Pros & Cons of the New Labour Codes

Both Union and State Legislatures can make laws concerning labour as it is listed under the Concurrent List of the Constitution. There are numerous laws under Labour, ranging from 200+ State laws to 50+ Central laws, these rules however, often overlap each other and are sometimes contradictory. This makes it complex to rationalise their application. To improve ease of compliance and ensure uniformity in labour laws the Union Government decided to consolidate all of them together under three broad umbrellas - i.e., the four labour codes:

1. The Social Security Code 2020 (SS Code)

2. The Occupational Safety, Health and Working Conditions Code 2020 (OSHW Code)

3. The Industrial Relations Code 2020 (IR Code)

4. The Code on Wages (2019)

The Industrial Relations Code, 2020:

  1.  Previously, establishments with more than 100 employees could not fire their employees without permission. After the code has been introduced the threshold has been raised to 300. Now establishments with more than 300 workers can’t fire or shut shop without Government’s permission.
  2. Under the old laws, Two to six weeks’ notice in advance was required for Unions to strike. As per the code, Unions need to give 14 days’ notice to strike and the notice is valid for 60 days. If a dispute is taken to court after the strike begins, workers can’t re-initiate the strike for at least 60 days after court proceedings end.
  3. Earlier, the notice period of 60 days was only applicable to public utility services (railways, airlines, departments of water, electricity, telecom, etc.). Under the new code, it has been extended to all services and industries.
  4. Previously, Unions with at least 10% representation from all the workers employed in an industry got a seat in the negotiating council. With the introduction of the codes, the threshold has been increased to a minimum representation of 20%.

Thus, it can be discerned that The Code also allows a new provision to address grievances of workmen who have been fired under dispute.

Pros: The first change brought in by the code is a welcomed change as far as the employers are concerned because now they can employ up to 300 people without any hassle regarding Government approvals for firing them. It will encourage employers to increase employment numbers.

Cons: The rest of the changes, however, have been attracting a lot of criticism from trade unions. The new code seems to curtail their authority. The Trade Unions are of the opinion that their authority is being undermined by tightening the laws to strike and increasing threshold representations which will drown out the voices of small unions.

Meanwhile, the lawmakers have an explanation, the Government says that the increased time period before granting permission to strike is to allow for dialogue and settlement of the conflict.

The Code on Social Security, 2020:

  1. As settled by the laws prior to the Code, Workers could withdraw gratuity payments after a minimum of 5 years of service. After the implementation of the new code Minimum service requirement is reduced to one year for withdrawal of gratuity.
  2. Agricultural workers not included under social security cover initially but after the introduction the code, Agriculture workers are included now.

It is for the first time that the workers in the unorganised sector (migrant workers, gig workers and platform workers) are included under social security coverage.

The Central Government is supposed to set up a 'social security fund' for unorganised workers, which will require contributions from the employer companies (called ‘aggregators’). Contributions must be at least 1-2% of their annual turnover.

Pros: The greatest number of changes are introduced by this code and was a long-awaited step in the right direction. The code has catered to the millions of self-employed workers including gig and platform workers and those working on a contract-basis for the service sector in companies like Uber, Swiggy, Amazon etc.

Cons: An ideal social-security scheme requires a basic and mandatory employer-employee contribution to make use of its benefits but the Code still makes this requirement discretionary and not mandatory on unorganised establishments (fewer than 10 workers), leaving a large class of masses without coverage.

The Occupational Safety, Health and Working Conditions Code, 2020:

  1. According to the previous definition ‘Factory’ is a place with more than 10 workers (with power) and more than 20 (without power). After the introduction of the Code ‘Factory’ is a place with more than 20 workers (with power) and more than 40 (without power).
  2. Previously, ‘Fixed-term employment’ meant those where contractors employ 20 or more workers in a day within the last one year now the threshold has been increased to 50 and now ‘Fixed-term employment’ requires employing at least 50 workers.
  3. Earlier Maximum work hours couldn’t exceed nine hours in a day but after the introduction of the Code Maximum work hours are fixed at eight hours, a day beyond which requires overtime wages equal to double the normal wages.

Inter-state migrant workers can now avail Public Distribution System benefits in either their home state or employed state.

Pros: The number of non-core activities has also been reduced to 11 where contract labour can be employed.

Cons:  The income cap of ₹18,000 per month has been fixed to define inter-state migrants which is not appropriate in comparison to the per-capita income figures.

The Code on Wages, 2019:

The Code on Wages, 2019 has subsumed and repealed the following important labour laws:

  1. The Payment of Wages Act, 1936
  2. The Minimum Wages Act, 1948
  3. The Payment of Bonus Act, 1965
  4. The Equal Remuneration Act, 1976

The Code on Wages shall regulate wage and bonus payments in all employments and aims at providing equal remuneration to employees performing work of a similar nature in every industry, trade, business, or manufacture. The Code on Wages also aims to transform old and obsolete labour laws, some of which were enacted in the pre-Independence era and meant primarily for factories and industrial establishments, into a more accountable and transparent law.

Pros: The Code on Wages is seen as one of the important policy decisions of the Indian government during this term. It has the potential to impact almost 500 million workers across the country. It has been a long-standing agenda of the government to codify and consolidate labour laws in order to promote ease of doing business in India. With almost 45 federal level laws and close to 100 state-level laws dealing with labour and employment aspects, it was the need of the hour to consolidate, amalgamate, simplify, rationalize and codify these laws.

Cons: While the government may have succeeded in combining laws relating to the same subject matter under one umbrella, on the flip side, most of the substantive provisions of those laws continue to exist under the Code on Wages. To that extent, the exercise may be viewed largely as a consolidation of laws rather than truly a reform.

Conclusion: The four new labour codes are undoubtedly a significant reform in India. However, every great plan, if not executed well will not fetch fruits and therefore, only time will tell how effective these changes will be for employees, employers and the economy in general. Compliance with these Labour Codes will benefit all the Employers to keep everything in check.

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