Labour Laws fall under the domain of the Concurrent list of the Constitution of India. It means that the Central as well as State governments can make rules and regulations. If both make a law on the particular issue, then the central law will prevail over the state law in resolution. Recently, the Central Government sought to replace the 29 existing labour laws with the four codes in 2019 and 2020, which will supersede the state laws, as earlier there were 100 state and 40 central legislation on the labour laws that existed to regulate colourful aspects of workers, employees and employers, such as minimum wages, social security, trade unions, etc.
The National Commission on Labour beat the drum for the consolidation of the central laws in a broader group to improve ease of compliance and ensure uniformity in labour law, as earlier laws have obsolescent provisions and an overlapping definition, which even created hurdles and confusion for the Indian Courts as to which definition should apply in case of conflict.
This research article will discuss the overview of the recent four labour codes and the rationale for their codification. It also examines the expected benefits, potential challenges and the broader implications of these reforms for workers, employers and the Indian economy.
Overview of New Labour Codes
Recognising these challenges, the government started working to rationalise and consolidate the previously enforced Labour laws into new laws, and the government came up with the draft of four bills in 2019-2020, which include:
1. The Code on Wages, 2019
2. The Industrial Relations Code, 2020
3. The Occupational Safety, Health and Working Conditions Code, 2020
4. The Code on Social Security, 2020
1. The Code on Wages (2019):
The New Labour Code on Wages provides a more uniform and comprehensive framework for regulating wages, bonuses and other related aspects of labour in India. This Code subsumes four earlier enacted legislations: the Payment of Wages Act, the Minimum Wages Act, the Payment of Bonuses Act and the Equal Remuneration Act.
Salient Features of Labour Code on Wages
- The code on wages covers all types of workers, including manual workers, clerical workers and supervisory workers.
- It covers both the organised and unorganised sectors and will be applied to all establishments employing more than ten employees.
- It applies to both the public and private sectors and covers all the workers, including contractual, sub-contractual, regular, casual and temporary.
- It will have an effect on the whole of India. It will also apply to Indian citizens who are working in foreign countries only when he is working in an Indian company, or the employer is an Indian or if the project is funded by the Government of India.
- The government will set a floor wage(the absolute minimum a worker can be paid) for the whole of India according to the different geographical areas. This Code will establish a minimum wage that must be paid to workers, irrespective of their skill level and the work they do. The State governments must ensure that they should not set wages below the floor wage set by the central government.
- It also provides components of wages, like employees’ basic salary must be at least 50% of their gross salary, and the term wages constitutes Basic pay, dearness allowances, retaining allowances and penal provisions, which are also provided if the rules and regulations are not followed properly.
2. The Industrial Relations Code, 2020:
It is a comprehensive legislation that consolidates and modernises the laws governing employer and worker relations in India. This Code seeks to subsume three existing laws: the Trade Unions Act, 1926, the Industrial Disputes Act, 1947, and the Industrial Employment (Standing Orders) Act, 1946.
Salient Features of Industrial Relations Code
- The legislation revised the definition of the word ‘Worker’, which will now include sales promotion employees, working journalists, and those in supervisory roles earning up to ₹18,000 per month. It also refines the term ‘industry’, which includes any systematic employer-employee relationship for the production and distribution of goods and services, irrespective of the profit motive, excluding charitable organisations, domestic services, and sovereign functions.
- This legislation introduces an important provision on strikes and lockouts to bring strictness to industrial disputes. The old laws, which primarily restricted notice requirements mainly to public utility services, the Code mandates a 60-day prior notice before any strike or lockout across all factories and industries. The definition of “strike” includes situations where 50% or more workers take casual leave simultaneously. Strikes and lockouts are prohibited during arbitration proceedings, judicial trials, and while settlements or awards are in force. Additionally, Employers are required to notify concerned authorities within five days of declaring or facing a strike or lockout, ensuring transparency and accountability.
- The Code strengthens the Grievance Redressal Committee (GRC) mechanism to resolve the disputes at the workplace, by increasing its permissible strength from 6 to 10 members, with rightful representation of women in the committee. Workers must file complaints within one year, and if the GRC fails to resolve the matter or the worker is dissatisfied, the issue can be redirected to conciliation. Non-compliance with GRC provisions can attract penalties up to ₹1,00,000, making it essential for employers to adhere strictly. These regulations aim to provide workers with a fair, time-bound, and participative grievance redressal mechanism.
- Another major regulation under the Industrial Relations Code is the establishment of a Reskilling Fund for retrenched workers. Now, Employers are required to contribute an amount equal to 15 days of the worker’s last drawn wages into the fund, which must be credited to the employee’s account within 45 days of termination. Contributions from other sources may also strengthen this fund. By providing financial support for skill development, this provision seeks to ease the transition of displaced workers into new employment opportunities with training. Overall, the Code marks a significant step in balancing employer flexibility with worker protection, thereby promoting stability and productivity in India’s industrial sector.
3. Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code)
It subsumed 13 existing labour laws relating to health, safety, and working conditions of employees across diverse sectors such as factories, mines, dock work, construction, plantations, motor transport, contract labour, inter-state migrant labour, journalists, and cine workers.
Salient Features of OSH Code
- It rationalises and harmonises the legal framework while enlarging its coverage. For example, the Code defines a factory as an establishment with at least 20 workers if power is used and 40 workers if no power is used. It also sets the daily working hours limit at a maximum of eight hours per day and recognises workers from interstate migration earning up to ₹18,000 per month.
- A progressive feature of the Code is its inclusive approach to workers’ rights. Women are permitted to work in all types of establishments, including night shifts, subject to their consent and safety and Hazardous working conditions are regulated more strictly, with the manpower threshold raised to 50 for contractors.
- The New Labour Code mandates that no charges can be imposed on workers for safety measures, medical check-ups, or occupational disease detection; the burden will be borne by the employer. Further, a National Occupational Safety and Health Advisory Board be created to advise the central government on policy matters.
- The Code also lays down minimum standards of workplace facilities for employees, ensuring their health and dignity. These include separate facilities for men, women, and transgender employees, locker rooms, adequate sitting arrangements for those working in standing positions, first aid facilities, clean and hygienic conditions, drinking water, proper lighting, and measures to prevent overcrowding. These provisions reflect the Code’s focus on the welfare and humane working conditions of workers across all sectors.
- The duties of employers and employees are clearly defined to promote accountability and transparency. Employers are required to ensure a hazard-free workplace environment, provide free annual health check-ups, manage toxic and e-waste safely, and issue appointment letters to all employees. In high-risk industries like factories, mines, docks, and plantations, employers must ensure safe plants, machinery, and systems of work, proper training and supervision, safe handling and transport of substances, and safe entry and exit points. On their part, employees must comply with safety rules, take reasonable care of their own health, and cooperate with the employer in maintaining workplace safety. Collectively, these measures aim to modernise India’s labour law regime while strengthening the protection and dignity of workers.
4. The Code on Social Security, 2020
The Code on Social Security, 2020, is a comprehensive labour reform that subsumes nine earlier laws, such as the EPF Act, ESI Act, Maternity Benefit Act, and Payment of Gratuity Act, to simplify and strengthen the social security framework. Its aim is to extend protection like provident fund, health insurance, gratuity, and maternity benefits to workers across the factories, industries, organised, unorganised, and even digital sectors.
Salient Features of New Labour Code on Social Security
- One of its key features is the inclusion of gig and platform workers, such as drivers and delivery partners, who were earlier excluded from social security coverage. For their welfare, the Code provides a platform for a dedicated social security fund to be financed through government support, corporate social responsibility contributions, and compulsory contributions by digital aggregators.
- The Code also introduces modern compliance measures by digitising the records to maintain transparency and creating the role of “inspector-cum-facilitator” to guide employers, rather than only penalising them. It ensures benefits like gratuity for fixed-term employees, maternity benefits for women, and accident compensation for workers where ESI does not apply, thereby widening coverage.
- However, the Code still has shortcomings. Many small establishments remain outside of its scope because of its mandatory provisions due to threshold limits, Aadhaar requirements may face legal challenges, and administrative delivery is fragmented across multiple boards. Despite these issues, it marks a significant step toward inclusive worker welfare and adapting India’s labour laws to the needs of the modern workforce.
Rationale for Codification of New Labour Codes
With the passage of time and modernisation, labour laws need an overhaul to ensure simplification and updation, along with the need for the emerging forms of labour like gig workers. So, codification of labour law was necessary with the changing times; it is very crucial in this time of Modernisation, AI Revolution, etc. This codification aims to simplify the legal structure, ensure greater transparency and make the labour law system more relevant to present-day economic and social conditions.
The plurality of labour laws has resulted in distinct compliance, increasing the burden on firms, leading to disobedience of the rules and regulations. On the other hand, the labour enforcement machinery apparatus has been proven ineffective due to poor enforcement machinery, inadequate penalties, overlapping provisions and corrupt practices by the inspectors. The new legislation addresses some of these aspects very effectively by introducing new provisions and strict implementation.
A trade union is an indispensable right for workers to voice their rights and to negotiate with the employer. Earlier, there were several registered trade unions, but there was no criterion to recognise the trade unions. Section 14 of the Industrial Relations Code, 2020, creates specific provisions for recognition of trade unions, including negotiating union or negotiating council.
The earlier laws were complicated, mutually inconsistent with the overlapping definitions and contained outdated clauses. For example, Multiple laws have differing definitions of common terms of workers, wages, establishments, appropriate government, etc., resulting in confusion and varied interpretations of laws. The new laws bring uniform definitions for common terms like worker, employee, wages, etc., minimising inconsistencies and varied interpretations by the judiciary and enforcement agencies. The law also removed the age-old provisions and now recognises the rights and security coverage of gig workers, platform workers.
The codification of the labour laws is a noteworthy step taken by the government towards simplifying the complex and obsolete framework of labour codes in the era of globalisation, technological advancement, and AI revolution. Such reforms are necessary in labour law for balancing the interests of employees and employers, while making it more effective and relevant and justified in contemporary economic and social conditions.
Challenges and Criticism
While the code consolidates and simplifies existing laws to some extent, but still they short apart in some respects.
- While the government consolidated the four new labour codes after replacing only 29 laws out of 40 central labour laws, what about the remaining laws? Which rules and regulations should be followed if they overlap with the replaced laws?
- The major challenges in labour reforms are to balance the employment growth while protecting workers’ rights, and the key debate revolves around the coverage of small firms within the legal framework, determining the threshold for prior approval in case of retrenchment, strengthening labour enforcement, permitting flexible forms of labour and encouraging collective bargaining.
- The rules and regulations on labour compliance and economic consideration have resulted in the increased use of the contractual worker, because the hiring of workers as regular employees creates a burden on them, like basic pay, allowances, etc. So the employers hire contractual labourers, for whom basic protection like assured wages has been denied, and the code didn’t address the concerns fully.
- To evade the rigidities in hiring and firing employees, which limit the ability to adjust to the production demand; consequently, the businesses and employers has increasingly relied on contract labour. As noted in the Overview of the Labour Law Reforms by PRS Legislative Research, the proportion of contractual workers in factories increased from 26% to 36 % during the 2004-05 to 2017-18, while the directly hired employees or workers fell from 74% to 64% in factories and industries during the same time period.
Conclusion
The consolidation of 29 central and state labour laws into four exhaustive and uniform laws is a significant step taken towards simplifying India’s complex labour law framework. These four legislations seek to modernise the archaic provisions, remove inconsistencies and extend protection to emerging categories of workers like gig workers, platform workers, etc. In conclusion, the four labour laws denote a historic and much-needed needed towards rationalising India’s labour law framework, yet the true effectiveness of these legislations will depend on the robust implementation and uniform enforcement, with the ability to balance between protecting workers’ rights and fostering economic growth.
This is a guest post submitted by Mr. Sumit Yadav, who is a student of law from Jaipur.
