By Vijay Ravi, Senior Partner, Kochhar & Co.
The scale of justice, which symbolizes the weighing of two sides of a legal issue, truly reflect the challenges that lawmakers face in the context of labour & employment laws. Balancing the interests of important stakeholders, viz., employers, and employees can be a nightmare.
Many of the employment laws in India were enacted 7 or 8 decades back, in an era when businesses operated in very different circumstances compared to the present day and therefore, there has been a long-felt need for an overhaul of these laws. By enacting the 4 new labour codes, it appears that the Government has strived to meet this need. Purportedly, the underlying objective is to simplify the complex maze of existing labour laws, improve India’s ranking in the Ease of Doing Business Index, ensure increased regulatory compliance by businesses while simultaneously protecting the rights and interests of employees.
The 4 new labour codes consolidate 29 existing labour laws relating to wages, conditions of employment, social security, trade unions, and occupational health and safety. The existing laws have varied definitions of the term ‘wages’ which led to confusion and litigation. The new codes provide for a uniform definition of the term ‘wages’, which is expected to reduce litigation and ease compliance. The Code on Wages, 2019 provides that the Central Government would set a floor wage taking into account the minimum standard of living of workers. The Central Government can fix different floor wages based on different geographical areas and/or skills of the workers. The State Governments shall prescribe minimum wages, which cannot be below the floor wage set by the Central Government.
Some other important changes that have been introduced include the following:
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at least 50% of the total remuneration of an employee has to be considered as ‘wages’ for purposes of calculating social security contributions. This may result in increased liability of social security contribution for employers and lesser ‘take-home’ salary for employees;
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a new authority has been introduced as compared to the exiting labour inspectors. In addition to the inquiry and investigation, an Inspector-cum-Facilitator is expected to assist employers and employees in complying with the law;
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while the codes have enhanced penalties for non-compliance, provisions for compounding of offences have been introduced;
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provisions in relation to fixed-term employees;
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social security for gig workers, platform workers and unorganized workers;
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creation of a worker re-skilling fund to which an employer is required to make a contribution equal to 15 days wages last drawn by a worker immediately before retrenchment;
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termination of service due to conviction for sexual harassment would disentitle an employee from receiving bonus under the code; and
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the limitation period for filing of claims by an employee has been increased to three years as against the existing time period varying from six months to two years, to provide a worker more time to stake his claims.
The new labour codes have introduced certain aspects which would be welcomed by employers:
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single registration and licensing requirement;
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prior government permission for lay-off, retrenchment (termination), or closure needs to be sought only by industrial establishments employing at least 300 workers (as against the existing threshold of 100 workers);
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statutory records can be maintained in electronic form; and
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workers may find the process of initiating a strike to be cumbersome.
The new labour codes do include certain employee-friendly aspects such as:
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the revised definition of the term ‘wages’ would mean higher provident fund contribution by employer, statutory bonus, retrenchment compensation, and gratuity;
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provision for leave encashment on an annual basis;
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fixed-term employees entitled to same employee benefits as permanent employees and pro-rata gratuity payment; and
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full and final dues of an employee to be settled within 2 days from the last working day.
While the new labour codes have been enacted, the same is yet to be notified. As with the (Indian) Companies Act, 2013, various essential aspects under the new labour codes are proposed to be addressed via delegated legislation, i.e., rules made by the appropriate government. As ‘labour’ is a concurrent subject under the Indian Constitution, both the Central and State Governments are required to frame rules, and only after notification of such rules can the new codes be implemented.
It is said that ‘the devil is in the details’. Though the Central Government has issued draft rules under the codes, the State Governments have not yet approved/adopted the same (the State Governments may decide to make changes to the rules). The conflict of interest between various stakeholders has meant that State Governments have not yet notified the rules thereby delaying the process of implementing the new codes (which was initially targeted for April 01, 2021).
For India to achieve its dream of a USD 5 trillion economy, it is imperative that the Central and State Governments are able to walk the tightrope – balancing the interests of all stakeholders – to roll out the new codes and introduces much needed (and delayed) labour reforms at the earliest.
