Decoding the new labour code

Proposals in the wage and industrial relation codes could reshape labour-management ties

In 2002, the Second Commission on Labour Laws proposed radical changes in the country's labour laws to then Prime Minister Atal Bihari Vajpayee. Among other proposals, the commission suggested labour laws be broadly grouped into segments pertaining to 1) industrial relations 2) wages 3) social security 4) safety and 5) welfare and working conditions.

It took nearly 13 years for the government to give the recommendation careful thought. Now, the Union government plans to replace 44 laws with five codes relating to wages, industrial relations, small factories, social security and welfare. It is in the preliminary stages of discussions with stakeholders from the Centre and states on wage and industrial relation codes. The proposals in these two codes contain some radical changes, which could reshape labour-management ties in India.

Wage code
A unified wage code broadly merges four Acts - the Minimum Wages Act, the Payment of Wages Act, the Payment of Bonus Act and the Equal Remuneration Act into a comprehensive code. Each of these laws defines wages differently. The code, however, has a uniform definition, as stipulated by the Minimum Wages Act, 1948.

"For most disputes, wage is the centre point. The idea is no sacrifice is being made in the objectives of the four laws, while retaining all in one code," said an official of the West Bengal labour department.

The new code does away with the concept of a 'scheduled list' of employment, used to set minimum wages for different employments under the Minimum Wages Act, 1948.

Earlier, if any new employment was to be added to the list by the Centre or state governments, it had to be done through a process of notification. The proposed code, while removing the scheduled list, gives state governments the power to fix the minimum wage for any employment. States can revise from time to time, taking into the consideration the guidelines of the Minimum Wages Advisory Board.

The new code also enhances penal provisions for employers. The Minimum Wages Act, 1948, imposes a paltry Rs 500 as penalty for any violation of the Act's provisions by an employer.

The wage code provides for a penalty of up to Rs 50,000 for the first violation, and Rs 1 lakh for the second, along with a provision for imprisonment for three months. The code also does away with the labour inspector and replaces the post with a facilitator. The facilitator could be from varied fields, including trade unions and welfare societies, says a government official.

Industrial relations code
The code on industrial relations amalgamates the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act, 1947. Under the code, factories employing more than 50 but less than 300 workers do not need the government's permission for lay-offs, retrenchment or closure of a factory. Earlier, the limit was 100 workers.

The code is silent on the procedure of closing factories employing less than 50 workers. Also, it is applicable to industrial establishments of a seasonal nature, where work is intermittent.

It is expected a separate code on small factories will lay down the procedure for closure or lay-offs in the case of small factories, with up to 50 workers. Some earlier Bills presented by the government have already clarified the government will keep small factories out of the purview of major laws, as spelt out in the Small Factories (Regulation of Employment and Condition of Services) Bill, 2014. A total of 14 laws governing factories will not be applicable to law proposed for small factories.

"In India, 58 per cent of the factories employ up to 30 workers. Also, more than 120 million work in small-scale industries, while the number of workers in large-scale industries is only 12.5 million. Thus, the proposed labour code will hugely benefit the manufacturing sector," said N G Khaitan, partner in law firm Khaitan & Co.

The industrial relations code further says factories with 50-300 workers must give a 60-day notice before closing any unit.

Also, the code curtails freedom to form trade unions. Earlier, at least seven people could form a trade union; now, at least 100 employees or 10 per cent of the workers are needed to form a union. In case 10 per cent of the workers in a unit number less than seven, the workers will have to make an application for registration.

Most provisions of the code have already been applied by the Rajasthan government. "After the law easing retrenchment was applied in Rajasthan, of the 13,000 factories in the state, only 256 are under the ambit of the new laws. The code does not provide any protection to workers in small factories," says Brajesh Upadhyay, general-secretary of the Bharatiya Mazdoor Sangh.

Even as opinions differ, labour reforms are expected to be cited as the top achievement of the National Democratic Alliance government as it completes a year in office.

A SHOT IN THE ARM

Salient provisions of the labour code on wages

• Removes the concept of scheduled list and inspectors
  

 

States empowered to fix minimum wages
 

State governments shall review or revise minimum rates of wages at intervals not exceeding five years, if the minimum wage has a component of variable dearness allowance
 

The wage code provides for penalty of up to Rs 50,000 for first violation, against the current Rs 500

Salient provisions of labour code on industrial relations

• For factories employing more than 50 but less than 300 workers, government permission isn't needed for lay-offs, retrenchment or closure of a unit
   
• Factories with 50-300 workers must give a 60-day notice before closing any unit
  

 

Now, 10 per cent of the employees or 100 workers are needed to form a trade union
 

In the case of any industry in which at least 100 workers are employed or have been employed on any day in the preceding 12 months, the employer will constitute a works committee