Labour Reforms In The Age Of Covid-19: What’s The Right Balance?
While the MP government has focused on ease of business, U.P. has proposed a significant curtailment of worker rights.
Madhya Pradesh and Uttar Pradesh have both announced drastic relaxations in labour laws for a period of 3 years. I won't classify these as 'labour reforms' yet since some of these are temporary, but time will tell if indeed they deserve to be made permanent and in what form. Clearly, state governments believe that there is an important link between light touch labour legislation and attracting crucial investments to kick start industrial activity and generate employment in the post Covid-19 era. When investment dollars are scarce or difficult to come by, every benefit matters - most of all the freedom to do business with limited government interference.
It must be noted that four Labour Codes have been in the works for years now on a similar premise, but they've mostly shied away from major changes under pressure from trade unions. I have previously argued that the proposed Industrial Relations Code didn't do enough to create an environment that enables more job creation, by retaining inflexible and archaic provisions requiring government approval to re-organise headcount or change terms of service.
The changes proposed by the two states go above and beyond anything planned by the Labour Codes in many ways. It is also telling that these states didn't choose to adapt the readily available draft Labour Codes right now.
It’s important to understand that Madhya Pradesh and Uttar Pradesh have taken very different approaches to their changes.
Uttar Pradesh has come out with a very broad and ambiguously worded ordinance, exempting "all factories and establishments engaged in manufacturing process from the operation of all Labour Laws for a period of three years" (with some exceptions).
Madhya Pradesh’s changes appear to be more balanced and statute specific:
Industrial Disputes Act
New factories will be exempt from all provisions of the Act, except
- Chapter VA (covering lay-off, retrenchment, closures in factories with less than 300 workmen); and
- Certain provisions of Chapter VB (dealing with factories employing over 300 workmen), namely, Section 25N and 25O (permission for retrenchment and closure), 25P (power of Government to order re-start of factories), 25Q (penalty for lay off/retrenchment without permission) and 25R (penalty for closure),
provided adequate provisions are made by such industries for the investigation and settlement of industrial disputes of the workmen employed by them. This exemption is for a period of 1,000 days.
Shops and Establishments Act
Shops are permitted to stay open from 6 a.m. to 12 p.m. (which appears to be a typo for 12 a.m., midnight).
MP Industrial Relations Act
The provisions of the Industrial Relations Act have been relaxed till further orders for industries like textile, iron and steel, cement, leather, etc. This law deals with dispute resolution mechanism, trade union recognition, notice of change, etc. for certain industries.
Factories Act
Daily maximum working hour limits have been increased for three months to 12 hours a day, to help make up for lost productivity. Overtime is allowed up to 72 hours a week. License renewals can be after ten years instead of one.
All factories have also been exempted for three months from all provisions of the Factories Act other than relating to safety, leave with wages, overtime and few others.
Standing Orders Act
The Act now only applies to industrial establishments where more than 100 workers are employed, instead of 50.
Registrations
Contract labour registrations would be valid for the duration of the contract, instead of one year. Registrations/licenses will be issued online in one day.
Registers and returns
Self-certification will be sufficient and multiple returns and filings have been reduced to just one.
Inspections
Non-hazardous factories with up to 50 workers have been excluded from inspections, provided they obtain third-party certification from a government-approved agency. Inspections can occur in case of complaints, with the prior permission of the Labour Commissioner.
Madhya Pradesh: Ease Of Doing Business Focus
The Madhya Pradesh government has therefore focused on easing business by relaxing rules on registrations, registers, returns, filings, inspections, working hours, shifts, etc., while retaining important safeguards entitling workmen to overtime pay, paid leave and continuation of health and safety protocols. Laws relating to minimum wages, payment or deductions of wages, statutory bonus, etc. haven’t been relaxed.
The provisions in the ID Act relating to retrenchment compensation and protection from unfair terminations/closures have also not been meddled with, although I believe that the prior permission requirements need to go, in exchange for larger compensation.
Further, only new factories would benefit from the ID Act exemptions. Which means, so long as new factories can come up with a fair alternate mechanism to investigate and settle industrial disputes (potentially on the lines of the grievance redressal mechanism under Section 9C and/or welfare committees or arbitration mechanisms), they would enjoy significant flexibility without worrying about threat of prosecution and disputes. Larger units with 100 or more workmen would also need to comply with the Standing Orders Act, adding a layer of protection in relation to important terms of employment.
No doubt workers would remain concerned about curtailment of union recognition rights, omission of prior notice requirements for changes in terms of service and unfair labour practices, but the changes in Madhya Pradesh do not actually prevent workers from unionising (freedom of association is constitutionally guaranteed) or agitating their rights in any manner. Formal rules for union recognition do not exist in most Indian states even now.
What remains odd is that the exemption under the ID Act has been issued under Section 36-B by the Madhya Pradesh government (which is meant to exempt undertakings carried on "by a department of that government"), and hence could be argued to not apply to private establishments at all, as held in the case of K. Loganathan vs State Of Karnataka and Another. If a court holds that this exemption can't apply to private establishments, it may completely defeat the intent of the MP government to increase private sector investment and employment.
Uttar Pradesh: Minimum Safeguards
On the other hand, Uttar Pradesh has taken labour law relaxations to a new level altogether. If the President approves the ordinance (atleast the version that’s publicly available), it would result in significant curtailment of worker rights for the next 3 years in the name of incentivising business.
The Uttar Pradesh ordinance offers only the barest minimum safeguards to factory workers (in existing or new undertakings), entitling them to just minimum wages to be paid timely into their bank accounts, limits on working hours (11 hours of work on a 12 hour daily spread), continuation of health and safety provisions, and compensation in case of death or injury.
Workers won’t have protection against unfair labour practices or retrenchments, or to any notice or compensation for the same.
There is no mention of leave entitlements, mandatory rest days, overtime payments, equal remuneration, access to any kind of dispute resolution mechanism / courts, or what happens to accrued benefits of workers in existing factories.
Will someone who has already worked for several years in a factory be entitled to retrenchment compensation or gratuity if they are terminated after this ordinance? The ordinance does not clarify.
What happens if workers unionise to bargain for more wages and are immediately terminated? It appears they will have no redressal.
It's further surprising that this move comes from a government that till recently was threatening stringent prosecution for anyone cutting wages or terminating workers during the lockdown. This ordinance goes to the other extreme, turning the state to the wild west for labour relations. Chances are such an ordinance will be struck down by Indian courts for being overtly wide and violative of basic tenets of labour relations and access to justice.
While I maintain that India urgently needs labour law reforms - especially with the havoc on our economy due to Covid-19 - a balance between opposing interests needs to be maintained. Greater contractual freedom (except for the most marginalized of workers based on wage scales) with limited government interference, backed by a robust dispute resolution mechanism is the ideal way forward.
Read Atul Gupta’s analysis of Code on Wages, 2019 here and here. His views on the Industrial Relations Code, 2019 are here.
Atul Gupta is a labour and employment law specialist and a Partner with Trilegal. Views are personal.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.