Labour Reforms

Both the central and state legislatures have the power to make laws as the subject of labour falls under the Concurrent List of the Constitution. The central government, in 2020, had proposed to replace 29 existing labour laws with 4 major codes. The main aim is to simplify the labour laws and update labour regulations as per current needs. These codes will regulate: (i) Wages, (ii) Industrial Relations, (iii) Social Security, and (iv) Occupational Safety, Health and Working Conditions. 

Labour Reforms in India

The proposed labour reforms are aimed to achieve the following objectives:

• Simplification of labour laws 

The Second National Commission on Labour recommended the consolidation of central labour laws. The Commission observed that there are a number of laws at the centre and state levels dealing with the subject. Also, some laws have become archaic as they contain provisions that have lost importance today. The Commission proposed to consolidate these laws so that the system is transparent and the terms and definitions are interpreted uniformly. 

• Creating jobs for labour

The main challenge in front of the government is to create more job opportunities for the labour as well as protect the rights of workers and create an environment to facilitate output and growth, leading to job creation. With this proposed reform, workers will be able to get protection in terms of minimum wages, social security as well as health and safety standards. 

• Coverage of establishments

As per the Sixth Economic Census (2013-14), almost 79% of the labour is working in establishments with less than ten unregulated workers. Current laws apply to establishments with 10 or more people working as labourers. Low numeric thresholds create adverse incentives to the establishment as they tend to remain small in size in order to reduce the compliance burden of labour regulations.

To promote the growth of smaller establishments, some states have already amended their laws to increase the threshold. For example, Rajasthan has increased the limit from 10 to 20 workers for the applicability of the Factories Act, 1948. 

In order to promote the small industries, the Committee had recommended a separate law for small scale industries with less stringent provisions for payment of wages, welfare facilities, social security, retrenchment and closure, and resolution of disputes. 

The proposed reform has made clear that the labour codes on wages and industrial relations will be applicable to all establishments. In contrast, limited exceptions and the codes on social security and occupational safety shall continue to be applicable to establishments over a certain size.

As per the proposed Occupational Safety Code, the applicability thresholds of 10 or above will not be applicable to those establishments which are involved in hazardous activities. 

The Code on Social Security will enable the government to implement schemes to benefit unorganised workers and gig and platform workers. 

• Thresholds for lay-off, closure and retrenchment

Under the Industrial Disputes Act, 1947, there is a requirement that factories, mines and plantations that have employed 100 or more workers have to obtain prior permission before closing down, laying off or retrenching workers, which has created exit barriers for firms. The Committee recommended increasing this limit, and in the Industrial Relations Code, the limit is increased to 300 workers. However, the provisions related to notice and compensation requirements as specified under the 1947 Act are retained intact. The Code further allows the government to increase the threshold by notification, as and when required.  

• Labour enforcement 

Due to multiple labour laws, the establishment ended up doing numerous compliance modifications, which ultimately increased the compliance burden on them. The Codes address these aspects, and a unified Code will really help in reducing the burden of compliance on the establishments. 

• Contract labour

Because of complex labour compliances, it was observed that the establishments prefer to hire contract labour in order to avoid them. The contract labour is denied with basics such as assured wages. The reformed Code does not address this concern, but the Committee has proposed to introduce a new form of short-term labour for fixed-term employment. 

• Trade Unions

Although there are a lot of registered trade unions, there are no criteria to ‘recognise’ them as to who can formally negotiate with the management as per the present Act. The Industrial Relations Code creates provisions for the recognition of unions with 51% membership.

• Delegated Legislation

Following delegated legislation, the new Codes have delegated many key aspects, like the applicability of social security schemes and health and safety standards, to rule-making to the government, making the law-making process faster easier. 

Details of Acts that are being subsumed by the four labour codes:

Sources: Existing Central Acts; Labour Codes; PRS

Conclusion 

The major challenge for the government is to facilitate employment growth while protecting workers’ rights. Labour laws in India were dated, and there was a need for complete overhaul and simplification. At present, not all the four Codes are made effective, and the rules are yet to be notified. Hence, only time will tell about the success of this reform.