The new Labour Code

Labour laws are essentially laws applied to matters as employment, remuneration, conditions of work, trade unions, and industrial relations in a business. With a workforce of more than 500 million people, India needs in place a set of labour laws that accelerates economic growth by promoting ease of doing business. Until recently, dealing with Indian labour laws were a herculean task. The labour laws of India were archaic, with most of them dating back decades, some even to the pre-independence era and were extremely vast. Businesses had to navigate through over 40 central laws and more than a 100 state laws which often overlapped and several times contradicted each other, making it almost impossible to comply with some laws without breaking others. Thus, the Modi Sarkaar took steps towards tackling India’s labour practices by introducing 4 groundbreaking labour codes which completely replaced 29 of the existing 40 central laws. These were the Code on Wages*, The Occupational Safety, Health and Working Conditions Code 2020, The Industrial Relations Code 2020 and The Code on Social Security 2020 which were passed in the Rajya Sabha on the 23rd September 2020 and approved by the president on the 28th September 2020.

(the Code on wages was passed on 8th August 2019 *)

Before talking about the labour codes, one should have an understanding about the situation the businesses were in, before these codes were introduced. The sheer enormity in the number of labour laws in India have resulted in high costs of compliance for enterprises both in terms of time and money. However, the real trouble arose when an organization crossed the threshold of 100 workers, the Industrial Disputes Act, a law propounded in the year of independence, came into force. This necessitated such organizations to seek approval of the government before they could lay off any of their workers or even close certain industrial establishments, thus getting businesses involved in bureaucratic inefficiencies and Red Tapism.

To circumvent this issue, most businesses began hiring “contract workers” from specialized staffing agencies, who, unlike the permanent staff, could be hired for completing certain tasks for a specified amount of time and to whom the provisions of the Industrial Disputes Act did not apply to. However, such contractual labourers belonged to the unorganized sector, and hence were not entitled to the same minimum wages, benefits, working hours that permanent staff received, thus resulting in contractual workers working for longer hours for lesser pay. This pointed out two glaring loopholes to the government:

1. The previous labour laws were too restrictive and created a burdensome business regulatory environment. Such a tightly regulated labor market with highly inflexible laws like the Industrial Disputes Act inhibited businesses from expanding and hiring a greater workforce. This is detrimental to the country’s growth in terms of both loss of output and increasing unemployment. Businesses needed to be able to make flexible decisions and hire temporary workforces to meet dynamic and seasonal demand changes.

2. Though the labour laws of India pushed businesses to remain in the unorganized sector by hiring contractual laborers, there were no laws present that guaranteed them social security, despite them constituting about 93% of India’s labour force

Thus, it was up to the government to bring about a change in a set of almost century old labour laws, but there was a dilemma. Allowing businesses more flexibility in hiring and firing of workers, might result in dilution of rights of the workers. Thus, the government had to move precariously by maintaining a harmonious balance between the rights of workers and improving conditions to facilitate ease of doing business. This lead to the formation of the following labour codes:

1. Industrial Relations Code 2020 : Increases the threshold on the number of employees needed in an organization for the layoff, retrenchment, and closure of establishments without the approval of government, from 100 to 300 employees. It more importantly removes the distinction between permanent staff and contractual laborers by allowing Fixed Term Employment, i.e., it gives employers the flexibility of hiring workers as required on the basis of a written contract, while endowing such workers with the same wages, working hours, and benefits as that of permanent staff till the contract period ends.

2. The Code on Social Security, 2020: For the first time brings the entire unorganized sector under the umbrella of social security. It also states that a national database for the unorganized sector workers would be established where workers could register themselves through an online portal. Another provision of this code guarantees gratuity to all fixed term employees (mentioned in the industrial relations code), without requiring any minimum service period. This code also increases the maximum working hours of a worker from 8 to 12 hours, while maintaining a maximum weekly total of 48 hours. This allows businesses an option to have only 4 working days a week, or increase working hours on a certain day, to meet sudden demand surges

3. Occupational Safety, Health and Working Conditions Code 2020: Before this act was passed, staffing firms (suppliers of contractual labour), had to obtain multiple licenses and undergo numerous formalities. This act makes it very easy for such staffing firms, by creating a single license to hire workers on contracts across various locations. This leads to the creation of new jobs and also makes labour more readily available to businesses.

The new labour codes are far from perfect. There is a lot left to be answered - whether increase in working hours under the social security codes could result in increase in workplace fatalities or whether these laws have further weakened the already declining bargaining power of laborers and workers. But these codes have most certainly taken progressive steps by:

1. Simplifying the labor laws of the land, such that it is easier for the common people to comprehend and adhere to them.

2. Ensuring equal rights to both permanent staff and unorganized workers

3. And most importantly, offering increased labour flexibility to organizations.

These codes are said to be put into effect from 1 April 2021. Would they be a boon or bane to the country’s economic growth? It is too early to say and it depends majorly on how effectively the government enforces the changes brought about in the code and if it timely modifies the codes as and when required.