THREE LABOUR CODES OF 2020

WHY IN NEWS:

• The Lok Sabha on 29^th September 2020 cleared new versions of three labour codes - Industrial Relations Code Bill, 2020, Code on Social Security Bill, 2020 and Occupational Safety, Health and Working Conditions Code Bill, 2020.

BACKGROUND:

• Labour falls under the Concurrent List of the Constitution.
• Therefore, both Parliament and state legislatures can make laws regulating labour.
• The central government has stated that there are over 100 state and 40 central laws regulating various aspects of labour such as resolution of industrial disputes, working conditions, social security and wages.
• The Second National Commission on Labour (2002) found existing legislation to be complex, with archaic provisions and inconsistent definitions.
• To improve ease of compliance and ensure uniformity in labour laws, it recommended the consolidation of central labour laws
• In 2019, the Ministry of Labour and Employment introduced four Bills to consolidate 29 central laws.
• These Codes regulate: (i) Wages, (ii) Industrial Relations, (iii) Social Security, and (iv)Occupational Safety, Health and Working Conditions.
• While the Code on Wages, 2019 has been passed by Parliament, Bills on the other three areas were referred to the Standing Committee on Labour.

KEY PROVISIONS OF INDUSTRIAL RELATIONS CODE, 2020:

• The Industrial Relations Code seeks to amalgamate and combine three major laws governing employee-employer relationship, after making some key amendments to the provisions.
• It consolidates the following 3 central enactments and repeals them:
  • Trade Unions Act, 1926
  • Industrial Employment (Standing Orders) Act, 1946
  • Industrial Disputes Act, 1947
• Definition of 'employer' expanded:
  • The Code provides for an expanded definition of 'employer' under to include 'contractor', 'legal representative of deceased employer' etc.
• Definition of 'strike' expanded:
  • The new Code Bill expands the definition to 'strike' to include "the concerted casual leave on a given day by fifty per cent or more workers employed in an industry".
• Threshold workers-limit for framing Standing Orders increased:
  • As per the Code, an industrial establishment needs to comply with the requirement of adopting Standing Orders only if it has 300 or more workers
  • Under the existing law, this threshold is 100.
• Protection for 'Fixed Term Employment(FTE)':
  • Code states that workers on a fixed term are eligible for all statutory benefits available to a permanent worker proportionately according to the period of service rendered by him
• Notice period for strike made applicable to all establishments:
  • The Code prohibits strikes in all industrial establishments without prior notice of 14 days to the employer.
  • Under the existing Act, the requirement of prior notice of strike was applicable only to 'public utility services' such as railways, transportation, posts etc.
  • This means that 'flash strikes' are no longer possible in establishments.
  • Further time period of arbitration proceedings has been included in the period during which a legal strike is impermissible.
  • Also the notice period for lock-out has also been made applicable to all industrial establishments. Under the existing Act, this was applicable only to public utility services
• Threshold employee-limit for prior government permission for retrenchment, lay-off, closure increased:
  • Under the existing Act, establishments with more than 100 workers needed the prior permission of the government to retrench workers.
  • The Code has waived this requirement for establishments with less than 300 workers.
  • Prior permission of the appropriate government for retrenchment, lay-off or closure is necessary only in industrial establishments such as mines, factories and plantations which employ more than 300 workers.
• Industrial Tribunals:
  • The Code sets up Industrial Tribunal consisting of a Judicial Member and an Administrative Member
  • Industrial Tribunals replace existing multiple adjudicating bodies like the Court of Inquiry, Board of Conciliation and Labour Courts
• Reference system for disputes abolished:
  • The Code removes the reference system for adjudication of Industrial Disputes, except the reference to the National Industrial Tribunal for adjudication.
  • The Central Government may, by notification, constitute one or more National Industrial Tribunals for the adjudication of industrial disputes which, in the opinion of the Central Government, involve questions of national importance or are of such a nature that industrial establishments situated in more than one State are likely to be interested in, or affected by, such disputes.
• Voluntary reference to Arbitration allowed:
  • The Code provides for resolution of disputes between the employer and the employee through arbitration on the basis of a written agreement. Such arbitration will be governed by the procedure under the Code.
• Power to exempt:
  • The appropriate government has the power to exempt any industrial establishment or any class of industrial establishments from the provisions of the Code.
• Negotiating Union/Council:
  • The Code introduces a new provision for recognition of a 'negotiating union' or 'negotiating council'
  • There shall be a negotiating union or a negotiating council in an industrial establishment having registered Trade Union for negotiating with the employer of the industrial establishment
  • Where there is only one trade union in an industrial establishment, the employer is required to recognise such trade union as the sole negotiating union of the workers.
  • If there are multiple trade unions, the trade union with support of at least 51% of workers on the muster roll of that establishment will be recognised as the sole negotiating union by the employer.
• Equality for women in every sphere:
  • Women have to be permitted to work in every sector at night, but it has to be ensured that provision for their security is made by the employer and consent of women is taken before they work at night.

KEY PROVISIONS OF CODE ON SOCIAL SECURITY, 2020:

• It replaces nine laws on social security, including the Employees’ Provident Fund Act, 1952, and the Maternity Benefit Act, 1961.
• The code universalizes social security coverage:
  • The code empowered the central government to set up social security funds for unorganised workers, gig workers and platform workers.
  • It also makes provisions for registration of all three categories of workers - unorganised workers, gig workers and platform workers. 
  • Further, state governments will also set up and administer separate social security funds for unorganised workers.
  • It provides for the establishment of a national and various state-level boards for administering schemes for unorganised sector workers, gig workers and platform workers
• Term of eligibility for gratuity:
  • The code also reduces the time limit for receiving gratuity payment from the continuous service of five years to one year for all kinds of employees, including fixed-term employees, contract labour, daily and monthly wage workers.

KEY PROVISIONS OF CODE ON OCCUPATIONAL SAFETY, HEALTH AND WORKING CONDITIONS, 2020:

• The Code replaces 13 labour laws including The Factories Act, 1948, The Plantations Labour Act, 1951, The Mines Act, 1952 etc
• Threshold increased:
  • The threshold for considering any premises as a factory has raised from 10 to 20 workers without the use of power, and from 20 to 40 with power
• Work hours and employment conditions:
  • The code fixes the maximum limit at eight hours per day.
• Employment of women:
  • It provides that women will be entitled to be employed in all establishments for all types of work under the Bill
• Benefits for inter-state migrant workers:
  • The code provides for certain benefits for inter-state migrant workers. These include:
    • (i) option to avail the benefits of the public distribution system either in the native state or the state of employment
    • (ii) availability of benefits available under the building and other construction cess fund in the state of employment
    • (iii) insurance and provident fund benefits available to other workers in the same establishment.
  • The code requires the central and state governments to maintain or record the details of inter-state migrant workers in a portal

ISSUES:

• Definition of ‘appropriate government’:
  • Three labour codes specifies that the central government will act as the appropriate government for any central public sector undertaking (PSUs).
  • The central government will continue to be the appropriate government for a central PSU even if the holding of the central government in that PSU becomes less than 50%.
  • It is unclear as to why the central government should continue to exercise jurisdiction over an establishment in which it does not own controlling stake
• Delegated Legislation:
  • Three labour codes delegate various essential aspects of the laws to the government through rule-making. These include:
    • (i)increasing the threshold for lay-offs, retrenchment, and closure
    • (ii)setting thresholds for applicability of different social security schemes to establishments
    • (iii)specifying safety standards, and working conditions to be provided by establishments under the occupational safety Code.
  • The question is whether the power to decide such matters should be retained by the legislature or whether these could be delegated to with the government.
• Power to exempt establishments:
  • The Code on Industrial Relations provides the government with the power to exempt any new industrial establishment or class of establishment from any or all of its provisions if it is in public interest.
  • The Code on Occupational Safety also enables the state government to exempt any new factory from its provision in the interest of creating more economic activity and employment
  • Every factory would generate employment, and public interest could be interpreted broadly.
  • Therefore, the central and the state government have wide discretion in providing exemptions from these Bills
• Certain workers not covered under the Bills
  • Increase in the threshold for standing orders will water down the labour rights for workers in small establishments having less than 300 workers.
• Strikes and lock-outs may become difficult for all establishments:
  • The Industrial Relations Code requires all persons to give a prior notice of 14 days before a strike or lock-out.
  • The Bill also prohibits strikes and lock-outs:
    • (i) during and up to seven days after a conciliation proceeding, and
    • (ii) during and up to sixty days after proceedings before a tribunal.
  • This may impact the ability of workers to strike and employers to lock-out workers. 
• Violate the principle of separation of powers between the executive and the judiciary:
  • Industrial Relations Code provides that government can defer the enforcement of the award given by Industrial Tribunals in certain circumstances on public grounds affecting national economy or social justice.
  • This provision would violate the principle of separation of powers between the executive and the judiciary, since it empowers the government to change the decision of the tribunal through executive action.
• Chances of conflict of interest:
  • Government may modify an award made by the Tribunal in a dispute in which it is a party. 
• Provisions for formation of a negotiation council may be restrictive:
  • A negotiating council will be formed with representatives of unions that have at least 20% of the workers as members
  • It is unclear as to what will happen in case there are multiple registered trade unions; but no union has the required support of at least 20% workers to participate in the negotiating council. 
• Provisions on fixed term employment:
  • The Industrial Relations Code introduces provisions on fixed term employment.
  • Unequal bargaining powers between the worker and employer could affect the rights of such workers since the power to renew such contracts lies with the employer. This may result in job insecurity for the employee and may deter him from raising issues about unfair work practices, such as extended work hours, or denial of wages or leaves.
• Certain terms not defined in the Industrial Relations Code:
  • The code defines a ‘worker’ as any person who work for hire or reward.
  • It excludes persons employed in a managerial or administrative capacity, or in a supervisory capacity with wages exceeding Rs 18,000.
  • However, it does not define the terms ‘manager’ or ‘supervisor’ in this context.
• Social security benefits are not universalized:
  • Benefits, such as pension and medical insurance, continue to be mandatory only for establishments with a minimum number of employees (such as 10 or 20 employees)
  • Further provident fund, pension and medical insurance benefits are only mandatory to employees earning above a certain threshold
• Mandatory linking with Aadhaar may violate Supreme Court judgement 
  • The Code on Social Security mandates an employee or a worker (including an unorganised worker) to provide his Aadhaar number to receive social security benefits or to even avail services from a career centre.
  • This may violate the Supreme Court’s Puttaswamy case judgement
• Code on Occupational Safety bars civil courts from hearing any matters under the Bill:
  • It can be argued that the bar on civil courts from hearing matters under the Bill may deny aggrieved persons an opportunity to challenge certain issues before a lower court.
  • The only recourse available to them would be to directly file a writ petition before the relevant High Court.
• No sufficient deliberation in Parliament:
  • The codes were passed in both Houses after a limited debate and in the absence of the Opposition.

BENEFITS:

• Promotes the interest of infant industries:
  • It has been argued that the application of labour laws based on the number of employees is desirable to reduce the compliance burden on infant industries and to promote their economic growth.
• Consolidation and simplification of the Complex laws:
  • The three Codes simplify labour laws by subsuming 25 central labour laws that have been on the table for at least 17 years.
  • It will provide a big boost to industry & employment and will reduce multiplicity of definition and multiplicity of authority for businesses.
• Single Licensing Mechanism:
  • The codes provide for a single licensing mechanism. It will give fillip to industries by ushering in substantive reform in the licensing mechanism.
  • Currently, industries have to apply for their licence under different laws.
• Easier Dispute resolution:
  • The codes also simplify archaic laws dealing with industrial disputes and revamp the adjudication process, which will pave the way for early resolution of disputes.
• The code introduces provisions on fixed term employment:
  • Fixed term employment may allow employers the flexibility to hire workers for a fixed duration and for work that may not be permanent in nature.
  • Further, fixed term contracts are negotiated directly between the employer and employee and reduce the role of a middleman such as an agency or contractor.
  • They may also benefit the worker since the Code entitles fixed term employees to the same benefits (such as medical insurance and pension) and conditions of work as are available to permanent employees.
  • This could help improve the conditions of temporary workers in comparison with contract workers who may not be provided with such benefits.  
• Ease of Doing Business:
  • According to the industry and some economists such reform shall boost investment and improve ease of doing business.
  • It drastically reduces complexity and internal contradictions, increases flexibility & modernizes regulations on safety/working conditions
• Promote formalization of workforce
  • The Periodic Labour Force Survey observes that 71% of regular wage/salaried workers in the non-agriculture sector did not have a written contract, and 50% were without social security cover.
  • The new laws, by simplifying compliance, should create an incentive for workforce formalisation.
• Other benefits for Labour:
  • The three codes will promote fixed term employment, reduce influence of trade unions and expand the social security net for informal sector workers.

CONCLUSION:

• Amalgamating, simplifying and rationalising labour laws will help in increasing the pace of generating good quality jobs to cater to the growing workforce, their rising aspirations and to absorb out-migration of labour from agriculture
• But to ensure optimum capitalization of such reforms in post Covid-19 scenario, wider consultation of all the stakeholders is required.
• Then only we could achieve the broad vision of giving an impetus to economic activity without adversely affecting the interests of workers.

PRACTICE QUESTION:

Q. “Recently enacted Labour Codes give an impetus to economic activity without adversely affecting the interests of workers”. Critically analyse.