wages are provided such that there is no confusion in its interpretation. The statutory benefits offer more coverage that includes informal workers. Also, the ease of doing business and faster dispute resolution mechanism is beneficial to the businesses. The usage of technology for efficacious implementation and ease of compliance is a positive step envisaged by the labour codes.
Code on Wages, 2019
Code on Social Security, 2020
Occupational Safety, Health and Working Conditions Code, 2020
Industrial Relations Code, 2020
Concerning the Industrial Relations Code, 2020, employers would have more power to hire and fire employees as the threshold limit for applicability of standing orders has been increased to 300 from 100 workers. The imposition of arbitrary service conditions due to the flexibility provided to the employers is also a real threat. Under this Code, the government is also empowered to increase (but not decrease) the threshold for establishments to seek prior permission before closure, lay-off or retrenchment. This provides undue advantages to businesses vis-à-vis the workers.
The Code on Social Security, 2020, which boasts of providing universal coverage to all workers, leaves out all establishments employing fewer than 10 workers, excluding a large chunk of informal workers and enterprises. There is a clear exclusion of construction workers deployed at the level of private households, domestic workers, sanitation workers, self-employed workers like street vendors, scheme workers like the ASHA and anganwadi workers and so on . Moreover, the definitions in the Code on Social Security, 2020 are still vague and unclear as to whether the gig and platform workers are considered unorganized workers or otherwise.
Further, a careful analysis that references Section 96(1) and (2) of Industrial Relations Code, 2020 and Section 127 (1) and (2) of the Occupational Safety, Health and Working Conditions Code, 2020 reveals excessive delegations to the appropriate government, allowing them wide exemption powers from the provisions of the said Code relating to hours of work, safety standards, retrenchment process, collective bargaining rights, contractual labour etc. This might end up defeating the very purpose of the Codes.
Lastly, as compliance is primarily based on employee thresholds for the applicability of the new provisions, businesses might be encouraged to remain small-scale to avoid statutory compliances.
The cost or expenses to the businesses might increase due to the pro-labour reforms resulting from higher gratuity payouts. Suitable measures must be taken to account for these. The human resource policy of the organization would also require changes to conform to the updated laws regarding payment of salary, tracking overtime and additional safety provisions for women.
In addition to this, businesses would need to bring about an attitudinal shift towards the workers so that the transition as per the new Labour Codes is smooth and efficient. The compliance aspect will also need to undergo changes based on the final rules and state amendments. It is important to remember that the success of any business depends on the ultimate welfare of the workers involved.
It is pertinent to note that the ‘Labour’ is a concurrent list subject in the Constitution of India. Based on the latest data available, the following is a short breakup of the State/Union Territories (UTs) which have pre-published the draft rules, inviting comments from all stakeholders .
Although there has been steady progress in the aspect of implementation, there are no specific details as to the exact effective date for enforcement.
It is pertinent to note that the Occupational Safety, Health and Working Conditions Code, 2020 deals with the conditions of working that regulate working hours and working days for any establishment. It states that no worker is allowed to work more than 8 hours a day and more than 48 hours per week. However, if the workman exceeds 8 hours per day subject to a maximum of 12 hours a day (including intervals for rest), then they must be provided overtime wages in accordance with this Code.
This implies that a 4-day work week will not be practically feasible until and unless overtime wages are paid. The overtime hours would also be subject to a total number of hours of overtime as fixed by the appropriate government. For instance, if overtime hours are fixed at 21 hours per quarter, this implies that only 7 overtime hours per month would be possible, in which case a 4-day work week would not be practical due to this limitation.
Moreover, as per Section 27 of the Code, workmen shall be paid twice the rate of wages for overtime work. This would increase the cost to the establishment unless it voluntarily decides to reduce the number of hours per week and ensure a 4-day work week.
It is suggested that the government continues to roll out the codes in a phased manner, allowing businesses ample time to adjust to the new dynamics of labour laws. Much like the consultation with the states prior to GST implementation, it is suggested that the central government regularly holds talks and workshops with states to ensure seamless implementation of the new labour laws in their respective states.
Lastly, a legal analysis of the labour codes reveals that the government’s decision to codify the laws and update them to keep afoot with changing times has been a positive development. However, it is to be seen how the states will notify the rules for their enforcement in regional jurisdictions.