New Labour Codes: Top 5 Changes That Will Impact Employers And Employees
Indian labourers unload bags of cement from a truck in Gurgaon (Photographer: Adam Ferguson/Bloomberg News)

New Labour Codes: Top 5 Changes That Will Impact Employers And Employees

Come December, the terms of employing India’s 500-million-strong labour force will change dramatically. The Narendra Modi-led government will soon implement the four labour codes that have replaced over 40 archaic central laws.

The codes on wages, industrial relations, social security and occupational safety, health and working conditions have been introduced with the promise of making India’s labour laws modern and better suited to the needs of changing business environment.

Covering almost all categories of employees, the new codes aim to expand the social security net, regulate conditions of employment and streamline conditions relating to health and security at a workplace. The changes though come at a time when several states have already diluted their labour laws due to the pandemic-induced economic slump.

Here are the key changes that will impact employers and employees:

Layoffs Made Relatively Easy

Perhaps the most contentious of the new labour laws is the Industrial Relations Code that subsumes existing laws relating to trade unions, industrial disputes and working conditions in industries. The earlier laws, which were framed mostly in the pre-independence era, have been criticised for favour workmen and unions in a manner that distorted employment practices and prompted companies to hire contract labour to circumvent the laws.

The reasons were two-fold.

First, the need for industries—employing more than 100 workers—to obtain the government’s permission to temporarily refuse work or terminate workers. And second, a complex procedure involving approvals from various departments for shutting businesses.

Photographer: Nicolo Filippo Rosso/Bloomberg

Now, these permissions will apply to factories, mines or plantations that employ more than 300 workers.

As many as 14 states have already increased this threshold to 300 workers and so, the industrial relations code only makes this position universal, William Vivian John, partner at L&L Partners, said. It’s a positive step that will permit labour-intensive small and medium enterprises to grow, he said.

But one hopes that with job creation, better bargaining position for labour will obviate the need for such artifices that restrict businesses from freely effecting actions that economics often demands.
William Vivian John, Partner, L&L Partners

Reducing Union Conflicts

One of the many reasons for industrial unrest during the “licence raj” era were certain provisions relating to trade unions and strikes which brought industrial activities to a grinding halt for months together. It was perhaps best depicted through multiple Bollywood movies during the seventies which featured labour unrest as their central theme.

A poster of the 1979 Hindi movie Kala Pathhar, directed by Yash Chopra. (Photo: Yash Raj Films Pvt. Ltd.)
A poster of the 1979 Hindi movie Kala Pathhar, directed by Yash Chopra. (Photo: Yash Raj Films Pvt. Ltd.)

Till now, large industrial establishments could have more than one trade union to protect interests of workmen. As trade unions rely on collective bargaining with employers, at times differences arose between them.

To address such conflicts, the new code allows recognition of any union as a “negotiating union” in an industrial establishment if it receives approval of 51% workers or more.

Multiplicity of trade unions in any establishment raised concerns on the manner in which industrial relations would be viewed as a subject, Anshul Prakash, partner at Khaitan & Co., pointed out. Barring a few states, establishments with several trade unions would witness infighting among workers jostling for negotiating position, he said.

For the first time, by prescribing thresholds for recognition of a negotiating union, the IR Code attempts to address this problem. 
Anshul Prakash, Partner, Khaitan & Co. 

Setting Minimum Wage

Presently, central and state governments prescribe minimum wages for workers based on their skill and experience. But there’s no uniform minimum amount.

To address this, through the Code on Wages, a national floor wage has been introduced. The amounts are yet to be notified but once implemented, state governments won’t be able to prescribe wages below that.

A woman sits listening as other villagers hold up their job cards for MGNREGA, which promises 100 days of wages per year to rural households. (Photographer: Prashanth Vishwanathan/Bloomberg)
A woman sits listening as other villagers hold up their job cards for MGNREGA, which promises 100 days of wages per year to rural households. (Photographer: Prashanth Vishwanathan/Bloomberg)

Atul Gupta, partner at Trilegal, said that each state government at present prescribes minimum wages for “scheduled industries” which have variations that can’t be easily justified based on factors like cost of living, etc.

For example, he pointed out, minimum wages in Mumbai are lower than cities like Bangalore and Delhi even though it has a higher cost of living on average. Even within the same state, minimum wages can oscillate significantly based on the industry or activity in question, Gupta said.

If scientifically established, this can help create a common base expectation for wages across the country, with hopefully only limited exceptions based on geographical area. While this may increase cost of labour in some areas, overall it would help raise standards of living, potentially limit migration to cities and give an impetus to industry in the long run.
Atul Gupta, Partner, Trilegal

Extending Social Security Net

The labour laws 2.0 have something for India’s more than $1 billion gig economy as well.

(Photographer: Dhiraj Singh/Bloomberg)
(Photographer: Dhiraj Singh/Bloomberg)

A gig worker is defined under the new law as a person who earns out of activities which fall outside of the employer-employee relationship. Also, a person who undertakes work through online platforms for providing services outside the employer-employee relationship is considered as a platform worker.

The Code on Social Security enables the government to extend social security benefits on health, maternity benefit, old age protection, education or disability cover to unorganised, platform or gig workers. Experts, however have pointed out that such workers may end up paying for their own social security.

Recognising Fixed-Term Labour

So far, fixed-term contracts have been permissible only for a limited period in certain sectors. But they can’t be used to avoid regular employment. That leads to an increase in hiring of contractual labour by companies, which presented it’s own set of challenges like worker rights, due diligence, liability issues, etc.

To address this, the industrial relations code now lays down a statutory framework for fixed-term employment.

Any business can now hire such employees if they’re engaged for a fixed period under a written contract and are governed by same conditions relating to working hours, allowances and other benefits as given to permanent workers. Businesses will also have to pay gratuity to such employees if the fixed contract is for a duration of one year.

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