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There is a near unanimity in India that its labour laws were out of touch with the new realities of production and global economy. This is a reference to business cycles and the nature of production in industries that show seasonality. Therefore, amending and consolidating 29 central labour laws into four codes figured prominently on the agenda of the incumbent government.
Written by our legal expert in India: Sambhrant Krishna
The four codes were to cover:
The code on wages was made into law in 2019 and the remaining three in September, 2020. The stated objectives for these amendments are to improve the ease of doing business for the employers and to give better protection to the workers. On the face of it there is no problem with the objectives per se. One cannot also possibly argue that the two objectives are mutually irreconcilable. The simple act of consolidation of earlier provisions spread over 29 central legislations into 4 codes will in itself make compliance a lot easier for employers. However, when one looks at the provisions of the new codes, one gets a feeling that the primary objective of these new codes have been to weaken the protection and the safety net that was accorded to the workers under the earlier laws. The new codes make way for increasing the hours of work, easier norms for firing workers, clamping down on trade union rights and whittling down labour inspections. But the even more problematic part is the power to the governments under the Code on Industrial Relations and Code on Occupation Safety, Health and Working Conditions to exempt any new industrial establishment or class of establishments from their provisions if it’s in public interest.
One of the most significant changes brought through the new industrial relations code is the introduction of fixed term contracts in employment. The first time fixed term contracts were introduced was in 2016 and that too for apparel industry. When in 2018 it was allowed across the board, a safeguard in the form of prohibition on converting permanent positions to fixed term employment was introduced. The new code on social security does away with this safeguard. It is feared that removal of these safeguards will lead to almost all the position being converted to fixed term contracts. There is also no limit on the number of times a fixed term contract can be renewed. A minor compensation for it would be that workers on fixed term employment would be that such workers will be eligible for all statutory benefits (mainly gratuity payment) available to a permanent worker proportionately according to the period of service rendered by them and the minimum qualifying period would not apply to them.
A distinguishing feature of Indian labour sector is its very high degree of informality. Measures making appointment letters compulsory and allowing business enterprises to hire workers directly on contract are aimed at reducing informality. How much of these would be followed in practice remains to be seen but this surely has come at the cost permanent work positions. Since the new code on industrial relations makes unionisation even more difficult and strikes next to impossible leads one is forced to conclude that there is a continued risk of further weakening of workers protection through creeping executive orders.
Labour inspectors were made out to be villains by those seeking changes in labour laws. While it’s true that in some cases it did lead to harassment and rent seeking, the focus of the current codes on self certification, reduced compliance and remote verification will lead to higher risk in industries and violation of statutory safety provisions. Closure, lay-offs and retrenchment in factories employing upto 300 workers would now not need prior approval of the concerned Government. This, coupled with the fact that even the standing orders has been made applicable to establishments with over 300 workers means that the Government has left a lot to the good sense of the employer in smaller establishments.
Though employer is not an enemy of the workers, it so happens that their interests are not always perfectly aligned. With weak unionisation and the sword of fix term employment coming to an end hanging over their heads, workers would not be in a position to negotiate a fair deal for themselves. The unequal relation between the employer and the worker has only been exacerbated and has changed to the disadvantage of the workers. Collective bargaining agreements (CBAs) and other group based demands are therefore more unlikely going forward.
Given the above, it is incumbent upon brands sourcing from India to ensure that employers don’t limit themselves to just following the letter of law and misuse the provisions or where they are exempted because of their small size, they do not run amok. For example, brands must ensure that the factories that they source from do not convert the existing permanent positions into fixed term positions. One of the reasons through which factories can justify high proportion of fixed term workers is uncertainty about orders from buyers. Thus brands should try to develop long term relation with their suppliers and have consistency in orders so that factories can have more permanent workers. There is also a possibility that the owners might close down their existing factories and establish new ones to benefit from exemptions to new units under the industrial relations and occupational health and safety codes. If brands ensure that they do not source from such factories it would nip such tendencies on part of the promoters in the bud. It will also ensure that the various states in India do not weaken labour laws applicable to their jurisdiction in order to attract investments.
The whole outsourcing model is based on the justification of lower cost of production but if brands commit to pay a fair price to the factories they are sourcing from instead of pitting one factory against the other to extract maximum discount (minimum price), it will go a long way in ensuring that the workers of such factories are paid fair wages and they have access to decent health and safety measures. Given that statutory factory inspections would be limited henceforth, the brands must make efforts to be aware of their full supply chain, ensure that violations are limited and that an effective grievance redressal mechanism is in place. In a situation where there is a clear withdrawal of State in matters dealing with welfare of workers, brands can step in a fill a vital gap.