New Labour Codes in India: UPSC Current Affairs Economy

Labour Codes

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Context:

The Union Labour Ministry is actively moving towards implementing the four Labour Codes, originally passed in Parliament during its second term between 2019 and 2020.

Labour laws in India

Labour laws in India are governed by both the Parliament and state legislatures, as labour falls under the Concurrent List of the Constitution.
To streamline compliance and promote consistency across the nation, the Second National Commission on Labour (2002) proposed consolidating central labour laws into key categories: industrial relations, wages, social security, safety, and welfare including working conditions.
In alignment with these recommendations, the Government introduced new Labour Codes aimed at modernizing and harmonizing labour regulations.

Need for Labour Reforms

Simplification of Labour Laws

Issue: India's labour laws are complex, diverse, and often outdated, stemming from a piecemeal approach over decades. This complexity leads to ambiguity, inconsistency, and difficulty in compliance for employers.
Impact: The current framework hampers ease of doing business by burdening firms with excessive regulatory requirements. It also limits understanding and enforcement, resulting in varying interpretations and legal disputes.
Solution: There is a pressing need to consolidate and simplify these laws to make them more coherent, transparent, and aligned with modern economic realities. This simplification would not only reduce compliance costs for businesses but also improve enforcement and ensure better protection for workers.

Facilitating Job Creation while Protecting Workers

Challenge: Balancing the need for flexible employment practices with ensuring adequate protection and rights for workers is a key challenge.
Objective: Labour regulations should foster an environment conducive to job creation and economic growth while safeguarding the rights of workers to fair wages, social security, safe working conditions, and collective bargaining.
Approach: A balanced approach is necessary where labour laws provide enough flexibility for businesses to adjust to market conditions while guaranteeing fundamental labour rights and protections. This includes robust labour administration to resolve disputes and enforce regulations effectively.

Coverage of Establishments under Labour Laws

Concern: Current labour laws primarily apply to larger establishments, leaving a significant portion of the workforce in smaller enterprises unprotected.
Impact: Smaller enterprises may avoid growth to evade compliance, leading to informalization of labour and lack of social security benefits for workers.
Recommendation: Revisiting thresholds and extending coverage to smaller establishments could ensure more comprehensive protection for all workers. This would require a balance between regulatory requirements and the operational capacities of small businesses.

Thresholds for Lay-Off, Closure, and Retrenchment

Issue: The requirement for prior government permission for lay-offs, closures, and retrenchments under the Industrial Disputes Act (IDA) creates barriers for firms adjusting their workforce in response to economic changes.
Impact: This provision discourages investment and hampers the ability of businesses to restructure efficiently, potentially leading to stagnation and reduced competitiveness.
Proposal: Reforming the IDA to streamline procedures for labour adjustments could enhance flexibility for businesses while ensuring fair treatment and adequate compensation for affected workers.

Labour Administration

Challenge: The multiplicity of labour laws results in a complex compliance framework, often leading to ineffective enforcement and administrative inefficiencies.
Impact: Inconsistent enforcement and bureaucratic hurdles undermine the intended protections and rights guaranteed by labour laws.
Action: Improving labour administration capabilities through training, digitalization of processes, and rationalization of compliance requirements can enhance enforcement effectiveness and reduce compliance burdens on businesses.

Contract Labour

Trend: There is a growing trend towards hiring contract labour due to its flexibility in responding to fluctuating business demands.
Concern: Contract workers often lack job security, social benefits, and adequate wages compared to regular employees, leading to increased vulnerability and inequality in the workforce.
Need: Regulations should be revised to ensure fair treatment, wage parity, and opportunities for regularization of contract workers where applicable, balancing the need for flexibility with worker protections.

Trade Unions

Issue: The absence of clear criteria for union recognition and negotiation rights leads to fragmentation and ineffectiveness in collective bargaining processes.
Impact: Lack of unified representation hampers workers' ability to negotiate fair wages, working conditions, and benefits effectively.
Call: Establishing transparent criteria for union recognition and negotiation rights can empower workers and enhance the collective bargaining process, ensuring equitable outcomes for both employers and employees.

Delegated Legislation

Concern: Delegating extensive rule-making authority to the government without clear guidelines and oversight from the legislature raises concerns about accountability and transparency.
Principle: While delegated legislation allows for flexibility and expediency in rule-making, it should be guided by clear legislative principles and policies to prevent misuse and ensure alignment with legislative intent.
Guideline: Clearly defining the scope and limits of delegated authority, along with robust parliamentary oversight, is essential to maintain the integrity and effectiveness of labour laws.

Code on Industrial Relations, 2020

Exemption

The appropriate government may exempt any new industrial establishment or class of establishments from the provisions of the Code in public interest.

Standing Orders

Requirement: All industrial establishments with 300 workers or more must prepare standing orders covering specific matters listed in a Schedule to the Code.
Matters include:

Classification of workers
Communication of work hours, holidays, paydays, and wage rates to workers
Termination of employment procedures
Grievance redressal mechanisms for workers

Prior Permission of the Government

Requirement: Establishments with at least 300 workers must seek prior permission from the government before closure, lay-off, or retrenchment.
Definitions:

Lay-off: Employer's inability to continue giving employment due to adverse business conditions.
Retrenchment: Termination of worker's service for reasons other than disciplinary action.

Powers to Revise Threshold

The central government has the authority to revise the threshold for establishments requiring prior permission for closure, lay-off, or retrenchment.

Sole Negotiating Union

If multiple trade unions exist in an establishment:

The union with more than 51% of workers as members is recognized as the sole negotiating union.

Negotiation Council

Formation: If no trade union qualifies as the sole negotiating union:

A Negotiation Council is formed comprising representatives from unions with at least 20% of workers as members.

Disputes Relating to Termination

Classification: Any dispute concerning discharge, dismissal, retrenchment, or other termination of an individual worker's services is classified as an industrial dispute.
Adjudication: Workers can apply to the Industrial Tribunal for adjudication of the dispute 45 days after the application for conciliation.

This Code outlines crucial provisions aimed at regulating industrial relations, ensuring fair treatment of workers, and facilitating effective dispute resolution in India.

The Code on Social Security, 2020:

Social Security Entitlements: The central government can apply the Code to any establishment based on size thresholds.
Social Security Funds: Funds will be set up for unorganised workers, gig workers, and platform workers, administered by both central and state governments.
Registration and Definitions: The Code mandates registration of unorganised workers, gig workers, and platform workers, with expanded definitions for terms like 'employees' and 'platform workers'.
National Social Security Board: Establishes a national board to oversee schemes for unorganised sector workers, gig workers, and platform workers, with specific representation and funding mechanisms involving aggregators.
Gratuity Eligibility: Reduces the gratuity period for working journalists from five years to three years.
Appeals and Offences: Empowers officers for inquiries and disputes related to provident fund and employee state insurance, with penalties revised for offences like obstructing inspectors or unlawful deductions.
Powers during Epidemics: Allows deferral or reduction of contributions under PF and ESI during pandemics, endemics, or national disasters.

The Code on Occupational Safety, Health and Working Conditions, 2020

Exemption: Empowers state governments to exempt new factories from the Code to boost economic activity and employment.
Factory Definition: Defines a factory based on the number of workers and type of manufacturing process.
Hazardous Establishments: Covers establishments engaged in any business or occupation, irrespective of worker count.
Contract Workers: Applies to establishments or contractors with 50 or more workers, with restrictions on contract labour in core activities.
Daily Work Hours: Limits maximum daily work hours to eight.
Employment of Women: Ensures women's employment rights across all establishments, with safeguards for hazardous operations.
Inter-State Migrant Workers: Defines and provides benefits for inter-state migrant workers, including access to public distribution systems and welfare funds.
Database and Social Security Fund: Mandates the maintenance of a worker database and establishes a Social Security Fund for unorganised workers, funded by penalties and other sources as prescribed.

The Code on Wages, 2019:

Coverage: Applies to all employees, with wage decisions for specific sectors by central and state governments.
Floor Wage: Central government sets a floor wage, considering living standards and geographical variations, with advisory and consultation mechanisms.
Minimum Wage: Prohibits payment below minimum wages notified by central or state governments, based on time or production output, reviewed every five years.
Overtime: Specifies entitlement to overtime wages at double the normal rate for excess working hours.
Payment Methods: Mandates wage payments via coins, currency, cheque, bank transfer, or electronic mode, with fixed wage periods.
Deductions: Allows deductions for specified reasons, capped at 50% of total wage.
Bonus and Profit Sharing: Ensures annual bonus entitlement for eligible employees, with profit distribution linked to annual wages, capped at 20%.
Gender Discrimination: Prohibits gender-based wage discrimination for similar work.
Advisory Boards: Constitutes central and state advisory boards for wage fixation and employment issues, with representation requirements including women.
Offences and Penalties: Specifies penalties for wage-related offences, including imprisonment and fines depending on the severity of the offence.

Benefits of the Labour Codes

Establishment of a Helpline for migrant workers and creation of a national database.

Accumulation of leave days and equal opportunities for women, including provisions for night work with security measures.
Compensation enhancements for workplace accidents, ensuring at least 50% of penalties go to affected workers.
Introduction of a Social Security Fund covering 40 crore unorganised, gig, and platform workers.
Pay parity for women and extended coverage under the Occupational Safety & Health Code, including IT and Service sectors.
Implementation of a 14-day notice period for strikes to facilitate amicable solutions.
Improved efficiency of Labour Tribunals for faster dispute resolution.
Promotion of harmonious industrial relations, enhancing productivity and employment.
Simplification of registration and licensing requirements under unified laws.
Transformation of inspectors into facilitators and adoption of a web-based inspection system for transparency.
Significant increase in penalties to deter violations effectively.

PRACTICE QUESTION

Q. Discuss the implications of the new labour codes introduced in India for industrial relations and economic development. Evaluate the effectiveness of these codes in addressing contemporary challenges in labour management and socio-economic growth.

SOURCE: THE HINDU