Labour reforms: Case for improving working conditions, all across

Abhik Ghosh

By Abhik Ghosh, 

Former IAS and ILO Official

After waiting in the wings for five years, major labour reforms have been brought back to the centre stage yet again.

            The recent Economic Survey and the Union Budget have both emphasised the urgency of labour reforms to spur industrialisation, achieve economies of scale, create decent and productive jobs, and promote the Make in India policy for rapid, sustainable and equitable economic growth. The decisive mandate in the recently concluded general election gives the government the unprecedented opportunity to translate its political will into purposeful action and quickly push through major labour reforms that remained pending in its first innings.

            The plan to simplify, rationalise and consolidate some 44 central labour laws into 4 omnibus labour codes was launched in 2014. Essentially, the plethora of central labour laws is being bunched together into Labour Codes on Wages; Occupational Safety & Health; Industrial Relations; and Social Security. Extensive consultations were held with the principal stakeholders - employers’ organizations, major trade unions and the government - to arrive at the widest possible consensus. It is a given that there are far too many labour laws and that their number needs to be reduced for ease of compliance and targeted impact. Many of the extant provisions are complicated and repetitive, their applicability thresholds vary under different laws and many terminological definitions are confusing. The need for simplification, rationalisation and consolidation of extant labour laws - with a few exceptions - has been largely supported by the tripartite constituency. This is how less will become more in the labour reforms architecture.

   

         The Prime Minister has stated that the government would take up “safe” legislative reforms as a start for maximum impact and leave the “controversial” ones for a later date. This applies to labour law reforms as well. As on date, the labour codes on wages and occupational safety & health have passed muster with the tripartite constituency and the Cabinet has also approved both of them. The Wage Code seeks to consolidate the Minimum Wages, Payment of Wages, Payment of Bonus and Equal Remuneration Acts. Similarly, the code on Occupational Safety & Health (OSH) combines 12 or 13 existing laws, including the Factories, Mines and Plantations Acts, the Contract Labour Act and many others dealing with workers’ welfare and decent working conditions. The licensing and inspection regimes are proposed to be eased and simplified under the new code. As most of the provisions of the Wage Code and OSH Code are progressive and salutary, these two Bills are not likely to encounter any significant resistance in their passage through the Parliament.

            Let us take a sneak peek into some of the new provisions. Universal application of the minimum wage law to all employment categories, instead of its selective application only to scheduled employments, would fulfil a long pending demand. Likewise, the concept of a national minimum wage, while allowing upward variations in different regions based on their level of economic development, would be a pragmatic solution to a vexed issue. The concept of a national floor level wage is also being introduced and no state government can fix minimum wages below that level. The liability for proof of non-payment or short payment of wages would be transferred from the employee to the employer and the limitation period for filing such claims enhanced from 6 months to 3 years. Insofar as payment of wages is concerned, new code would remove the existing wage ceiling of Rs. 24000 and cover all employees in all places of employment as against only six at present. In yet another progressive move, the new code would cover transgenders for purposes of equal remuneration. As regards bonus, there is no procedure for filing claims under the existing law and the affected worker has to approach the labour court or industrial tribunal for redress, which is dilatory and frustrating. The new code proposes to set up a Claims Authority that will decide all claims of non- payment or short payment of wages as well as bonus, obviating circuitous judicial processes.  

             Some principled objections have been raised by the Trade Unions against the inspection system proposed under the new OSH Code, but mainly it integrates the reform measures already being followed under the web based Shram Suvidha Portal. Employers have welcomed the changes as an antidote to the dreaded inspector raj. However, a balance between ease of compliance and effective enforcement must be struck lest the labour inspection protocol is rendered ineffective.        

            The labour code on Industrial Relations would subsume the Industrial Disputes, Trade Unions and Industrial Employment (Standing Orders) Acts. As opposed to the earlier two codes, this one is considered controversial for several reasons. Despite extensive tripartite consultations, there is still a widespread perception, particularly among the trade union representatives, that their concerns have been overlooked.

            Most of the apprehensions hinge around the flexibility-security debate, focusing on Chapter VB of the Industrial Disputes Act. Ostensibly, the employers had agreed that factories, mines and plantations where 300 or more workers are employed would not require prior permission of the appropriate government for any layoff, retrenchment or closure. They had also apparently agreed to compensate such workers with 45 days’ wages for every completed year of service. The workers’ representatives insist that the existing threshold of establishments with 100 or more workers requiring ‘prior permission’ for layoff, retrenchment and closure should be retained. This debate has gone on for far too long and has stymied the labour reforms process. The UPA government could not resolve it in 10 years and the last NDA government also had to hold back its horses for fear of annoying the trade unions. It is now time to take a pragmatic approach and pursue what is doable in the larger interest.

            The Cabinet will have to take a call on whether to retain the existing threshold or make any modification. The ‘prior permission’ clause applies only to factories, mines and plantations. Most of the mines are now operated by public sector enterprises, hence obtaining prior permission from the government is not an issue. According to some estimates, almost 70 percent of all industries in the organized sector employ less than 40 regular workers. Industries employing between 100 - 300 regular workers would be miniscule compared to the total. Large industries have also found pragmatic solutions to workforce reduction through the voluntary retirement route. Seen from another angle - although precise data is not readily available - the central government has not declined any genuine application seeking ‘prior permission’, and so the debate remains largely academic. Many state governments like Rajasthan, Haryana, Gujarat, M.P, A.P., etc. have already raised the ‘prior permission’ threshold from 100 to 300, which may be the more pragmatic strategy to follow in our federal ecosystem. As far as compensation for layoff, retrenchment and closure is concerned, the new code would permit the appropriate government to notify the scale and quantum thereof on a case to case basis with a measure of flexibility.

            Some other controversial provisions of the new IR code concern the right to strike, deemed registration of trade unions, association of outsiders in executive bodies of trade unions, labour courts and industrial tribunals. Whereas under the existing law only public utility services are required to serve the mandatory two weeks’ strike notice, the new code would extend this requirement to all industrial establishments. It also seeks to prohibit strikes while conciliation proceedings are ongoing. The trade union representatives brand the proposals to curtail the right to strike as inimical to the fundamental right of workers. The Cabinet will have to take a balanced view and decide how reasonable restrictions on the right to strike may be imposed in the interest of production, productivity and exports without violating international treaty obligations with the ILO.

           

The proposal in the new code requiring all establishments employing 100 or more workers to set up works committees to settle in-house grievances before they escalate into disputes is a welcome move. The provision for deemed registration of trade unions, where registration applications have remained pending beyond 60 days, promotes freedom of association and is pro-worker. However, the prohibition of outsiders in the executive bodies of trade unions is seen as an attempt to weaken their organizational capacity and functional efficiency and perceived as anti-worker.

            Reform of section 9A of the Industrial Disputes Act permitting the management to make changes in the conditions of work      without the mandatory 21 days’ notice is a significant change that would promote flexibility, where the existing provision is stringent and prone to unnecessary litigation.

            Labour courts under the existing law would be eliminated and a two member tribunal - with one judicial and one administrative member - would decide labour cases. The controversial proposal in the earlier draft code for a tripartite Industrial Relations Board to hear and settle individual labour disputes has been dropped and the dispute resolution procedure further rationalised. Upon failure of conciliation, the disputing parties may now approach the tribunal directly without having to wait for a reference by the appropriate government.

            After the Cabinet’s approval, the labour code on IR would likely be introduced in the Parliament sometime in the latter half of 2020. By then the numbers in the Rajya Sabha would have turned favourable for the government. And so, the big bang reforms would have to wait for a little longer.               

            The labour code on social security is still work in progress as several issues need to be sorted out internally before it can be given any firm shape. Some 12 or 13 different legislations may be brought under one umbrella, the contentious ones being the Employees Provident Fund and Employees State Insurance Acts. The proposal to establish one Social Security Board to subsume the EPFO and ESIC along with all other labour welfare boards has not found favour with the stakeholders. The government has set up yet another committee to review the proposals and come up with fresh recommendations.

            While the waiting game continues, early reform of the codes on wages, occupational safety and health and other working conditions would at once satisfy the stakeholders and the investor community that the government means business and it is no longer business as usual. Restructuring the labour code on Industrial Relations in the next phase would remain a crucial challenge. 

(Editor's note: Media friends are welcome to use this piece with credit to PRapport)