Demystifying the Labour laws 2020: Transformational change or an incremental improvement?

Three Labour codes of monumental importance have been recently passed by the parliament:

a) Industrial Relations Code 2020

b) Code on Social Security Bill 2020

b) Occupational Safety, Health and Working conditions code Bill 2020 (OSH)

India has a complex regime of labour laws and it has never been an easy task to come out with something which satisfies all, to that extent the proposed labour reform has put up a robust framework with a fine balancing act of providing a greater flexibility to the industry and at the same time widening the security net. Several committees for nearly 16-17 years have recommended simplifying and rationalising the labyrinth of the labour codes. Codification brings in the much-needed transparency and accountability.

What are the changes?

The new labour laws brings in the much needed social security for the gig workers and the inter-state migrant workers hence it increases the ambit of the social security net currently in place, it also proposes measures that makes striking difficult pushing trade unions to the margins, proposes measures that will provide greater flexibility to employers to hire and fire workers without government permission, giving a fillip to the operational freedom, expansion of establishments and generation of jobs. Fixed term employment makes a quiet entry.   

The changes...

The modification of the Industrial Relations code 2020 bill raises the threshold relating to layoffs without government permission, the threshold has been raised from 100 workers employed to 300 workers now, thereby providing a greater flexibility to employers. Businesses upto 300 workers can retrench and close establishments without government permission. This raises a concern as the hiring and firing flexibility has a negative impact on the job security, arbitrary dismissals cannot be ruled out. 90% of the working factories and almost 40% of the workers will get impacted due to this change in the IR code. The government does retain the right to intervene but a closer vigil on this is a must. Rajasthan is one state where this has been implemented earlier (the increase in the threshold to 300), nothing alarming so far but a close watch on this is a must.

The required notice period for a strike has been increased to 60 days during the pendency of the proceedings before a tribunal and 60 days after the conclusion of such proceedings thus making it difficult for a legally valid strike. Clearly a thumbs down for any militant trade unionism.

Under Occupational, Safety, Health and Working conditions code a big change is the requirement of a single licence for staffing firms to hire workers on contract across different locations instead of multiple licences earlier.This is clearly a progressive step and helps increase formalization and provides an opportunity to nearly 390-400 Mn informal workers to be employed through formal staffing organizations that can provide wage protection and social security.

Another big change is that of expanding social security and inclusion of inter-state migrant workers in the definition of workers. The social security code proposes a National Security Board which shall recommend to the central government for formulating suitable schemes for different sections of the unorganized workers, gig workers and platform workers. Aggregators employing gig workers will have to contribute 1-2% of their annual turnover for social security. The Occupational Safety, Health and Working conditions code has defined inter-state migrant workers as the worker who has come from another state and earning upto Rs.18,000 pm. So, the proposed definition makes a distinction from the present definition of Only contractual employment.

Other changes

A worker reskilling fund has been proposed to be created. 15 days wages last drawn by the worker to be paid by the employer and other such sources though the ‘other sources/bodies’ is yet to be spelt out clearly.

A legal framework for fixed term employment and ease of disengaging of contract workers brings in some operational freedom and possibly generation of new jobs. The gradual shift of the employer-employee relation has been leveraged well with the recognition of contractual employee requirements without losing track of extending the social net.

Threshold limit of contractor employees has been increased from 20 to 50. There is also a change in the areas in which they can work, from an earlier mandatory specification of only non-core areas, the contractual employees can now be deployed in All areas. Core areas and non-core areas are decisions best left to the respective businesses rather than a governmental agency micromanaging business requirements!

The Occupational Safety, Health and Working conditions code 2020 amends laws relating to OSH&WC code and empowers a state government to exempt any new factory from the provisions of this code in the interest of job generation and business requirements. The new code also proposes allowing women to be employed in all establishments, this opens large opportunities in Hospitality and Retail industries where women are employed in large numbers.

On a concluding note...

What could be some of the key concerns that we must keep a watch on?

Job security is a key concern, considering the fixed term contract provisions, provision on establishments employing greater than 300 employees and safety provisions enforceable only at workplaces employing greater than 250 workers. These provisions among other things makes it a trifle easier to disengage employees. Take the example of the construction sector which employs the largest number of unskilled workers, will now be free to use the labour at will in a manner of speaking. The respective state governments do have the right to intervene though but that can only happen with a sound institutional mechanism to avoid any kind of government outreach and secondly a dire need to fast track the reskilling and upskilling of the workforce is a must. The reskilling fund will come in handy but as we know for most things state run, the execution and deployment will have to be proactive with fast turnaround times, the devil after all lies in the details and implementation.

Gujarat is one of the states which has enforced these provisions in a large measure for more than a decade especially in the SEZ zones. Though we do not have any study with conclusive data encompassing the causal variables covering all facets, but we did see Gujarat gaining a great deal of private investments and turning the state into a manufacturing hub, the net job creation did see a positive swing.

The reforms or the code bills if you will, are bold and futuristic balancing the growth imperatives with the immediate social requirements, safety net for unorganized, gig workers and inter-state migrants. 29 different laws have been merged into three and the 4th code on minimum wages was passed out last year. Therefore, a total of about 44 existing laws have been rolled into 4.

 The reforms are clearly transformational in nature and a good starting point for the growth paradigm which India beckons. We need to ensure the implementation in entirety and watch out closely for the relevant institutional support systems working in tandem with the industry. Just for the record, there are 411 clauses, 13 schedules and in totality the bills extends to 350 pages!