The labour law reforms are being bandied about as the most crucial second generation amendments that will make it easier to do business but must not compromise workers
The Narendra Modi Government recently passed three Bills on labour reforms enshrined in three labour codes, namely The Industrial Relations Code, 2020, The Occupational Safety, Health and Working Conditions Code, 2020 and The Code on Social Security, 2020. Along with The Code on Wages, 2019, passed by the Parliament last year, these four labour law reforms are being bandied about as the most crucial second generation amendments that will make it easier to do business, improve the competitiveness of the Indian industry, make it a manufacturing hub and pursue the “Make in India” agenda successfully. Even as the landscape of these legislations is vast, there are four areas which will have far-reaching implications for the way the Centre and the States will be regulating businesses and ensuring the welfare of workers. These include (I) consolidation (call it merger) of existing 29 Central Labour Acts into four codes; (II) increase in the threshold for retrenchment, closure or lay-off for a firm (without Government permission) from existing 100 to 300 workers; (III) giving greater flexibility to the States in enacting legislation and (IV) providing for universal social security for workers. At the outset, let us recognise that labour is on the Concurrent List of the Constitution; therefore, both the Union Government and the States have the power to legislate on the subject. Hitherto, there were 29 Central Labour Acts besides 200 State-enacted laws and amendments. This meant that a company was required to take a number of licences, registrations, permissions, renewals and file numerous returns periodically under different Acts. For instance, it had to file one annual return each under the Payment of Wages Act (1936), the Minimum Wages Act (1948) and the Payment of Bonus Act (1965).
Shockingly, even a MSME (micro, small and medium enterprise) is required to maintain at least 10 different formats of wage registers, four formats of accident registers and four of muster rolls under different Acts. The regulations at the State level are even more complex. Each State enjoys the right to formulate specific rules with respect to applicability thresholds, forms, formats, calculations, dates, frequency of submissions, filing types (paper-based vs. digital) and so on. This results in different due dates, multiplicity of forms and formats, duplication in record-keeping requirements, redundancies, complex procedures, ambiguous interpretations and so on. As a result, companies which operate in several States face a nightmare.
Consolidation of the extant 29 laws into four codes should help firms in getting rid off this nightmare. They can look forward to a significant reduction in the number of licences, registrations, renewals, returns and registrations earlier required under different Acts. As a result, the compliance burden will go down. For instance, under The Code on Wages, 2019, a firm needs to file a single annual return against three different annual returns earlier. Correspondingly, at the State level too, businesses will be unshackled.
As regards (II), under the extant law, employers of industrial establishments such as mines, factories, plantations and so on, with at least 100 workers, were required to take prior permission of the Central or the State Governments before retrenchment or closure of workers. Together with a myriad of regulations and compliances, which increase in proportion to the scale of operations, this was a major impediment in the way of firms growing in size and creating more jobs. It also takes away the flexibility of firms to adjust their labour deployment in sync with changing demand conditions. It affects their ability to stay afloat in a competitive environment especially when the economy is in a downward phase. It also prompts them to hire contract workers, which is not a good sign especially for their social security. This has seriously impacted formalisation of the economy. Out of about 63 million enterprises, only one million or 1.5 per cent are in the formal sector.
This preponderance of the so-called unorganised informal economy (it accounts for roughly 50 per cent of the Gross Domestic Product and 80-90 per cent of the workforce) is the inevitable outcome of imposing such restrictions.
The increase in threshold under The Industrial Relations Code, 2020 should come as a big relief, as firms having up to 300 workers will get the much-needed flexibility to adjust to the changing business environment. But what is the sanctity of fixing the threshold at 300? Why should enterprises employing workers in excess of this be subjected to approval?
In the contemporary economic milieu, wherein the ability of firms to compete depends largely on the scale of operations (even start-ups in a matter of few years get into the position of giving jobs to thousands of workers), imposition of such arbitrary thresholds viz. 100 or 300 or even higher — a legacy of the socialist era — is totally out of place. This needs to be done away with.
The Code provides for “fixed-term employment” through contract workers on a pan-India basis. Currently, companies hire contract workers through contractors. With the introduction of fixed-term employment, they will be able to hire workers directly under a fixed-term contract, with the flexibility to adjust its tenure based on the seasonality of industry. These workers will be treated on a par with regular workers. It will be a win-win for both the companies and those aspiring for jobs.
The Code does not take away the workers’ right to go on strike. However, it has been made mandatory to give 14 days’ notice for giving time to sort out differences through harmonious discussion during this period. Doing away with multiplicity of unions and introduction of the concept of a “negotiating union” is a welcome move. Coming to (III), under the present law, States have limited powers to exempt factories from labour laws. For instance, The Factories Act, 1948 allowed exemption from its provisions in cases of public emergency only for a period of three months. For making changes or giving exemptions from the law for longer duration, they had to approach the Central Government. Now, the Union Government has given a lot of flexibility to States while implementing these Codes. For instance, The Occupational Safety, Health and Working Conditions Code, 2020 empowers the States to exempt new factories from any of the provisions of the new law for more economic activities and employment opportunities. No timeline for giving exemption to factories is prescribed as against three months at present. It also exempts existing establishments from any of the provisions of the new Code in case of an emergency provided that certain conditions are fulfilled.
Under the Industrial Relations Code, 2020, States can allow easier retrenchment, or closure norms for more firms through a notification, without the need to seek the Centre’s approval. For instance, unlike in the past when they could increase the threshold only after seeking the approval of the President and then getting it passed by the legislature (16 States had hiked the threshold to 300 workers following this lengthy procedure only), now a State can do it by issuing an executive order.
The State can also exempt new establishments from “any or all provisions” of the law dealing with industrial disputes, retrenchment and trade unions “unconditionally” for a specific period of time as it thinks fit. This can be done in “public interest.”
Though, prompted by the dire need to press the accelerator for industrialisation at a fast pace, these provisions may have given too much discretionary power to State bureaucrats. They need to use these judiciously and while granting exemptions, they should ensure that workers’ interests are not compromised.
As regards (IV), The Code on Social Security, 2020 provides for universal social security for workers by expanding the ambit of Employees’ Provident Fund Organisation (EPFO) and Employees’ State Corporation of India (ESCI) and setting up of a social security fund to cover around 400 million unorganised sector workers. However, some clauses are a bit restrictive. For instance, only sites with 10 or more building and other construction workers are covered. Likewise, for Provident Fund, only establishments with 20 or more workers are covered. This will result in exclusion of millions of MSMEs.
Worryingly, the Code does not stress on social security as a right and does not make any reference to its provision as stipulated by the Constitution of the country. Plus, it does not lay down a clear date for enforcement. This will leave workers vulnerable without social protection. It is vital that social security protection be made universal for the entire nation’s workforce. However, the Code makes whimsical categorisations that will deprive millions of working poor of their rights.
While the Code defines multiple categories, most are obscure and have not been revised to determine whether a worker belongs to the organised or unorganised sector. For instance, platform and gig workers are not defined as part of the unorganised workforce, even though lakhs of people are employed as such. Similarly, the word “establishment” in the Code should have been altered to make sure that all workers come under the ambit of social security protection.
To sum up, the enactment of the four Codes is a big leap forward in labour reforms but there still needs to be some more thought put into the protection of workers. As for the outcome, a lot will depend on how the States respond as they are the ones who have to implement, frame and notify the rules and do the follow up. If, they don’t and keep the regulations complex, the intended benefits won’t percolate down to the last worker. Both the Centre and States have to work towards this.
(The writer is a policy analyst)