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India has one of the most out of tune labour laws that have not kept up with the changing times for decades. The earlier prevailing premise of the labour laws was protection of the working classes, such that their livelihood may not be jeopardized, which was perhaps good and well intentioned when brought about around the time of our national Independence. However one outcome of the same has been about 50% ‘dwarf firms’ (older than 10 years in operation but employing under 10 workers) yielding only 14% employment. This was done to keep the manpower headcount low so as to escape the more stringent provisions of the labour laws. This thwarted fuller capacity utilization and economy of scale took a back seat.

The Government wishes to encourage the Make in India initiative, therefor the old Labour Laws, which had become a dis-incentive for setting up more industrial establishments, had to be given a thorough root and branch change.

Another fact to consider was that ‘labour’ is a subject on the concurrent list of the constitution. Which being so, both Centre and State could legislate upon it. Over the decades this had led to old, overlapping and complex legislation. Therefore the Government has brought out the four Codes (not Acts) on labour laws wherein old laws have been simplified to improve business environment and spur employment, in keeping the changing times and circumstances.

Three labour codes on “Industrial Relations”, “Social Security” and “Occupational Safety & Health (OSH) & Working Conditions” were passed on 23rd Sep 2020 (monsoon session of Parliament). Earlier a code on Wages was passed separately in 2019, but as the Ministry wanted to enforce all in one go, it was held back. Thus, out of the existing 44 labour laws, 29 have been amalgamated in the four codes and the rest have been repealed.

However, it may be mentioned that owing to certain problems with the definition of wages and a few other matters of interpretation, the implementation could not be brought about so far. The stronger reason is that the States have to frame their own rules, which has not happened completely. So there the matter rests, as of now.

Nevertheless, one outstanding feature of the new Labour Codes is that the interest of all sides (i.e. the workers, the employers and the Government) has been considered, unlike the earlier laws where only the interest of the working classes was considered. We shall now examine each in turn.

Employers’ Interest

  1. Ease of doing business i.e., Common registration of employer for multiple locations. Unlike earlier for each establishment under the same employer, one had to have separate registrations. Secondly the filing of unified returns under various laws is a great boon. Earlier under the multiplicity of labour laws, there was multiplicity of returns to be filed.
  2. Removing ambiguity
    1. For filing unified returns, common definitions of Industry, Wages, Worker etc. are needed. Earlier each Act had its own definition and very often it led to conflict of interpretation.
    2. Thus, definition of “industry” is redrawn judiciously excluding organizations dealing with charitable, social, philanthropic activities and defence research, atomic energy or space. Earlier law and more importantly the judicial pronouncements (particularly Bangalore Water case) had widened the scope of industry to such a large sweep that even religious and charitable institutions found it hard to get out of the same.
    3. Further unit(s) of establishment may be segregated and will not be clubbed as one thereby totalling the headcount under one establishment. However this will be possible only if the said units are not carrying on/ aiding activity of main establishment.
    4. Similarly, common definition of “wages” has been drawn. This is a corollary of the unification of labour returns. If the returns are common, the definition of wages has to be common all across.
  3. Simple procedure – Industrial license shall now be granted for 5 or 10 years, instead of annual licences as prevailed earlier. However it may be added that certain States have already begun this practice. Further it is to be noted that the necessity of having Standing Orders commences upon the employment of 300 workers, which was earlier 100 workers only. 
  4. Flexible restructuring per market conditions – This appears to have laid many doubts at rest. Now one will not have to be overly cautious to hire for temporary needs. Earlier employers dared not hire manpower for fear of those people becoming permanent. Now the easier ‘market need based’ hiring will open the way to Fixed Term Employment. The person hired will be on the rolls of the establishment for the agreed upon term, but shall enjoy all statutory benefits. Similarly when the term of employment is over, smooth downsizing by way of exits will not pose any problems. Layoffs and retrenchments, which were the tools of downsizing earlier will not need to be resorted to. This will also reduce the dependence on Contractors. It was the general feeling that the employer would better ensure the benefits of Labour Code being passed on to the worker, than what a Contractor would.
  5. End of Inspector Raj
    1. Inspectors to be re-designated as “Inspectors cum facilitators”.  They shall have a dual role. They shall facilitate the employers in complying with the laws. They shall also have the regulatory role, but that will be the option of second resort. Now since the average level of compliance under the jurisdictions of the “Inspectors cum facilitators” shall be monitored on regular basis, the earlier sharp practice of illegal inducements shall be curbed.
    2. No initiating of prosecution without giving time by way of grace period & opportunity to comply with the code. Thus the approach of regulatory authorities shall be reformative and not just deterrent and punitive.
    3. If complaint made beyond such grace period, no penalty imposable without holding enquiry by Government Officer, not below rank of Under Secretary. Thus a degree of fairness is sought to be brought about in the case of launching action.
    4. No imprisonment on first offence or even on repeat offence if there is a gap of over 5 years after last offence.
    5. Compounding of offences punishable by fine only (even after launching prosecution in Court), by paying 50% of fine. This is a revolutionary step towards giving a humane face to the Labour Laws, which did not exist earlier.
    6. Composition of offences punishable by imprisonment up to one year and/or fine, may be done by paying 75% of the amount of penalty imposed.
  6. Flexible working hours per need – Employers shall now be free to tailor working hours within overall 48 hours per week. Many employers face the problem of manpower being present but the raw materials and other components not reaching on time. By the time the materials reach, the factory shift time is over. That problem shall now be easily overcome.

Workers’ Interest

  1. Coverage to the un-organized sector, “Gig workers” with no fixed employer (e.g., cinema unit crew – for duration of shooting) and “Platform workers” (wherein online “aggregator platforms” do job allocation & payment e.g., Ola) and other un-organized sector workers, like building and construction workers, are now to be covered under labour laws.  The individual workers to be registered online/ using toll free helpline. So leveraging of technology is also in full swing to hasten the pace of reforms.
  2. Coverage to all workers without wage limit. – This is a very welcome move, or a compulsion of the nature of the labour laws. Earlier the ESI Act had one limit, the PF Act had another, the Payment of Bonus Act had still another. Now as the laws have been consolidated and the returns are unified, a welcome coverage without ceiling is very encouraging.
  3. Better “in hand” income
    1. Minimum Central floor level of Minimum Wages has been proposed. Further, unlike earlier, there shall be no Schedule of industries for the applicability of minimum wages. All shall enjoy the coverage under Minimum wages without any exception.
    2. Revision of minimum wages to be done within 5 years (not just the revision of Dearness Allowance)
    3. Relaxed OT provisions. The water tight provisions of Overtime work has been relaxed.
    4. Full day wage for working less than normal working day (if it is not attributable to the fault of worker).
    5. Day of rest to be payable – Now here is a scope for confusion. The workers were earlier paid under the concept of 26 working days a month. In other words, the Sundays (or whatever the day of weekly day of rest was) was not payable. The advantage for the workers was that the per day wage computation was higher as the monthly wage was divided by 26 and not by 30 or 31. Now as the new Code says that the day of rest is to be payable, the per-day wage may now be computed on the basis of monthly wages divided by number or days in the month.
    6. Minimum service condition for statutory benefits including gratuity relaxed. As the now Code allows FTE (fixed term employment) there may be occasions where the workers do not fulfil the minimum length of service criteria, for availing certain benefits, e.g. 240 days work for availing Earned Leave, or minimum 5 years’ service to be eligible to  receive gratuity. Thus those minimum length of service criteria have been removed.
    7. Annual leave encashment to be made by the employer, if so required by worker.
  4. Experience Certificate – to be mandatorily issued by employer.
  5. Adhaar based portable benefits – of P F/ESI coverage (yet to be rolled out).
  6. Re-skilling before retrenchment – A fund being set up with employers contributing 15 days wages of workers immediately before retrenchment. Details to be rolled out.
  7. Humane treatment
    1. Free medical check-up of all workers by ESI, so employer does not have to bear the cost.
    2. ESI not to deny medical benefit to any worker, on ground of for non-timely insurance of worker by employer. In other case for no fault of worker, he shall not suffer for want of medical attention.
    3. Welfare Officer to be appointed on 250 workers against 500 earlier.
  8. Trade Union Response – All Trade Unions are unhappy because of the following reasons-
    1. Alleged lack of transparency & consultation. Particularly before the Code on Industrial Relations replaced the Trade Union Act/ Industrial Employment (Standing Orders) Act/ Industrial Disputes Act. Factually such reforms were mooted in 2002 by the “National Commission on Labour” & widely discussed and concerns of all stakeholders had been addressed adequately.  
    2. Number based categorization (20 workers for factories/ 10 workers for construction sites) leaves out home-based and/or self-employed workers from Social Security.
    3. Right to form multiple unions, now curtailed.
    4. Unions’ voter-base/ membership contribution base, (i.e., bargaining power), now curtailed – by introducing Fixed Term Employment (FTE) / All India license to labour Contractors.
    5. Right to go on strike (including mass casual leave), now curtailed.
    6. Trial/Appeal of labour disputes in Courts, now curtailed. Time bound adjudication by Tribunals.
    7. Earlier stringent penalties for violations by employers, now softened.
    8. Principle of ‘Working with Consent’, for Workers on OT / Women in night-shift – is an eyewash.
    9. Unions say industry got undue benefit of lower wage bill by hiring young workforce as FTE, that too just for needed period. Earlier, older workforce with higher wages could not be laid off / retrenched. Factually- vast contract labour force is at times not entitled to social benefits & retrenchment compensation for a host of reasons. Now organizations can directly hire them as FTE without going via Contractor. Along with this the FTEs can improve careers with employment certification from Organizations.

Government’s Interest

“Make in India” initiative of the Government is  supported on pillars of a) Skill India b) Digital India c) Women Empowerment – including female workforce & d) Ease of Doing Business. This will get a boost under the Labour Codes. 

      Government Aims to encourage the following

  1. Expand decent working conditions – for workers even in un-organized sector.
  2. Changes in Apprenticeship Act (on the anvil) –
    1. this will enable third party aggregators to manage Apprentices for Companies (instead of individual Apprenticeship contracts by employers).
    2. Further the number of establishments available for engaging Apprentices will be expanded beyond manufacturing sector to include service and training sectors too.
    3. Penalty on employers to be done away with. 
  3. Digital compliance
    1. for “maximum governance/minimum government”
    2. Principal Employer can vet online Contractors’ remittance of PF & ESI dues.
    3. Employers not remitting employees’ contributions to suffer penal taxation.
    4. Principal Employer responsible for welfare amenities to Contract labour. 
  4. Safe working conditions
    1. Employer to pay for excessive sickness benefit arising out of unsanitary conditions
    2. Safety Officer on 500 workers (250 in hazardous) against 1000 earlier.
  5. The Government shall be able to position India as “preferred investment destination” for foreign firms and encourage “Make in India”, thus creating employment opportunities.
  6. Empower Women
    1. Prohibits gender discrimination in hiring-promotion-transfers.
    2. Night shift allowed with consent and safeguards, including in mining.
    3. Person to be disqualified from receiving bonus for sexual harassment.

Aims to discourage the following           

  1. Loopholes in law / Criss crossing of laws
    1. Inspectors cum facilitators to also bring to the notice of Government “defects and abuses” not covered by law.
    2. So far – Factories Act did not discuss the concept of Employer, it spoke only of Factory Manager and Occupier. This was an omission. Will now be remedied.
    3. Trade Union Act did not discuss Standing Orders. Industrial Disputes Act did not discuss Occupier. Though all overlapped in practice.
    4. Concept of Appropriate Government now applies to dispute between Contractor and his workers too.
  2. Breach of industrial peace and frivolous litigation
    1. Grievance Redressal Committee strengthened. Decision based on agreement of min 50% members, otherwise deemed that no decision arrived at. No appeal from this decision.
    2. Right to go on strike curtailed as the rules of public utility services now extended to all.
    3. Mass casual leave on a given day by 50% or more workers is also considered strike.
    4. Flash strike totally prohibited.
  3. Multiplicity of Unions & rivalry
    1. Earlier 7 or more members could apply for registration. Now 10% or 100 workers (whichever is less) engaged or employed in establishment or industry, can apply.
    2. The concept of “Negotiating Union” has been introduced in the Labour Code i.e., the Union which is enjoying support of 51% workers on muster-roll will now be the negotiating union. If no such union exists, a Negotiating Council (with 20% support of overall workers) will be formed. Tenure of both -3 to 5 years.
    3. Appeal against non-registration of union & other Trade Union disputes, triable only by Tribunal not High Court. This will lead to quicker administration of justice.
    4. For the un-organized sector, cap on office bearers – one third or five (whichever is less) shall be engaged/employed in establishment/or in the concerned industry.
  4. Lengthy dispute resolution
    1. By introducing two-member Tribunals (judicial & administrative – min Jt. Secretary level). If both members disagree, Appropriate Govt refers to different Tribunal. No appeal to Court. 
    2. Appellate hearing in PF on deposit of 25% and limitation of 5 years.
    3. Deferred or reduced contribution remittance for 3 months in pandemics or natural disasters
    4. Conciliation proceeding cannot stretch beyond 2 years.
    5. Claim from money due from employer has limitation of 3 years. No limitation existed under 33C(2) of ID Act. Claims to be decided by Officer so appointed. Bar of suit on such matters. 
  1. As a result, the Shram Suvidha Portal of the Ministry of Labour is being upgraded for “unified, digitized, simplified services with full coverage”. For example, employers will have single registration under all Labour Laws. However, the returns under the “revenue earning” Labour laws i.e. Provident Fund and ESI Act will continue as before for one year, i.e. all employees under different factories/offices of a single organization are given a universal number. As a first step Contractors and staffing firms will get a single license for operating in different locations. 
  1. Impact Assessment will happen after one year of rolling out – PF Act may be modified then.
  1. The regulatory irritants like threshold of firm size for closure, retrenchment & layoffs permission is raised from 100 to 300 workers. Threshold for establishment to be deemed factory raised from 10 to 20.
  1. Flexibility and not rigidity in laws is called for, to deal with the changing situations viz.
    1. Formalizing “fixed term contract”, enabling flexi manning, automating & outsourcing certain operations.
    2. Re-defining contract labor, onus of arranging welfare facilities of contract labor on principal employer.
    3. Removing the clause calling for prior permission for retrenchment, lay-off and closure of industrial establishments with less than 300 workers.
    4. A Schedule listing out the compoundable offenses added.
    5. Single license for Staffing firms to hire contract labour across different locations.
    6. The definition of inter-state migrant labour is softened to accommodate cases of any person who voluntarily moves to another state. The benefits under public distribution system goes hand in hand.
  1. Definition of wages. Industry is raising concerns that the provision that says that all the allowances shall have an overall cap of 50% of overall wages and the remainder of wages i.e. (minimum 50%) to be treated as PF bearing emoluments (Basic, DA & Retention allowance) rule will burden the payroll causing hardship to employers. It will also lower the take-home wages of the worker owing to higher outgo in PF and Gratuity. Thus it will cause hardships to workers too. However, the PF component may not be impacted for new industries who may cap it at 15,000/-. Older firms may find it hard to cut back.

By Nirmal Chowdhary, Veteran HR Professional, Ex Hero MotoCorp Limited; Ex Mahindra & Mahindra; Ex Associated Cement Companies Limited (ACC). To get in touch with Nirmal, you can send us a mail at


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