Major Labour Law Challenges & Reforms in 2020

Major Labour Law Challenges & Reforms in 2020
PRS India | The central government proposes to replace 29 existing labour laws with four Codes. The objective is to simplify and modernise labour regulation.

Major Labour Law Challenges & Reforms in 2020

Various legislative, administrative, and e-governance initiatives have been taken by the Central Government and State Governments to generate employment and to facilitate ease of doing business. The various initiatives taken by the Central Government and State Governments have been compiled and are as follows:

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 needed 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).  Size-based 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. 

In 2019, the Ministry of Labour and Employment introduced four Bills on labour 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.

While the Code on Wages, 2019 has been passed by Parliament, Bills on the other three areas were referred to the Standing Committee on Labour. The Standing Committee submitted its reports on all three Bills. The government has replaced these Bills with new ones in September 2020 and these new labour codes will be implemented from April 2021.

The labour codes on wages and industrial relations apply to all establishments, with limited exceptions. The codes on social security and occupational safety continue to apply to establishments over a certain size (typically, above 10 or 20 workers). However, the Occupational Safety Code states that the applicability thresholds (of 10 or above) will not apply in those establishments in which hazardous activities are being carried out. Further, it makes provisions to notify a separate social security fund for unorganised workers. That said, the code increases the thresholds for factories from 10 to 20 (with power) and 20 to 40 (without power).

The Code on Social Security enables the government to formulate schemes for the benefit of unorganised workers, and gig and platform workers. The codes on industrial relations and occupational safety allow the government to exempt any new establishment from their provisions in the public interest. 


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