Analyzing Impact of the Four Labour Codes on Indian Economy

Abstract

With labour being an important factor to determine the economic development of a nation, labour laws hold a crucial place in the legislative horizon of a nation. Multiplicity of labor laws in India created confusion and ambiguity for employees as well as employers. The four labor codes passed  by the current NDA government have proved to be a paradigm shift in the history of Indian labour law. Dwelling on to understand the provisions of the four labor codes, the paper tries to highlight the labor policies of capitalist, communist and socialist economics of America, China and Brazil respectively. The new codes have provided special provisions for inter-state migrant workers, gig workers, etc. but failed to address the migrant/seasonal agricultural labour, international workers, etc among other factors. With effective inclusion of agricultural laborers, extension of protection to whistleblowers and inclusive policies for gig workers, the paper also tries to provide some suggestions for improving the labour laws in India. 

Introduction

“Obedience to the law of bread labour will bring about a silent revolution in the structure of society” – M.K.Gandhi.

Land, labour, capital and enterprise are crucial determiners of a country’s economy. Labour has remained a pivot for several political and economic theories. Labour has been derived from the Latin word labor meaning toil or trouble. Labour has been the driving force behind the Industrial Revolution of Europe followed by industrialization in other nations. Even in the pre-industrial revolution era, harsh working conditions prevailed. Though the industrial revolution was characterized by transition from hand made products to machine made goods, the importance of labour didn’t reduce. The industrialisation of agriculture converted to conversion of small farms to large units having profound impact on the agricultural labourer. Countries that pioneered democratic institutions in the world, treated the labour of their country with utmost disgrace. Even England and its colonies passed labour laws that mandated long working hours, inadequate remuneration,  child labour, minimum breaks, etc. It was only during the mid twentieth century that rights of labourers were recognised and were given constitutionally/statutory  status. Establishment of the International Labour Organisation (ILO) helped streamline the labour laws in various countries. 

In India, during the British era, several Factory Acts and Charter Acts were passed to recognise rights of laborers like fixed working hours, abolition of child labour, overtime wages. Despite this, the British continued to exploit them and working conditions in factories remained harsh. Labourers and Workers participated in the Indian independence movement in great numbers compelling the British government to take cognizance of them. After independence, labour laws were made a part of the Concurrent List. As a result, the center as well as the states had different labour laws. Such multiplicity of laws led to confusion not only among workers and employees but also the employers. With the efforts of the current central government,  labour laws of India have been codified into four codes namely- Code on Wages,  Industrial Relations Code,  Social Security Code,  Occupational Safety, Health and Working Conditions Code. Let’s have a look at some of the important provisions from these codes.

Analyzing the Four Labour Codes

CODE ON WAGES, 2019

Four wages acts namely-The Minimum WagesAct, 1948, The Equal Remuneration Act, 1976, the Payment of Bonus Act, 1964, The Payment of Wages Act, 1936-have been subsumed into one Code, the Code on Wages 2019. One of the most important features of the Code is to universalise the provision of minimum wages. As per the new Code, “wages” include remuneration whether by way of salary, allowance, if the term of employment is fulfilled. The Code prohibits gender based discrimination among employees in establishments on matters relating to wages, with respect to the same work done or work of a similar nature. The Code mandates the employer to pay the employee wages which are not less than the minimum wages. “Work of similar nature” is defined as work for which the skill, experience, effort and responsibility required are the same when performed under similar conditions. The minimum rate of wage can be determined on the basis of hour, day or month worked by the employer or worker. The government along with fixing the floor wage, can also appoint committees for fixing and revising minimum wages. The floor wage can be fixed on the basis of minimum standard of living for the entire country or different floor wages for different geographical areas. Under the assumption of full implementation, the Code expects the average wage level to go up, ensuring economic growth and reducing poverty and inequality.  The code stresses on the need for timely payment of the wages which are guaranteed on daily/weekly/fortnightly/monthly basis. The code also makes a provision for payment of annual minimum bonus to every employee, which is calculated at eight or one-third percent of the wages earned by the employee or ₹100, whichever is higher. In addition, the employer will also distribute the gross profit among the employees. As mentioned further in the Occupational Safety, Health and Working Conditions Code, 2020, the Code on Wages, 2019 also extends overtime compensation twice the normal wages to all employees who have consented for such overtime. The Code promotes digitization in wage payment and issue of wage slip to all employees. The Code precisely mentions the conditions of permissible deduction of employees’ wages, which includes grounds of fine, absence from duty, accommodation given by employer, recovery of advances/loan, income tax levied.  Establishment of a Central Advisory Board, permitted under the Code, aims at resolving issues like fixation and revision of minimum wages and other concerned matters, providing increasing employment opportunity for women, etc. A similar State Advisory Board must also be established at this state level. With the introduction of graded penalty for the first time, the Code charges high monetary penalties and provision of imprisonment aiming to improve compliance and effective application. 

According to the Code on Wages, wages now include the Basic Pay, Dearness Allowance and Retaining Allowance (if any) and exclude House Renting Allowance, Provident Fund, statutory bonus,etc. Many of the Code’s rules are also made applicable to all employees under the Code on Wages, and there is no upper pay limit. This is a significant change, and in order to comply with it, businesses will need to alter the way they view several rules. It implies that all employees are entitled to overtime pay, which is something that most businesses do not practice today. 

INDUSTRIAL RELATIONS CODE, 2020 

The Code, by amending and amalgamating previous laws,  provides a policy framework related to trade unions, protecting the rights of employees, managing the relations between the employee and employer and settling industrial disputes. Among other terms, the Code defines “employees” and “fixed term employment” for the first time. “Employee” means any person (other than an apprentice engaged under the Apprentices Act, 1961) employed by an industrial establishment to do any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied, and also includes a person declared to be an employee by the appropriate Government, but does not include any member of the Armed Forces of the Union. “Fixed Term Employment” means the engagement of a worker on the basis of a written contract of employment for a fixed period. His hours of work, wages, allowances and other benefits shall not be less than that of a permanent worker doing the same work or work of similar nature, he shall be eligible for all statutory benefits available to a permanent worker proportionately according to the period of service rendered by him, ) he shall be eligible for gratuity if he renders service under the contract for a period of one year. 

It is now mandatory for the employer to publish and display the statutory employment conditions or the ‘standing orders’ which consists of the details of working hours, leaves, holidays, misconduct, etc.  The provision for application of standing order to industrial establishments with 300 or more workers is welcomed. On the other hand, a ‘model standing order’ has been drafted with respect to mines, factories and the service sector (which did not exist before).The Code enables for the formation of a Work Committee in an establishment with one hundred or more workers employed for 12 months. Such a committee must consist of representatives of employers and representatives of workers who would secure, promote and preserve good relations between the employer and worker. The Code provides for setting up a Grievance Redressal Committee in an industrial establishment with 20 or more workers for resolving disputes arising out of individual grievances. With proportional representation to women, the Committee must not exceed the strength of 10. Apart from this, the Code mandates for appointing a Conciliation Officer to mediate and promote settlement of Industrial disputes and setting up of Industrial Tribunal and National Industrial Tribunal. The Code prohibits workers from striking against employers and employers from locking-out its workers without a notice within sixty days before striking or locking out or within fourteen days of giving such a notice. Lay-off refers to an employer’s inability to provide employment to a worker owing to a variety of circumstances such as a lack of coal, power, or mechanical breakdown. A non-seasonal industrial facility (such as a mine, factories and plantation) consisting of 50 to 300 workers need to: pay a dearness allowance and half of the basic wage to an employee who was laid off; provide one month’s notice or salary in lieu of notice; obtain prior approval from central or state government before lay-off, retrenchment or closure. In case of closure of an industrial establishment, the employer is required to serve 60 days advance notice to the Government and also provide for compensation to workers who have worked in continuous service for not less than one year. The code also provides for a workers reskilling fund that will consist of an amount equal to 15 days wages drawn last drawn by the worker before the retrenchment. 

SOCIAL SECURITY CODE, 2020 

The code subsumes nine central labor legislations and caters to the organized and unorganized sector, gig workers, platform workers with an aim to extend social security schemes like life insurance, health and maternity benefit, provident fund, etc. The Code envisages establishment of several social security organizations like  The Central Board of Trustees of Employees’ Provident Fund, The Employees’ State Insurance Corporation, National Social Security Board for Unorganized Workers, The State Unorganised Workers’ Social Security Board, The State Building and Other Construction Workers Welfare Boards and any other organization or special purpose vehicle declared to be the social security organization by this Central government. The gratuity benefit has now been extended to include fixed term contract workers. An employee will be eligible for gratuity on termination of employment after he/she has rendered service of not less than five years on occasion of superannuation, retirement/ resignation, death or disablement due to disease or accident, expiration of fixed term employment or any other event notified by the central government.  The five year service condition is not mandatory for fixed term (or contract) employees’, who will now be paid the gratuity pro-rata basis.

The Code notes that no woman shall work in any establishment during the six weeks immediately after the day of delivery, miscarriage or medical termination of pregnancy. A woman shall be entitled for a maternity benefit of maximum twenty-six weeks during which she will also have a right to payment of maternity benefit at the rate of average daily wage for the period of her absence. The Code also mandates for the establishments to have the facility of creche in such a way that the employer must allow four visits a day, to the creche, by the woman. Though the provision of creche has been mandated by the Social Security Code, the ambit of the facility has been reduced significantly. Now only establishments will have creche, while the earlier Building and Other Construction Workers Act mandated the facility in any employment place with more than 50 workers. Further, the Code mandates for registration of unorganized workers, gig workers and platform workers who have attained the age of sixteen by submitting an electronic self-declaration. Any failure by the employer to deposit employees’ contribution attracts stringent penalties that include fine upto . 1,00,000 or imprisonment of 1-3 years. Employee compensation for cases involving fatal accidents, bodily injuries or death during work is equal to 50% of the deceased person’s wages or 60% of the wages in case of permanent total disability. To secure funds for welfare of building and other construction workers, a cess of minimum 1% and maximum 2% has been levied on the employer. As per the Code, the employer will be required to report vaccines in his/her establishment to career centers but shall not be obliged to recruit any person through the career centers. Lastly, the Code mandates the employer of an establishment to issue wage slip to the employees in electronic form (or otherwise), display notices at workplace, file returns for such period as prescribed by the appropriate government, maintain records and information of persons employed, finance and account, muster roll, wages and other particular details.  In the Social Security Code, the meaning of unorganised sector includes self-employed and other individuals who provide good and services. It doesn’t mention wage workers. According to the regulation, an enterprise can only employ a maximum of “ten” people before it is deemed to be unorganised. This restriction is problematic because it presents a technicality as a justification for denying advantages to a firm that is truly operating in the unorganised sector. The Central Government may create programmes for gig workers, platform workers, and unorganised employees under Section 45 of the SS Code. The word “may” is used to qualify the Central Government’s power to enact specified plans, indicating that the enactment of such schemes is at the Central Government’s discretion. The assurance of the creation of such welfare schemes is undermined by the absence of a mandate. Therefore, it is essential that this stance be modified and that the Central Government be given a more strict directive.

OCCUPATIONAL SAFETY, HEALTH AND WORKING CONDITION CODE, 2020 

The Code aims to regulate occupational safety, health and working conditions of employees in various establishments by integrating  13 existing labor legislations. The Code caters to the employees of formal establishments as well as informal sector workers like factory workers, mine workers, beedi and cigar workers, inter-state migrant workers, etc. The Code mandates the employer of any establishment to register it within 60 days of the commencement of the Code by making an electronic application to the registering office appointed by the central or State government. Chapter III of the Code specifies the duties of employer and employee in great detail. Duties of an employer include to ensure that the workplace is free of hazards, comply with safety and health standards, conduct annual health examination or test free of cost, provide information, instruction and supervision to ensure health and safety of the employees, make arrangements to provide adequate ventilation, cleanliness, lighting, potable drinking water  and issue an offer letter to every employee on his/her appointment within three months after the commencement of the Code. The employer shall be responsible to provide various welfare facilities in the establishments like ambulance room, rest room, temporary accommodation, appointment of welfare officer, etc. Apart from this, the employer also has to send a notice of certain accident, dangerous incident or certain diseases to a competent authority as prescribed by the government.  On the other hand, the duties of an employee include  compliance with safety and health standards, reporting unsafe or unhealthy conditions, cooperating with employers in meeting statutory obligations and avoiding misuse of safety appliances. 

The Code establishes a National Occupational Safety and Health Advisory Board to advise the Central Government on the standards, rules, regulations and policies to be framed under this Code. The Code empowers the Chief Inspector-cum-Facilitator to survey factories, mines and other establishments and collect relevant data. The Code further mandates collection of statistics and creation of a portal on inter-state migrant workers by the Central and State government. The Code changes the earlier 9 working hours a day to 8 working hours a day and a total of not more than 6 days in a week. Employees who have worked for more than 180 days can take 1 day leave for every 20 days of work done. In case of overtime, employee’s consent is mandatory and his/her entitlement to wages becomes twice the normal wages. With a special emphasis on the inter-state migrant workers, the Code lists down detailed provisions for their welfare. The employer has to make sure safe working conditions and extend all benefits to the inter-state migrant worker. The worker is also entitled to a journey allowance from the employer for a to and fro travel to his native place, benefits of public distribution system and facility of a toll free helpline number. The Code mandates for appointment of a manager who will be responsible for the overall management, supervision, control and directions being given to the mine. No one below the age of eighteen must be employed in a mine. In case of workers at  a plantation, the employer has to provide necessary accommodation, health facility, educational facility to the worker’s children and recreational facility.  

Dalit women have worked in “housekeeping services” for decades. The OHSWC Code forbids the use of contract labour in the core activities of any establishment, but it specifically excludes “housekeeping and laundry services, and other like activities, where these are in nature of support services of an establishment” from the definition of core activities. In addition, sanitation and housekeeping are important aspects of several sectors, such as the hospital, which makes cleanliness a requirement for the industry’s ability to function and provide care. The growing fake contractualization of those who are caste, class, and gender sensitive is effectively sanctioned by legislation. Recall that the Supreme Court compared contract labour to a better version of bonded labour in the Sankar Mukherjee and Ors. v. Union of India. The employment of women in night shifts with their consent is seen as extension of exploitative practices towards women. Considering the highly unequal power structure and unequal bargaining power a contract of service might appear to be voluntary but maybe involuntary since the employee who is in a helpless economic condition might submit to the terms of the powerful employer. Thus, consent taken from women to be employed in night shift might not be a free choice and a travesty of justice. Under the OSHWC Code, provision of unused leaves getting lapse has been done away with. If the leaves exceed 30 days, the employees will be entitled to encash the excess leaves which will be calculated at the end of the calendar year. Employees can avail, carry forwards or encash their annual leaves. It is important to note that this provision is only applicable to employees who are not in managerial, administrative and supervisory roles.

Impact on Formal and Informal sector

As said earlier, Labour is a subject under the Concurrent List. Majority of the labour laws enacted till date have been a result of the tripartite consultation. Unfortunately, no such consultation was done with the representatives of workers before passing these Codes. The highest tripartite labour policy decision making body, the Indian Labour Conference, wasn’t organized a single time while framing of these Codes was underway.  

Starting with the Social Security Code, the threshold is set for only 10 or more building and construction workers to be under the ambit of this Code. It however excludes personal residential construction workers that form a huge chunk of the daily unorganised workers. The facility of Provident Fund has the restriction of 20 or more employees under an establishment. This leaves out many small and micro enterprises. There is still ambiguity about how social security protections will operate in cases of home-based workers, self-employed, piece rate workers, etc. Lastly, neither is there a provision for inclusion of SC/ST/women in the Board of Trustees of the Employees Provident Fund Organisation nor is there any kind of sectoral representation to incorporate the  diversity within the unorganised sector. 

While analyzing the impact of labor codes, it is noticed that a lot of provisions have been introduced for the time while other provisions have been updated and amended to suit the changing nature of the Indian economy. The government had introduced the Contract Labour (Regulation and Abolishment) Act 1970 to regulate the contractual form of employment. During the 1970’s and 1980’s workers were initially hired on contract basis and were then absorbed in the establishment as permanent workers. However in 2001, a court judgment denied the “right” of contract workers to be absorbed as permanent workers. The new Industrial Relations Code legalizes the system of ‘fixed term employment’ thereby reducing the burden on the employer for the permanency of employment. The Code states, for the first time, eligibility of the fixed term contract employees to receive gratuity in lieu with the service rendered for the period of minimum 12 months/1 year, removing the earlier limit of 5 years (of service rendered). The employer can also further extend the tenure of the contract. This has created a confusion, since extension or renewal of contract can lead to change in eligibility and quantum of gratuity payable to the employee. Also the proviso of “pro rata” basis can indicate a possibility of a shorter period to be eligible for gratuity as a fixed term employee.  

The Code on Wages, 2019 has made a historic and revolutionary provision of universalizing minimum wages for the first time. Every worker in the country has a right to claim minimum wages, the standard of living is expected to increase. The extension of legal coverage of floor wage and minimum wages to all workers will benefit around 48% of the total 468.8 million workforce of India. The extension of legal protection in conjunction with the universalisation of wages that will benefit the most vulnerable group of workers from India’s informal sector. Earlier, a complex minimum wages structure led to more than 1915 minimum wage rates across the states. Doing away with the earlier practice of fixing occupational minimum wage rate or wage fixation by scheduled employment, the Code on Wages 2019 mandates fixing of minimum rates of wage by skill categories or geographical location or both. However, fixing the rate of minimum wages by such order won’t be an easy task and the states might have technical support for the same. Nevertheless, the Code on Wages is an important redistributive tool devised by the government to improve the standard of living and welfare of low paid workers. Several times, ill motivated trade unions used to misguide workers of an establishment that would invariably lead to a strike. Such spontaneous and sudden strikes/closure of work led to loss of the employer and wastage of raw materials especially in establishments like food processing units, etc. The provision of a notice period before the strike would serve in the better interest of the employer. The OSHWC code has introduced the provision of worker’s health check up. This provision has been welcome to employees and workers especially those of the unorganised sector. A small example of this was given by the Honorable Member of Parliament Shri. Pallab Lochan Das. He said that tea workers in the northern and the north-east parts of India like Assam will be greatly benefited by this provision. Pregnant women workers who worked in the tea fields did not have their antenatal check up as it would lead to a wage loss for them. Thus, the workers prioritize the work over their and the babies health. This invariably leads to a high maternal mortality rate as well as infant mortality rate. With the new provision, such unwanted mishaps can be avoided. Despite this, the maternity benefits have not been universalied throughout sectors. 

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Author: Anushka Kale