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Labour reforms increase ease of doing business while protecting India’s workers

The recent labour reforms are one of the most important policy decisions of the NDA government with the potential to impact millions of organised and unorganised workers across the country while also ensuring that India has a competitive edge where industry and commerce is concerned

September 30, 2020 / 02:55 PM IST
Representative image

Representative image

The passing of the recent labour reforms concludes the herculean attempt of the legislature in consolidating, amalgamating, updating, and rationalising several labour laws. These codes will likely be seen as one of the most important policy decisions of the current government with the potential to impact millions of organised and unorganised workers across the country while also ensuring that India has a competitive edge where industry and commerce is concerned. It is indeed walking a tightrope to balance two equally important and competing needs of industry and the workforce.

Greater Autonomy

In a move that will allow greater autonomy to employers, the threshold for requiring prior government approval for retrenchment and layoffs has been increased from 100 to 300 workers. Similarly, applicability of standing orders which govern the day-to-day functioning of an organisation has also been increased to establishments having 300 or more workers. Now employers have a free hand in having their own set of rules and regulations that would govern employer-employee conduct.

Streamlined Negotiations

The new code also brings in the concept of a negotiating union which will simplify the process of collective bargaining for employers, who will now have to deal with a single union rather than having to deal with multiple trade unions. Presumably, this will result in swifter resolutions with the interests of the majority workers being represented by one entity. The new provisions prevent workers from going on strike without proper notice. These measures are likely to attract foreign investments by players who have refrained from setting up their presence in India owing to rigid labour laws and pugnacious trade unions.

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Ease Of Doing Business

The Occupational Safety Code and the Social Security Code introduces a period within which employee claims need to be brought against employers, after which they are time barred. Putting a time limit on claims of this nature gives greater certainty in business transactions such as corporate acquisitions and private equity investments where it is customary for promoters to indemnify investors or acquirees from such claims.

All three codes also introduce the concept of compounding of offences by companies where companies can disclose their non-compliance for less stringent monetary penalties. Employers are generally wary of coming forward with non-compliances since most labour statutes provide for penalties such as imprisonment of the officers of the company. However, allowing compounding of offences will encourage employers to remedy non-compliances under labour laws without fear of retribution and imprisonment.

The codes also make a push towards digitisation with several processes such as registrations, certifications etc. being moved online. This will surely lead to greater ease in compliance as well as transparency which would be welcomed by employers.

Lessons From COVID-19

While encouragement to industry and commerce is one side of the story, the codes also include several provisions that benefit workers. Special provisions are made to strengthen the rights of migrant workers whose plight was brought front and centre in the pandemic.

In fact, the definition of migrant workers has been significantly widened — all workers coming from one state to another state, earning a monthly family income of less than Rs 18,000 will be considered migrant labour and will get benefits under the code. The pandemic has also underscored the importance of insurance coverage and access to healthcare for all. This lesson seems to have found place in the widening coverage of the Employees' State Insurance Corporation (ESIC) under the code.

Cast A Wider Net

The scope of Employees Provident Fund Organisation (EPFO) has also been widened and now all institutions which have 20 or more workers will be covered. Consequently, more of the workforce will be covered by this social security legislation. Fixed term employees also stand to benefit from the provisions of the code, with express provisions being included granting them the same benefits as permanent employees, including pro-rated gratuity.

The new code also strives for gender equality, allowing women to work before 6 AM and beyond 7 PM with their consent for all types of work, but making employers responsible for their safety. There is also a provision for setting up common crèches by organisations or groups of establishments that are unconnected. This will allow smaller establishments to extend such facilities to their employees. Increasing number of crèches is critical to retaining women in the workforce.

Fired. Now What?

The Industrial Relations Code also contemplates creation of a re-skilling fund for the first time. It would be used to re-skill those workers who have lost their jobs, to enable them to be gainfully employed once again. From the fund, workers would be given 15 days’ salary in case of retrenchment. The code also contemplates setting up career centres presumably in place of employment exchanges. If run effectively, these centres would provide a fillip to job creation and effective placements. While allowing employers greater flexibility to hire and fire, the code is mindful of ensuring that workers are provided with adequate resources to ensure that they are brought back into the workforce.

Clearing The Clutter

Perhaps the most modest but far-reaching consequence of the codes will be to set to rest the ambiguity and conflicting provisions of various labour laws. Uniformity and harmonisation of provisions will benefit workers and employers alike by facilitating implementation, removing multiple definitions and authorities without compromising the basic concepts of welfare and benefits to workers.

It has provided for far simpler mechanisms, reducing registration and licensing requirements under different laws. Lastly, the codes will make it easier for employers understand and comply with laws, and for the labour authorities enforce the law.

These reforms are expected to promote setting up of more enterprises and investments in India which in turn will lead to creation of more employment opportunities and greater social welfare for the nation’s workers. The object is to achieve industrial peace and harmony as the ultimate pursuit and these codes are a long-awaited step in that direction.

 Mallika Noorani is a partner at Parinam Law Associates and specialises in labour and employment laws. Views are personal.
Mallika Noorani 
first published: Sep 30, 2020 02:47 pm

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