How 3 labour codes aim to reform employment contract, layoffs, work safety

Legal changes will grant contract workers equal statutory social security benefits as regular workers of a business

The Union Cabinet accepted on Tuesday three labour codes that mark a major industrial reform and would be considered by Parliament in its monsoon session next week

The codes deal with industrial relations, social security and occupational safety, health and working conditions. A code on wages became law in August 2019, marking the government’s aim to the government to consolidate 35-odd labour laws into four codes. The four codes were vetted by the Parliamentary Standing Committee on Labour after they were introduced in the Lok Sabha earlier.

Though the government is yet to make public details of the changes made in the proposed codes, which got the Cabinet’s approval on Tuesday, here’s a look at some of the key changes that are expected:

Industrial relations code

The Bill will consolidate the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946 and the Industrial Disputes Act, 1947. It deals with contentious issues of industrial disputes, trade unions, terms of employment contract and retrenchment norms.

To help industries in hiring contract workers directly, the government has proposed to introduce the concept of fixed-term employment in the labour laws. Under a fixed-term employment contract, contract workers will get equal statutory social security benefits as regular workers in the same unit. Under the present system, firms resort to hiring contract workers through contractors and they argue that it’s a resourceful exercise. Through the fixed-term employment system, companies will be able to hire contract workers directly.

The code, which was tabled in Lok Sabha in November 2019, proposes to empower state governments to alter the threshold for applicability of the retrenchment and lay-off norms for firms through an executive order, rather than taking the legislative route.

The government had gone back on its 2015 proposal to amend the law to allow factories with up to 300 workers to retrench, lay off or shut shop without its nod. Currently, factories with up to 100 workers can lay them off and key industrial states such as Madhya Pradesh, Gujarat and Rajasthan have allowed factories with up to 300 workers to ‘hire and fire’ without official nod.

The government had further proposed setting up a re-skilling fund for retrenched workers in its code that was made public in November. According to the proposal, the fund will include contribution from employers, equivalent to “15 days of last-drawn wages” by the worker before being retrenched or before the factory unit is shut down.

In a step towards improving ties between workers and employers, the central government had proposed to empower trade unions with bargaining powers to negotiate with companies in case of an industrial dispute. This is important in case an establishment has multiple trade unions. In many establishments, workers are associated with various trade unions and there have been many cases in which unions have protested against non-recognition by the management.

A trade union, which has the formal support of 75 per cent workers in an establishment, will act as the 'negotiating unit' within the establishment to resolve disputes. In case, unions fail to get 75 per cent workers as its member, a negotiating council will be formed which will have a member representing all trade unions.

Currently, there is no provision for recognition of trade unions in India's central labour laws at the establishment level while resolving an industrial dispute.

Further, to avert flash strikes, the government had proposed that labour unions in all establishments will have to give a notice period of 14 days. At present, workers employed in ‘public utility services’ units are required to do so.

Social security code

The code has been the most contentious of all as it has been drafted four times ever since it was first proposed by the government in April 2017. While the first draft sought universal social security cover for all workers, the code was significantly diluted after protests from the industry over cost burden.

The Bill will subsume nine laws, including The Employees’ Compensation Act, 1923, The Maternity Benefit Act, 1961, The Payment of Gratuity Act, 1972 and The Unorganized Workers’ Social Security Act, 2008.

The latest draft of the Code is expected to bring in relief measures for the unorganised sector workers, especially migrant workers who were affected the most due to a national lockdown introduced in March for months to deal with the COVID-19 pandemic.

For the first time, workers employed in the gig economy are set to become part of India’s labour law legislation. According to the draft Bill, gig and platform workers will be entitled to life and disability cover, health and maternity benefits, old-age protection, and “other benefits”, as determined by the central government, which will frame social security schemes for them.

In a first, workers employed in the ‘gig economy’ may soon be eligible for insurance benefits provided by the state-run Employees' State Insurance Corporation (ESIC). The government had made an enabling provision in the proposed code to provide insurance cover, under the ESI schemes, to gig, platform and plantation workers.

The Bill has a provision for setting up funds for unorganised sector workers. The government is expected to work out modalities to ensure that there is no cost burden on private sector firms. A top government official had told Business Standard gig economy companies may not be pushed to contribute towards social security cover for their workers.

Gig workers are usually spoken of in the context of the sharing economy, like Uber and Ola drivers, or delivery persons for Zomato and Swiggy. Such workers are not bound to an organisation and can choose to work for as long they want in a stint.

Workers on a fixed-term contract, also known as fixed-term employees, are proposed to be eligible for gratuity before completing five years of service, according to the previous draft of the Bill. Such workers will be given gratuity benefits on a ‘pro-rata’ basis. This proposal will ensure fixed-term workers receive same benefits as permanent workers in an establishment.

Currently, workers are not entitled to gratuity before completing five years of continuous service, according to the provisions of the Payment of Gratuity Act, 1972. The law does not make any discrimination between casual, contractual, temporary or permanent workers who have completed five years of continuous.

To reduce harassment, limitation period of 5 years introduced. This means inspectors can assess provident fund records of past 5 years, instead of no time limit at present.

All firms with at least 20 workers will be required to make EPF contribution for its employees, instead of only a set of industries being covered under the EPF law.

The ESI law will apply to all establishments employing at least 10 workers. However, all hazardous workers, working in establishment with even a single worker, will be given ESIC coverage, according to the Bill. An option was proposed in the previous draft of the Bill to allow companies with less than 10 workers to provide them benefits under the ESI schemes.

Occupational safety, health and working conditions

The proposed law seeks to consolidate 13 labour laws, including the Factories Act 1948, the Contract Labour (Regulation and Abolition) Act, 1970, among others and was introduced by Labour and Employment Minister Santosh Kumar Gangwar in Parliament in July 2019.

According to the draft Bill of July 2019, companies will no longer require multiple registrations under a plethora of labour laws as the government has proposed one licence, one registration and one return for establishments.

The need for single registration will be coupled with a single licence for executing various projects for a period of five years for companies, along with a single return for labour law compliance.

Once an establishment is registered under the Code on OSHW, it will not require any other registrations for labour law compliance and this will be incorporated in the other two labour law codes, too. In future, an establishment will require single registration, instead of around 10 registrations required to be done for all labour laws if the proposal is accepted by the Parliament.

Significantly, the Code on OSHW will cover all establishments hiring at least 10 workers, including those in services sector, thereby bringing the information technology sector under its ambit.

The government had also proposed a single all-India licence with five years’ validity for companies to execute various projects, involving contract workers, across the country. At present, for each work order, a firm is required to obtain separate licences. However, employers will have to deposit a certain security deposit to the government at the time of obtaining such licence and specify to them the number of contract workers it might require for its projects.

In a bid to address the issue of ‘inspector raj’, the Centre had further proposed assigning ‘inspector-cum-facilitators’ outside her jurisdiction “through randomised computer system.”

To help migrant and construction workers, government has proposed portability of welfare benefits to the workforce. “It is necessary that there are provisions in the law that migrant workers are able to get benefits of welfare schemes in a better way. For instance, in the Building and Other Construction Workers Act when workers register with one state, they are unable to take benefits of the scheme if they move to another state,” Gangwar had told Business Standard in an interview in May 2020.

The minister said that the definition of migrant workers will be altered. “Right now, if a migrant worker is in a state without being employed through a contractor, he’s outside the limit of this law. There is a need to widen this so that maximum workers are benefited. We are bringing these changes in the OSH code,” he had said.