Labour law reforms: India enacted 3 new Labour laws

Indian labor law transformation has been completed as three remaining bills (Industrial Relations Code 2020, The Occupational Safety, Health & Working Condition Code 2020 & Social Security Code 2020) have been introduced and passed in both Lok Sabha (Lower House) & Rajya Sabha (Upper House).  The first of these “Code of Wages 2019” has already been passed by the parliament in 2019.

Overall, it’s a pragmatic law with bright spots for industry, labor, employability & economy in general. It’s a welcome effort by the government to clean up labor laws in India, 12 labor acts have been repealed since 2014, the three bills mentioned above subsume 25 different laws on the subject and wage bill subsumed 4 different laws. In total, these 4 laws will replace 29 laws and if we add 12 other repealed laws then it replaces 41 laws, making it simpler and streamlined laws on labor rather than labyrinth of many different laws and rules to navigate.

These laws will increase the cost of labor for industry marginally but industry has welcomed it with open arms, when it comes to workers these will increase their overall welfare and employability; however, there are serious roadblocks on “right to strike” and some section of organized labor (Less than 10% of total) might find some of there rights being trampled upon. Hence, we will see some protests on the street against these laws.  

There has been huge disparity in the rights of “Organized” & “Unorganized” labor in India for long and to protect the right of less than 10% of the organized labor, the unorganized labor was unduly disenfranchised. This gap will now get substantially reduced with these 4 laws, which is a very welcome step. The inclusion of new “Gig economy” & “Platform worker” in the rules shows pragmatism in including new economy workers in the ambit from the get-go, it’s inevitable that IT platforms and GIG economy fueled by new age technologies will keep increasing going forward. 

Bureaucracy & Red Tape: There is huge reduction in the same in many different ways, the number of registrations and returns will significantly reduce for almost everyone, power of inspectors have also been reduced with introduction of IT based random selections etc.

1.     Industrial Relations Code 2020: 

1.a     Clarity in law: Most definitions in the law are now clearly defined with little scope for misinterpretation, reducing overall rent seeking and corruption going forward.

1.b    Threshold for company size. Establishment with less 300 workmen can lay-off, retrenched, closed without government approval, earlier this limit was 100 employees. This provision itself will encourage companies to expand from the size of under 100 employees. In many cases entrepreneurs have gone through many hoops to ensure size of the company does not increase beyond 100 workers. This should help in employment generation in medium and long term. In short term, there might be some negative effects as some companies with size less than 300 workers will take this as an opportunity to close.

1.c     New Conditions for Legal Strike: The way the code has been written, it will be very difficult for workers to go on a “Strike”, provisions like mandatory notice, no legal strike during pendency of proceedings before Tribunal etc. are major barriers to overcome.

1.d  Re-skilling Fund: Although provisions and details of rule are not clear, the idea to setup re-skilling fund for training of retrenched workers is welcome. The employer will now be liable to pay 15 days of last drawn salary of worker as re-skilling fund.

1.e     Fixed Term Employment: will encourage employers to fill short term vacancies on direct role as well as make employees eligible for the social security at par with regular employees.

2.     Code on Occupational Safety, Health & Working Condition Code 2020

2.a   Pragmatic approach: Only one registration under the scheme for all industries, rights and duties of employee has also been made part of the code apart from employer and definition of major terms have been made very crisp in the law. 

2.b   Gender Neutrality: Now women and men both can work in night shifts and in all type of work.

2.c     Promote formalization: Issuing of Employment letters has been made mandatory by the employer of an establishment.

2.d  Migrant labor friendly: The law gives portability of benefit to migrant labor as well as mandate once in a year return fare to their hometown.

3.     Social Security Code 2020:

3.a     Inclusive: The new social security rules include Gig Worker, Platform Worker, Fixed Term Workers, Contract workers etc. making it lot more inclusive than before.

3.b    Wage Definition: The wage definition has been modified with inclusions and exclusions clearly defined and some it (Like exclusion of HRA from minimum wages) may impact the “EPF Contribution” by employer and employee. 

3.c     EPF Scheme: There has been major reforms in “EPF” scheme and its administration in the past few years making it easier to deposit & withdraw fund from the same. Its ambit has been further enhanced in the latest law with inclusion of “Self Employed”, “Gig workers”, “Fixed Term Workers” etc. However mandatory linking of “Aadhar” might become challenged in the supreme court.

3.d    ESIS (Employee State Insurance Scheme): Once again its ambit is being increased to include all workers and government has promised to prove this facility in all of 740 districts, at present its available only in 566 districts. 

3.e     Gratuity: There are few ambiguities is proposed bill but overall it has become more inclusive. The fixed term employees have also been made eligible for the same for the period served. The change in wages definition may impact calculations of Gratuity for employer. 

3.f      Employment Information & Monitoring: has been strengthened; however, the burden remains on employer to intimate and file returns.

4.     Comparison with China & USA

4.a     Health Coverage: The provisions for health coverage in India even after these changes sadly remains rudimentary in comparison with most countries in the world. In China, government collects much higher percentage of compensation and gives very decent facilities based on the same, in USA government forces employers to have insurance coverage of higher order and that covers in all. When it comes to sick leave China has probably the most liberal terms and depends upon the longevity of service of employee whereas USA leaves it between employee and employer.

4.b    Social security: Once again India lags in the same big time, in USA, it’s taken care by the state and China typically mandates one month of compensation for every year of work at the end of fixed term contract. Terminations while contract is still valid has even harsher conditions.

4.c     Employee mobility: Here India has moved with pragmatism and tried to protect the rights of workers with recognition of rights of migrant workers. In comparison, China discourages mobility with it’s work permit system and difficulty in transferring social security benefits from one state to other.

4.d    Occupational Safety: The present bill is welcome step towards implementing and enforcing better safety mechanisms across the board, a move forward from previous laws; however, it remains far behind USA or China.

4.e     Contract Labor laws: It’s a move forward and make things much better for workers than present status however it’s far short of the approach of China which forces companies to have workers on the roll of company rather than on anyone’s else role. The employment in China remains a fixed term renewable however after completion of certain period (8+ years in most cases) it becomes an open-ended lifetime contract. The USA takes more liberal approach of “Employment at will” makes it easier to hire or fire.

The law in India is moving in right direction, overall the changes can be construed as “Corporate Friendly;” however, the right of workers have not been trampled upon and many employee friendly benefits are part of changes. It will definitely increase ease of doing business and help in formalization of work force and reduce red tapes.