Coalition govt at Centre may not hinder labour code implementation

The current labour law system in India is a labyrinth of multiple central and state laws. The new codes - the Code on Wages, Industrial Relations Code, Occupational Safety, Health and Working Conditions Code, and the Code on Social Security -  merge these laws into four, more concise sets of regulations.

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By streamlining compliance procedures, the codes aim to make it less burdensome for businesses to operate. The standardised framework is expected to reduce administrative costs and improve ease-of-doing business. Additionally, the codes introduce flexibility in certain areas, potentially giving companies more room to adapt to the changing work environments.

Labour falls under the Concurrent List, meaning that both the Centre and states are responsible for creating laws and rules. In terms of formulating rules under the new Labour Code, most states have made significant progress, with the draft rules already released for public consultation.

Exceptions include states like West Bengal, Meghalaya, Nagaland, and the Union Territory of Lakshadweep. Recently, Telangana also published draft rules, inviting public feedback and suggestions.

Before the 2024 general elections, the central government's labour ministry was considering a phased implementation of the labour codes. However, this plan did not materialise, due to a lack of consensus, law experts say.

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“Being a coalition government with various alliance parties / regional parties of different states, certain economic reforms like labour reforms, sailing through in a staggered manner is highly possible, as there will be space for discussions/deliberations and dialogue, and consequently reaching a consensus,” said Pratyush Kumar Singh, Partner at Tatva Legal, Hyderabad

In the last two terms, he said a single party with a full mandate was unable to bring the requisite consensus due to the lack of support from certain states/regional parties and other opposition parties. “That said, being a coalition government, the other allies/partners and regional parties may have leverage now,” Singh added.

Concerns of trade unions

Trade unions have concerns about potential weakening of worker protections, while businesses might have reservations about specific aspects of the codes. Without a common ground being reached, the nationwide rollout has been delayed.

However, according to Aprajita Rana, Partner at AZB & Partners, the industry can expect the central schemes to take time to finalise and be more influenced by state-related considerations.

“The provisions relating to insurance schemes for workers and benefits for gig economy workers have already seen diverse implementation across states under the labour laws. We expect these issues to continue being contentious,” she said.

Special status to states

With the Bharatiya Janata Party (BJP) requiring support from the Telugu Desam Party (TDP) and the Janata Dal United JD(U) for a third term at the Centre, certain demands are being made. Both Bihar and Andhra Pradesh want special category status, which seeks to provide central assistance and tax breaks to states that were disadvantaged on account of factors such as hilly and difficult terrains, low population density, a large tribal population, and economic/infrastructural backwardness.

If accepted, this special status is likely to be reflected in the implementation of labour laws.

“Under a coalition government, labour laws and regulations that could face greater scrutiny or modification often reflect the need to balance diverse political ideologies and regional interests. Minimum wage regulations would require the work of scrutiny as equitable wage distribution across different states and sectors may become a priority,” said Mohit Garg, Managing Partner of Lex Panacea.

For instance, migrant workers from Bihar and Andhra Pradesh may receive slightly higher wages, depending on their area of work and modifications in working hours. Additionally, the government may provide travel concessions for workers/employees who migrate for employment.

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Garg further added that another law that may witness changes is the Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, which requires the improvement in the working conditions and benefits for inter-state migrant workers and ease the registration processes for migrant workers viz -a-viz the provision of travel allowances, better housing facilities, and access to healthcare services in the destination states.

Impact on industry

The manufacturing and labour-intensive sectors are expected to feel the most significant impact from the new labour codes. These codes will dictate the procedures for worker layoffs in factories and outline the benefits that must be provided to employees.

Additionally, industries that rely on platform and gig economy workers will also be affected. The labour codes have introduced specific provisions to regulate these types of employment arrangements, ensuring that the rights and benefits of gig workers are properly addressed.

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“Bihar continues to harp on its unorganised sectors, such as agriculture, small-scale and cottage industries, and handicrafts. While the four labour codes do not specifically cover agriculture and rural labourers, certain aspects such as minimum wages may be applicable, subject to state rules,” said Subhash Bhutoria, Founder & Principal at LAW SB.

On the other hand, Andhra Pradesh caters to organised sectors, such as pharmaceuticals, information technology (IT), automobiles etc., which are largely covered by the four codes.

To boost their respective economies, also by retaining and nurturing a competent workforce, Bhutoria said these states are likely to take benefit by making favourable suggestions in the central legislations and implementing the same mutatis mutandis (with the necessary changes) in their respective states.

Nevertheless, law firms have advised corporates to make the required preparations, since the implementation of the codes might be the priority in NDA’s third term with or without changes.

“Certain factors that may increase human resources or HR costs should be prioritised. A key aspect would be to analyse salary structures against the definition of ‘wages’, that has been made consistent across the labour codes,” said Ankita Ray, Partner at Cyril Amarchand Mangaldas.

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'Wages' are defined as any remuneration capable of being expressed in monetary terms and has only a specific list of exclusions. The amount of exclusions that exceed 50 percent of the total remuneration would also have to be considered as ‘wages’. This could increase the quantum of provident fund contributions (of covered employees earning monthly pay equal to or less than Rs 15,000), statutory bonus (for employees earning less than or equal to Rs 21,000 per month), retrenchment compensation etc., all of which would have to be calculated on ‘wages’.

Among other things, the codes also prohibit engagement of contract labour in core activities, save for certain exceptions and recognise fixed-term employees.

“However, it has also introduced a new requirement whereby fixed term employees would be entitled to parity in wages, working hours, allowances and other statutory benefits similar to those extended to permanent workers, prorated based on their term of employment,” Ray said.