Labour Codes Ushering a New Era of Reforms

Labour Codes Ushering a New Era of Reforms

Overall, the Codes are a welcome move and can be a game changer

India was on a socialistic path initially before embarking upon liberalization. Quite naturally, there was a difference between the timing of those legislations and requirements of the day. Currently, India has legislations as old as those passed from the year 1923¹. Coupled with this are the challenges of having different enactments dealing with similar subject matter with different definitions and also matters relating to labour welfare, trade disputes, social security falling under the 'concurrent list' of the Constitution of India², enabling both Central/federal and State governments to legislate on the labour laws. Accordingly, there are legislations and rules passed by the central government and rules framed by the state governments.

While so, wherever there is any ambiguity, Courts by and large interpreted the provisions in favor of employees/workers, by adopting liberal interpretation of the welfare legislations.

Therefore, there was a pressing requirement to consolidate all these laws and simplify their implementation.

To overcome these difficulties, the Government had constituted a Second National Commission on Labour ("Commission") with a two-point agenda:

i) Suggesting rationalization of existing laws relating to labour in the organized sector; and

ii) Suggesting an 'umbrella' legislation for ensuring a minimum level of protection to workers in the unorganized sector.

The Commission had recommended consolidation and rationalization of labour laws by eliminating obsolete provisions. After a prolonged delay, finally in 2019-2020, four labour codes were enacted consolidating 29 of the existing labour laws ('Codes') as follows:

i) Code on Wages, 2019 ("Wage Code"), consolidating the law in relation to payment of wages and bonus;

ii) Code on Social Security, 2020 ("SS Code"), consolidating the law in relation to social security benefits;

iii) Code on Occupational Safety, Health and Working Conditions, 2020 ("OSH Code"), consolidating the law on safety, health and working conditions of workers at factory/ establishment; and

iv) Code on Industrial Relations, 2020 ("IR Code"), consolidating the laws relating to trade unions, retrenchment, lay-offs and settlement of industrial disputes.

Even though the introduction of the above Codes is predominantly a consolidation exercise, the changes brought in by the Codes can be broadly classified into five different groups viz., (A) Structural changes; (B) Changes that are aimed to better 'Ease of Doing Business India' rankings; (C) Changes influenced by judicial pronouncements; (D) Contemporary changes; and (E) Changes that are beneficial to the employees.

The changes under the above groups are discussed hereunder:

STRUCTURAL CHANGES

The following structural changes are made to the existing legislations when subsumed in the new codes:

i) Prohibition of contract labour in core activity: The OSH Code prohibits deployment of contract labour in the core activity of an establishment. 'Core activity' is defined as any activity for which the establishment has been primarily set up and includes activity which is essential or necessary to such activity. Certain activities are clarified to be not essential or necessary such as watch and ward services, canteen and catering services, loading and unloading operations, etc., unless the entity itself is engaged in such activity.

ii) Concept of Negotiating Council: The IR Code now introduces the concept of a 'negotiating union' for negotiating with the employers. A negotiating union is a trade union having 51% or more of the total workers on the muster roll of the establishment as its members. Where more than one trade union is present with none having 51% worker membership, a negotiating council will be constituted consisting of the representatives of such registered trade unions, having the support of not less than twenty per cent of the total workers on the muster roll of that industrial establishment.³

iii) Concept of Floor Wages: The Wage Code empowers the Central Government to fix the minimum floor wage for each region and there is a statutory obligation on the State Governments to fix minimum wages above the floor wage.⁴

CHANGES AIMED AT 'EASE OF DOING BUSINESS'

The following changes are made to improve ease of doing business rankings:

i) Prior permission for retrenchment and lay-offs: The requirement of obtaining prior permission from the appropriate government for closing down, lay-offs and retrenchment of workmen has now been increased to establishments employing 300 or more workmen from the current 100 or more, thereby making it easier for the employer of smaller size to terminate employees as per business needs.⁵

ii) Facilitator Regime: The labour inspectors under the erstwhile regime are rechristened into inspector-cum-facilitators. Their role is not merely to act as an enforcement agency but also to act as facilitators of compliance. All employers will be given an opportunity to rectify non-compliance in the first instance and it is only in a second or subsequent offense that the penalty and penal provisions would be applicable.⁶

iii) Recognizing the concept of fixed term employment: The concept of fixed term employment has now been extended to all sectors. In order to be classified as a fixed term employee, he/she must be appointed for a specific period. The Code places fixed term employees on an equal footing with permanent workers on working hours, statutory benefits including gratuity. Gratuity shall be paid upon completion of at least 1 year of service.

iv) e-Way: In line with the government's emphasis on the Digital India mission, the records, registers, returns, etc., can be maintained electronically.

v) Increased Thresholds: The applicability threshold for contract labour deployment has been increased from 20 to 50 workmen.⁷ For factories, the applicability is increased to: i) 20 or more workers (currently it is 10), where a manufacturing process is being carried on with the aid of power; or (ii) 40 or more workers (currently it is 20), where a manufacturing process is being carried on without the aid of power.⁸

CHANGES INFLUENCED BY JUDICIAL PRONOUNCEMENTS

There are certain provisions that are influenced by judicial pronouncements which include:

i) Recognizing all genders: An employer cannot discriminate employees belonging to any gender and not limited to male and female.⁹ This is a welcome move in recognizing the plurality of the society.¹⁰

ii) Uniform Wage definition: The term 'wages' has been a matter of debate and contest as it is defined variedly under the extant laws resulting in different practices. In the matter of Regional Provident Fund Commissioner¹¹ the Supreme Court upheld that the allowances paid across the board uniformly to all employees in a category will qualify as basic wages on which provident fund contributions shall be made.

Now, the definition of 'wages' has been standardized across all the four Codes. It includes all remuneration paid to the employees such as basic, dearness allowance, retaining allowance but excludes: a) overtime and house rent allowance, conveyance allowance, remuneration payable under any award or settlement gratuity; b) gratuity, retrenchment compensation, or similar ex-gratia. It is clarified that if the exclusions exceed 50% of the remuneration, then the amount in excess of such 50% will be treated as wages.

The definition brings in much-needed harmonization, but misses in detail, as some components can be taken in both the inclusion list and exclusions. This may also have additional cost implications for employers.

CONTEMPORARY CHANGES

Provisions that are contemporary in nature include:

i) Concept of Gig Workers and Platform Workers: The SS Code recognizes the growing concept of gig and platform workers and offers them social security benefits. 'Aggregators' which is a digital intermediary that brings buyer and seller on to a single platform, that engages these gig and platform workers, may now be asked to contribute to these social security schemes, which shall not be less than 1% of the turnover of the aggregator or 5% of the amount paid or payable to these workers, whichever is less.¹²

ii) Broadening the scope of inter-state migrants: The concept of inter-state migrant labour was limited to persons hired through a contractor for work in an establishment situated in another State. Now, this concept has been broadened under the OSH Code to include any person who has come from one State and obtained employment in another State and earning wages below INR 18,000 per month. This provision is applicable to both worker and employee. The employer is required to maintain records of inter-state migrants and pay them journey allowance every year.¹³

EMPLOYEE BENEFICIAL PROVISIONS

There are certain provisions that are beneficial to the employees, such as:

a) Establishment of Re-skilling Fund: The IR Code proposes to establish a "Worker Re-skilling Fund" having contribution from the employer of an industrial establishment, totaling to an amount equal to fifteen days of wages as last drawn by the worker immediately before retrenchment. The contributed amounts are to be credited to the retrenched worker's account, within forty-five days of such retrenchment, in such manner as may be prescribed.¹⁴

b) Settlement on exit: In case of removal, dismissal, retrenchment and resignation of an employee, the wages must be paid within two working days.¹⁵ Monthly wages are to be paid within the 7th day of the succeeding month, as against the 10th day of the succeeding month.¹⁶

c) Maternity Benefit: In case the work assigned to a woman is of such nature that she may work from home, the employer may allow her to do so after availing of the maternity benefit for such period and on such conditions as the employer and the woman may mutually agree.¹⁷ The crèche facility shall be located within the establishment or at an appropriate distance from the establishment such that it is easily accessible to the women employees including a woman employee working from home.¹⁸

d) Accident in course of employment: An accident occurring to an employee while commuting from his residence to the place of employment for duty or from the place of employment to his residence after performing duty, shall be deemed to have arisen out of and in the course of employment if the nexus between the circumstances, time and place when and where the accident occurred and the employment is established.¹⁹ Accordingly, he shall be eligible for compensation.

CONCLUSION:

Overall, the Codes are a welcome move and can be a game changer. At least a few parts of the Codes are likely to be implemented from 1st April 2021. The Codes are slated to be a win-win situation offering much-needed flexibility to organizations in hiring employees, reducing the intervention of external forces in their operations and at the same time without compromising on the rights of the employees. Considering this, it remains to be seen how the Codes shall be implemented, as both Central and State Governments have the rule making power. To achieve the avowed object for which the Codes are promulgated, the rules should be in parity with each other and not conflicting.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.