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Labour Codes 2020: Pluses & Pitfalls

The three new labour codes

Conceived to give employers and workers solace, India’s new labour codes are not without their grey areas and red signs.

By this year-end, India is poised to implement a fresh set of labour laws. Recently, the government passed three labour codes with a view to simplifying existing rules so as to improve the ease of doing business. Last week, the country’s President gave assent to Industrial Relations Code Bill, Code on Social Security Bill, and Occupational Safety, Health and Working Conditions Code Bill.

Overall, the exercise amalgamated 44 central labour Acts into four codes. Last year, the NDA dispensation passed a Code on Wages. Parliament cleared it on August 2, 2019, ensuring universalisation of minimum wages.

In continuation, three more related codes got the President’s approval on September 28, 2020, revamping the country’s labour laws in a way that offers industries flexibility in hiring and firing, makes industrial strikes difficult and hence reduces the clout of trade unions. The codes promote fixed-term employment and help the expansion of social security net for informal sector workers, gig as well as platform employees. 

The government will notify the four codes by December this year, according to Labour minister Santosh Gangwar.

Three New Codes

First, the Wage Code. Notified in the Gazette of India on August 8, 2019, it broadens the definition of both “employer” and “employee” by making it applicable to organised as well as unorganised sectors. Thus, all establishments (unless specifically exempt) come under the provisions of minimum wages and payment of wages. This Code replaced four laws: Payment of Wages Act, 1936; Minimum Wages Act, 1948; Payment of Bonus Act, 1965, and Equal Remuneration Act, 1976—all of which got repealed in the process. It got the President’s assent, exactly two years after the Bill was introduced in the Lok Sabha.

Industrial Relations

This Code further restricts workers’ right to strike: workers must provide at least 60 days of notice. If more than half of workers in a company take concerted casual leave, it will be treated as a strike.

Companies with no more than 300 workers can fire them without government approval. Hitherto, the workers’ total was 100 as per law. Also, industrial establishments with 300 or less workers needn’t furnish a standing order (virtually enabling employers to introduce arbitrary service conditions for their workers).

Social Security 

The Social Security Code stipulates the formation of a National Social Security Board that will chalk out schemes suitable for unorganised workers, gig workers and platform workers. Such workers will be covered under the social security schemes that include life and disability insurance, provident funds, health and maternity benefits and skill upgrade. Also, a social security fund will provide money to the three classes of workers.

Occupational Safety

This Code permits women employees to work at night, given the company conforms to stipulated standards in safety, holidays, duty hours and their consent. Subsuming 14 Acts, including Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979, the Code defines a migrant worker as one who has come from the native state to seek a job in another, earning up to Rs 18,000 a month.

The Code withdraws the existing provision for temporary accommodation to workers around their sites, but provides a journey allowance by the employer.

Why the law?

India has for decades been facing a plethora of laws, many of which are perceived as outdated and rigid by contemporary standards. The laws, to many, obstruct labour-intensive firms from hiring skilled workers and firing employees. For instance, it needs 118 days to set up a business, only to face around 46 hours of power shortage a month and spend two years over each legal dispute.

Only a negligible part of the country’s workforce in the organized sector enjoys some protective coverage, while labour laws don’t apply much to the informal sector (except for the Minimum Wages Act in some states). The Economic Survey 2019 found the country’s firms suffering from dwarfism—stunted growth of employment in more than a decade’s existence.

The government has for a while been calling for such Codes to standardise labour-related definitions and, thereby, less dispute through a process of streamlining registration and filing of returns. It had sought legislations that guarantee the welfare of both workers as well as employers.

Industries, on their part, believed such laws were “long-overdue and much-needed” to woo investments. Workers’ unions, opposition political parties and a section of labour economists found the Bills for the Codes to potentially hinder labour rights by functioning in favour of employers.

What the proponents say are the pluses of the codes
What critics say are the pitfalls in the reforms
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