In 2019, the Ministry of Labor and Employment introduced four Bills on labor codes to consolidate 29 central laws. These Codes regulate: (i) Wages, (ii) Industrial Relations, (iii) Social Security, and (iv) Occupational Safety, Health and Working Conditions. There are various advantages of merging multiple labor laws into a single code with 4 major laws. The present laws were made before Independence by the British Government. They are exploitative in nature. They are confusing and obsolete. They treat Indian citizens as subjects, not as equal residents of the country. The new codes are meant to change it by giving due respect and value to all kinds of workers.
Compliance with too many laws creates scope for corruption and exploitation of both the partiesworkers and industries. A set of consolidated laws will make it easier for companies to comply and workers to understand their rights and obligations. It will also attract foreign investments faster by improving the ease of doing business ranking of India. India presently stands at 63rd rank while china stands at 31st rank due to better business policies.
Easier and consolidated laws mean less time spent on them by the owners. This provides entrepreneurs with more time to focus on the running of business rather than fulfilling unnecessary compliance burden. Multiple Labor laws are a major reason behind restriction on MSMEs from turning into larger enterprises. The labor code is expected to plug this hole
Presently, 60% of workers are not covered under the Minimum Wages Act. The new law will give the right to minimum wages to the entire 50 crore workforce. Thus, it will not only be helpful for enterprises, but also to workers by bringing social security to the vast informal workforce of India.
Migrant workers face the challenge of lack of portability of social benefits. PRAN provides portability to the organized workforce but the same is not available to unorganized sector employees. The new Labor code will work towards providing social security to every worker in the country.
The ratio of gig workers is increasing at a fast pace in a service industry-oriented environment in Urban India. Due to covid-19, the speed has increased further. New labor codes can give them the required rights to work in an exploitation free environment.
Labor reforms in India have been pending for decades. A consolidated set of simplified laws will make both doing business and getting employed easier as well as more pleasurable experience with minimal exploitation. It will also contribute towards creating India into a $5 trillion economy by 2024.
Note :
The central government proposes to replace 29 existing labour laws with four Codes. The objective is to simplify and modernise labour regulation.
The major challenge in labour reforms is to facilitate employment growth while protecting workers’ rights. Key debates relate to the coverage of small firms, deciding thresholds for prior permission for retrenchment, strengthening labour enforcement, allowing flexible forms of labour, and promoting collective bargaining.
Further, with the passage of time, labour laws need an overhaul to ensure simplification and updation, along with provisions which can capture the needs of emerging forms of labour (e.g., gig work). This note discusses these challenges and the approaches taken by the four Codes.
Coverage: Most labour laws apply to establishments over a certain size (typically 10 or above). Sizebased thresholds may help firms in reducing compliance burden. However, one could argue that basic protections related to wages, social security, and working conditions should apply to all establishments. Certain Codes retain such size-based thresholds.
Retrenchment: Establishments hiring 100 or more workers need government permission for closure, layoffs or retrenchments. It has been argued that this has created an exit barrier for firms and affected their ability to adjust workforce to production demands. The Industrial Relations Code raises this to 300, and allows the government to further increase this limit by notification.
Labour enforcement: Multiplicity of labour laws has resulted in distinct compliances, increasing the compliance burden on firms. On the other hand, the labour enforcement machinery has been ineffective because of poor enforcement, inadequate penalties and rent-seeking behaviour of inspectors. The Codes address some of these aspects.
Contract labour: Labour compliances and economic considerations have resulted in increased use of contract labour. However, contract labour have been denied basic protections such as assured wages. The Codes do not address these concerns fully. However, the Industrial Relations Code introduces a new form of short-term labour – fixed term employment.
Trade Unions: There are several registered trade unions but no criteria to ‘recognise’ unions which can formally negotiate with employers. The Industrial Relations Code creates provisions for recognition of unions.
Simplification and updation: The Codes simplify labour laws to a large extent but fall short in some respects. Further, the Code on Social Security creates enabling provisions to notify schemes for ‘gig’ and ‘platform’ workers; however, there is a lack of clarity in these definitions.
Delegated Legislation: The Codes leave several key aspects, such as the applicability of social security schemes, and health and safety standards, to rule-making. The question is whether these questions should be determined by the legislature or be delegated to the government