Labour Code: Major changes

  In 2019, the Central government proposed to replace 29 existing labour laws with four Labour Codes on wages, social security, occupational safety and industrial relations. Since the issue of labour came under the Concurrent List of the Constitution, there were over 100 state and 40 central laws regulating the various aspects to it. Government wanted to club the laws to improve ease of compliance and ensure uniformity across the country. The Code on wages, which sets a national-level floor wage for all workers, was passed in 2019 and the other three codes were referred to Standing Committee on Labour, which later submitted its report. GoI incorporated 174 out of 233 recommendations (74%) of the standing committee on labour for the three codes. Some important changes, which have created unrest among labour unions, are discussed here.

Compounding of Offences: It states that for offences with fine, compounding is allowed for a sum of 50% of the maximum fine provided for the offence. For offences with imprisonment, compounding is allowed for a sum of 75%. Labour unions feel that the deterrence to break the law is reduced on account of compounding provisions and reduces security of the labour force.

Size of organisation: A key feature of the new code is that they provide size-based applicability of the laws to various organisations. The new laws raise the thresholds for workers from 20 to 40 under The Factories Act of 1948, which defined any manufacturing unit as a factory if it employed 10 workers while using electricity or 20 workers while working without.

The Industrial Disputes Act of 1947 requires any establishment employing over 100 workers to seek government permission before any retrenchment; the threshold has been raised to 300, with the government empowered to raise it further through notification. Labour unions are very upset with this threshold being raised and they argue that all MSMEs and bulk of the Industrial units get covered under the limit of 300. They feel that the limits can be further raised once the initial protests die down.

The Government’s argument is that existing laws have created an exit barrier for establishments and impacted their ability to adjust workforce in line with production demands. There can be little argument that any layoff should happen under very difficult circumstances where the existence of the Industry is in question and there should be no firing just to improve the bottom line of firms. Security of tenure of works is important for the well being of the country and we need to watch the path that this reform takes and make mid course corrections.

Changes in contract labour rules: The earlier Bill was applicable to establishments that employed at least 20 contract workers and to contractors who supplied at least 20 workers. These limits have been raised to 50 workers. Contract labour do not have the protection that regular workforce have and the increase in threshold number means that greater number of them would work under more difficult circumstances.

The new Code also prohibits employment of contract workers in any core activity but allows for their employment in a specified list of non-core activities such as canteen, security and sanitation services.

Fixed term Contracts: The Code has a provision allowing industries to employ workers on a fixed-term contract. This helps industries in hiring such workers for seasonal jobs or for short-term projects. Fixed-term contract workers will be entitled to all the benefits as regular employees in the establishment, except retrenchment compensation.

Currently, industries hire seasonal workers through contractors, which is both cumbersome and not usually in the best interests of workers. The benefits of contract workers are eaten away by contractors under the present system. This provision would help Industries hire seasonal workers directly rather than through intermediaries, thereby better protecting their rights.

Opponents of the reform say that the Industrial Relations Code, 2020, empowers the industries to convert existing workforce into fixed-term contract employees as the government removed a safeguard, which was there in its March 2018 notification that deterred companies from doing so. They say that the way in which fixed-term employment has been framed will lead to withering away of five kinds of securities: employment, occupational safety, income, social, and skill.

Whether industries would actually convert regular employees who are non-seasonal into fixed term workers needs to be seen. Since firing has also been made easier, it looks unlikely that employers would convert regular employees as fixed term contract employees. Firing is not easy for employers as they need to substitute fired workers and it is difficult to find trained, disciplines workers. It is true that employers would be able to fire undisciplined workers with low productivity.

No clarity on recognising unions, providing welfare schemes: The Code has no criteria to ‘recognise’ trade unions for formally negotiating with employers despite its registering them.

The Code on Social Security also creates enabling provisions to notify schemes for ‘gig’ and ‘platform’ workers, but there are no concrete measures propose presently.

Also, the Bills have not clearly specified norms pertaining to social security schemes, health and safety standards, and working conditions and these are largely delegated to the state governments.

Right to Protest/Strike: The Industrial Relations Code prohibits the right to strike and mandates that unions give a 60-day notice to strike. Further, its is illegal to strike during conciliation. Unions say that the Bill thus destroys the freedom of association guaranteed to Indian citizens under the Constitution.

Compliance: Codes seek to improve the ease of compliance and hiring and firing of workers while keeping labour welfare under consideration.

Little time allowed: The political Opposition has raised the issue of little time being given to MPs to consider the provisions of the Bills or to debate them. It has been pointed out that the Bills (Having 411 clauses and 13 schedules running into 350 pages) were only introduced on Saturday, September 19, and the Business Advisory Committee of the Lok Sabha allocated three hours for them to be discussed and passed this week.

Review: Since a good number of existing provisions have been diluted in favour of the employers, Governments, Unions and civil society needs to keep a close watch over the course that the implementations takes. I feel that some of the fears that workers have might not actually play out. It is not always possible to estimate the direction that laws will take over time. Government should, therefore, constantly evaluate the implementations and assess the change in balance between employers and employees. Course corrections would certainly be needed in time and we should not hesitate to reexamine issues.