Implications and challenges of proposed labour codes

By Jivesh Chandrayan and Bhagwati Tiwari, HSA Advocates

It is reported that 31 states and union territories have pre-published the draft rules for the Code on Wages, 2019 (wages code); 28 for the Industrial Relations Code, 2020 (IR code); 28 for the Code on Social Security, 2020 (SS code), and 26 for the Occupational Safety Health and Working Conditions Code, 2020 (OSH code).

While the codes are yet to be implemented, a contentious debate has arisen over a number of issues concerning their applicability and potential consequences. Not all industry stakeholders have welcomed the proposed changes leading to the pressing question: whether the codes should be opposed for neglecting the working class or supported for easing the burden on employers and business owners.

Jivesh Chandrayan
Jivesh Chandrayan
HSA Advocates

Some of the key reforms, as proposed in the codes and set out below, have generated significant interest, particularly those having greater ramifications. They may have to withstand the test of time and undergo judicial scrutiny.

Raised ceiling for retrenchment approvals. Under existing legislation, establishments employing 100 or more workmen need government approval before carrying out any closures, layoffs or retrenchments. However, section 77(1) of the IR code will increase this cap to 300 workmen. The objective is to provide flexibility to establishments and business owners looking to cut down their workforce.

Unified common definitions. At present, a number of common terms are defined differently in various acts. The codes have subsumed 29 central acts in an attempt to achieve uniformity of definition and interpretation of the same terms in those acts. For example, all terms referring to employee such as worker, workman and person employed are to be replaced by a single term, worker, with few exceptions.

Less onerous contract labour hiring. The OSH code aims to significantly ease engaging and managing contract labour by increasing the threshold of applicability to a minimum of 50 workers from the current 20. The object behind increasing the applicability threshold in the code is to help small businesses by relieving them of onerous compliances if they employ fewer than 50 contract workers.

Bhagwati Tiwari
Bhagwati Tiwari
HSA Advocates

Collective bargaining reforms. Currently, multiple trade unions are allowed to negotiate in a single establishment, hindering quick settlements by means of consensus. The IR code provides for recognition of one trade union in an establishment for efficient collective bargaining between employers and workers. It will do this by conferring recognition on the trade union that counts the majority of workers as its members.

Common licence. The OSH code provides for a common licence for factories, contract labour, and beedi and cigar establishments. The code stipulates a nation-wide single licence valid for five years to ease the engagement of contract labour.

Umbrella social security scheme. The SS code will establish a National Social Security Council to consolidate the administration of various fragmented social security benefits, including pensions, health care, maternity, disability, dependent care, medical benefits, group insurance, provident funds, unemployment benefits and others.

Wider applicability of minimum wages. At present, only workers engaged in scheduled employment are covered under the Minimum Wages Act, 1948. The wages code will expand the applicability of minimum wages by including workers from all organised as well as unorganised sectors.

The codes, no doubt, will be a game changer for international businesses in India. Their introduction is long overdue for the evolving economic, social, and technological conditions in the country. While trade unions claim that the codes will provide business owners with greater freedom to hire and fire workers on a whim under the guise of ease of doing business. However, striving for a balance between bridging the economic gap and streamlining labour management will be the key for all-inclusive growth.

Dr Ambedkar considered economic servitude to be a form of coercion believing that for a democracy to thrive, the state must intervene for the benefit of the marginalised. These codes, if implemented with all the necessary measures could be a significant step toward achieving this goal, laying the foundation of India’s future labour law regime, reflecting the diverse interests and perspectives of all stakeholders.

Jivesh Chandrayan is a partner and Bhagwati Tiwari is an associate at HSA Advocates.

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