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.[1] The Second National Commission on Labour (2002) found existing legislation to be complex, with archaic provisions and inconsistent definitions.[2] To improve ease of compliance and ensure uniformity in labour laws, it recommended the consolidation of central labour laws into broader groups such as: (i) industrial relations, (ii) wages, (iii) social security, (iv) safety, and (v) welfare and working conditions.
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. The Standing Committee has submitted its report on all three Bills. [3] The government has replaced these Bills with new ones on September 19, 2020.
In this note, we first compare some significant changes made in the 2020 Bills as compared to the 2019 versions. Then we discuss some of the significant issues to consider regarding the three Bills.
PART A: Comparison of key provisions of the 2019 Bills and 2020 Bills
The following section discusses key changes in the 2019 Labour Bills (which have been withdrawn) and compares them with the new Labour Bills that the government introduced in Lok Sabha on September 19, 2020.
A.1 Common Changes across the 2020 Labour Codes
A.2 Code on Industrial Relations, 2020
Exemption
Standing Orders
Closure, lay-off and retrenchment
Negotiating Union and Council
New provision under the Bill
A.3 Code on Social Security, 2020
Social security entitlements
Provisions on appeals, assessment, and offences and penalties
Other changes
A.4 Code on Occupational Safety, Health and Working Conditions, 2020
Exemption
Threshold for coverage of establishments
Work hours and employment conditions
Inter-state migrant workers and unorganized workers
PART B: Issues to consider
B.1 Some common issues across the three Labour Bills
Definition of ‘appropriate government’
All three Labour Bills specify 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 (even in cases where it has sold its entire stake). Note that while examining the earlier versions of the Codes on Industrial Relations and Social Security, the Committee had recommended that the central government should exercise powers only over those PSUs in which it has more than 50% stake. 3
Delegated Legislation
Under the Constitution, the legislature has the power to make laws and the government is responsible for implementing them. Often, the legislature enacts a law covering the general principles and policies, and delegates detailed rule-making to the government to allow for expediency and flexibility. However, certain functions and powers should not be delegated to the government. These include framing the legislative policy to determine the principles of the law. Any Rule should also remain within the scope of the delegating Act.
The three labour Bills 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, and (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.
While examining the 2019 Social Security Bill, the Standing Committee on Labour had noted that the Bill delegates various aspects for rule-making by the government, especially in relation to defining the entitlements, benefits and contributions under the Bill. 3 It suggested that the Ministry review all such instances of delegation in the Bill.
Power to exempt establishments
The 2020 Bill 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 2020 Bill on Occupational Safety also gives the appropriate government the power to exempt any establishment for a period to be specified in the notification. Further, it enables the state government to exempt any new factory from its provision in the interest of creating more economic activity and employment. Note that the Factories Act, 1948 permitted exemptions from its provisions only in cases of public emergency, and limited such exemption to three months.
Therefore, the central and the state government have wide discretion in providing exemptions from these Bills. Every factory would generate employment, and public interest could be interpreted broadly. The exemptions could cover a wide range of provisions including those related to hours of work, safety standards, retrenchment process, collective bargaining rights, contract labour.
Certain workers not covered under the Bills
The Bill on Industrial Relations applies to all establishments, with separate thresholds for layoffs, retrenchment and closure, and for requirement of standing orders. On the other hand, the Bills on social security and occupational safety continue to apply to establishments over a certain size - the Occupational Safety Bill covers establishments with 10 or more workers while the Bill on Social Security requires only establishments over a certain size (typically, 10 or 20) to provide mandatory benefits (such as provident fund and pension). Further, the Bills on industrial relations and occupational safety allow the government to exempt any new establishment from their provisions in public interest. This raises the question of the extent to which establishments should be covered by the Bills.
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.[4] ,[5] However, low numeric thresholds may create adverse incentives for establishments sizes to remain small, in order to avoid complying with labour regulation. 4,5 To promote the growth of smaller establishments, some states have amended their labour laws to increase the threshold of their application. For instance, Rajasthan has increased the threshold of applicability of the Factories Act, 1948, from 10 workers to 20 workers (if power is used), and from 20 workers to 40 workers (if power is not used). The Economic Survey (2018-19) noted that increased thresholds for certain labour laws in Rajasthan resulted in an increase in growth of total output in the state and total output per factory. 5 Note that the Bill on Occupational Safety makes similar changes to the size to the thresholds for factories - from 10 workers to 20 workers (if power is used), and from 20 workers to 40 workers (if power is not used). Further, it increases the threshold of applicability of provisions regulating use of contract labour from 20 workers to 50 workers.
On the other hand, some have argued that basic provisions for enforcement of wages, provision of social security, safety at the workplace, and decent working conditions, should apply to all establishments, regardless of size. 2,4 Towards, this the 2020 Bill on Occupational Safety states that the applicability thresholds (of 10 or above) will not apply in those establishments in which hazardous or life-threatening activities (as notified by the central government) are being carried out. The Standing Committee while examining the earlier versions of the Bills on Occupational Safety and Social Security stated that: (i) the Occupational Safety Code should include a mechanism to notify provisions to safeguard the health and safety of unorganised workers and insert chapters in the Code specifying the safety, health and working conditions for inter-state migrant workers and plantation workers, (ii) the Social Security Code should provide a framework to achieve universal social security within a definite time frame. It made several recommendations towards expanding coverage. 3 While the 2020 Occupational Safety Bill incorporates the recommendations of the Committee (provides for a social security fund for unorganised workers and adds separate chapters for migrant and plantation workers), the 2020 Social Security Bill does not address them.
In this regard, the 2 nd National Commission on Labour (2002) had recommended a separate law for small scale units (having less than 20 workers) with less stringent provisions for conditions such as payment of wages, welfare facilities, social security, retrenchment and closure, and resolution of disputes. For unorganised sector establishments (which fall outside the purview of labour laws), the National Commission for Enterprises in the Unorganised Sector (NCEUS) made several recommendations to address the social security and minimum conditions of work for both agricultural and non-agricultural workers and suggested two Bills – one for each sector.[6] Note that the Economic Survey (2018-19) estimates that almost 93% of the total workforce is informal. 5
Note that most countries do not exempt smaller enterprises from labour regulation entirely. The International Labour Organisation (2005) notes that only 10% of its member states had exempted micro and small enterprises from labour regulation altogether.[7] Most countries adopt a mixed approach to labour regulation. For instance, health and safety laws in the United States, United Kingdom, South Africa and Philippines provide universal coverage to all workers (except for domestic help in the US and UK). 8 However, certain obligations under these laws are only applicable to enterprises with employees over a certain threshold. For example, record-keeping obligations for work-related accidents in the US only apply to establishments with at least 10 employees or in “low hazard” industries. In South Africa, only enterprises with 20 or more workers are required to designate a health and safety representative. [8]
B.2 Key Issues in the Industrial Relations Code, 2020
Strikes and lock-outs may become difficult for all establishments
The 2020 Bill requires all persons to give a prior notice of 14 days before a strike or lock-out. This notice is valid for a maximum of 60 days. 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.
The Bill requires prior notice before a strike or a lock-out, which has to be shared with the conciliation officer within five days. Conciliation proceedings will start immediately and strikes or lock-outs will be prohibited during this period. If the conciliation is not successful and there is an application to a Tribunal by either party, the period of prohibition on strikes or lock-outs will be further extended. This time could extend the beyond the 60-day validity of the notice. Therefore, these provisions may impact the ability of a strike or lock-out on the appointed date given in the notice.
The Industrial Disputes Act, 1947 contains similar provisions for public utility services. A public utility service includes railways, airlines, and establishments that provide water, electricity, and telephone service. However, the National Commission on Labour (2002) had justified the rationale of treating such industries differently, considering their impact on the lives of a vast majority of people. 2 The rationale for extending the provisions on notice to all establishments is unclear. The Standing Committee while examining an identical provision in the 2019 Bill had recommended that the restriction on strikes should only apply to public utility services. 3
Power to government to modify or reject tribunal awards
The 2020 Bill provides for the constitution of Industrial Tribunals and a National Industrial Tribunal to decide disputes under the Bill. It states that the awards passed by a Tribunal will be enforceable on the expiry of 30 days. However, the government can defer the enforcement of the award in certain circumstances on public grounds affecting national economy or social justice. These circumstances are when: (i) the central or state government is a party to the dispute in appeal, or (ii) the award has been given by a National Tribunal. The appropriate government can also make an order rejecting or modifying the award. The notification and the order will be tabled in the legislature. The question is whether such a 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. Further, it raises the question of whether there is a conflict of interest, as the government may modify an award made by the Tribunal in a dispute in which it is a party.
The Industrial Disputes Act, 1947 had similar provisions. In 2011, the Madras High Court (affirming a 1997 Andhra Pradesh High Court judgement) struck down these provisions on constitutional grounds and held that the power to the executive to decline enforcing an award or to modify it, allows the executive to sit in appeal over the decision of the Tribunal, and therefore violates the separation of powers between the executive and the judiciary, which forms a part of the basic structure of the Constitution.[9] ,[10] This provision has been replicated in the Code. Therefore, it may violate the principle of separation of powers between the executive and the judiciary. The Standing Committee on Labour while examining an identical provision in the 2019 Bill had recommended removing this provision in view of these judgements. 3
Provisions for formation of a negotiation council may be restrictive
Under the 2020 Bill, a sole union will be the negotiation agent with the management of the company. If there is more than one registered trade union of workers, the trade union having more than 51% of the workers as members would be recognised as the sole negotiating union. In case no trade union meets these criteria, a negotiating council will be formed with representatives of unions that have at least 20% of the workers as members. Note that trade unions must have membership of at least 10% or workers or 100 workers, whichever is lesser, to be registered. It is unclear as to what will happen in case there are multiple registered trade unions which enjoy this support (of 10% of members) but no union has the required support of at least 20% workers to participate in the negotiating council.
Note that under the 2019 Bill, the threshold for participation in negotiating council was 10% instead of 20%.
Provisions on fixed term employment
The 2020 Bill introduces provisions on fixed term employment. Fixed term employment refers to workers employed for a fixed duration based on a contract signed between the worker and the employer. Provisions for fixed term employment were introduced for central sphere establishments in 2018.[11] We discuss below the pros and cons of introducing 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.
However, 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. Further, the Bill does not restrict the type of work in which fixed term workers may be hired. Therefore, they may be hired for roles offered to permanent workmen. In contrast, under the Contract Labour (Regulation and Abolition) Act, 1970 the government may prohibit employment of contract labour in some cases including where: (i) the work is of a perennial nature, or (ii) the work performed by contract workers is necessary for the business carried out by the establishment, or (iii) the same work is carried out by regular workmen in the establishment. Note that the 2 nd National Commission on Labour (2002) had recommended that no worker should be kept continuously as a casual or temporary worker against a permanent job for more than two years. 2
The Standing Committee on Labour examined identical provisions in the 2019 Bill and recommended the conditions under which, and areas where fixed term employment may be utilised should be clearly specified. 3 Further, a minimum and maximum tenure for hiring fixed term employees should be specified.
The ILO (2016) noted that several countries restrict the use of fixed term contracts by: (i) limiting renewal of employment contracts (e.g., Vietnam, Brazil and China allow two successive fixed term contracts), (ii) limiting the duration of contract (e.g., Philippines and Botswana limit it up to a year), or (iii) limiting the proportion of fixed term workers in the overall workforce (e.g., Italy limits fixed term and agency workers to 20%).[12]
Table 1 below compares the provisions of fixed term employment, permanent employment and contract labour.
Table 1: Comparison between fixed term employment, permanent employment and contract labour
Feature
Fixed Term Employee
Permanent Employee
