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REFORMS IN LABOUR LAWS



The labour law system has always had serious problems in terms of multiplicity of labour laws with serious inconsistencies which raised the demand of uniform labour laws. Labour is a concurrent subject, in which the Centre and the states can make laws. Where there is any conflict between a central law and a state law on the same subject, the central law will prevail. If some of the laws sought to be suspended have a central counterpart, the suspension is open to legal challenge. India had 44 labour laws at the level of the Centre and about 200 labour laws at the level of the states. The process of labour reforms began after 2nd National Labour Commission gave its report in 2004. But the process was expedited by the Modi government which decided to streamline the central laws into four codes on wages, industrial relations, social security and occupational safety. 

The long-awaited labour law reforms by states may make it easier for factories and businesses to run efficiently amid the coronavirus-led economic crisis, but the relaxation in rules may also put at stake the interest of laborers and workers, with businesses getting a free hand. These changes might have a two-fold effect on India’s economy. On one hand, the rule changes will let businesses function and thus generate more employment; on the other hand, this move may further aggravate the crisis for those who are worst affected. However, given the unprecedented economic fallout from coronavirus, the labour law relaxations proposed by state governments have been appreciated by various industry bodies.


Amendments in the Labour Law

  1. Code on Wages, 2019 (“Wage Code”)

This code (which consolidates the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976) received Presidential assent on August 8, 2019. Some of the key changes introduced under the Wage Code are set out below:

  1. Uniform definition of the term ‘wages’: The term ‘wages’ is defined to include all remuneration that can be expressed in monetary terms and lists down specific exclusions. In this regard, the Wage Code introduces a unique concept under which certain excluded components may be considered as wages if the aggregate value of such exclusions exceeds the prescribed threshold. This may have implications in the manner in which salary for employees, especially for key managerial employees, is structured.

  2. Broad definition of the term “employer” and “employee”: The Wage Code broadens the definition of the term ‘employer’ to also include principal employers and contractors. This essentially entitles contract workers to proceed against both, the principal employer and contractor to enforce their rights.

  3. Floor Wage: The Minimum Wages Act, 1948, applies only to specified employments and certain categories of employees. The Wage Code and the minimum wages related provisions would apply to all types of employment/industries and employees. Under the Wage Code, the Central Government is empowered to fix the national minimum wages which will act as a floor for minimum wages to be fixed by the concerned state government.


  1. Occupational Safety, Health and Working Conditions Code, 2019 (“OSH Code”)

The OSH Code seeks to regulate health and safety conditions of workers in inter alia establishments with 10 or more workers and replace labour laws relating to safety, health and working conditions, such as the Factories Act, 1948, and the Contract Labour (Regulation and Abolition) Act, 1970. Trade unions across industries are extremely dissatisfied and certain issues that the trade unions have raised pertain to limited applicability of the code which does not take into consideration workers in the unorganized sector, on contracts or in home-based production and selective picking up of provisions advantageous to employers.

This Code has also proposed one registration for an establishment. Thus, companies will not require multiple registrations, as they do now under a plethora of labour laws, because the government has proposed one licence, one registration, and one return for establishments.

  1. The Industrial Relations Code, 2019 (“IR Code”)

The IR Code was introduced in the Lok Sabha on November 28, 2019. This code seeks to replace three labour laws, namely, the Industrial Disputes Act, 1947, the Trade Unions Act, 1926 and the Industrial Employment (Standing Orders) Act, 1946. The Standing Committee has just given its report. It allowed room for serious deliberation on first principles and allowed parliament to take an all-things-considered view of the matter.

The Ministry is of the view that with the introduction of the concept of “fixed term employment” the proposed IR Code will make it easier for an employer to engage/disengage workers based on requirement. Also, the concept of ‘recognition of negotiating union’ has been introduced under which a trade union will be recognized as sole ‘negotiating union’ if it has the support of 75% or more of the workers on the rolls of an establishment.

  1. The Code on Social Security, 2019 (“Social Security Code”)

This code which intends to consolidate and amend the social security laws has been re-introduced in the Lok Sabha on December 11, 2019 and is currently pending. It seeks to replace nine social security laws, including the EPF Act, the Employees State Insurance Act, 1948, and the Maternity Benefit Act, 1961. The Social Security Code, amongst other provisions also recognizes “gig workers” and “platform workers”.

  1. The Transgender Persons (Protection of Rights) Act, 2019:

Other than the above-mentioned changes, the Transgender Persons Act has received presidential assent and the provisions of the Trans Act are effective from December 10, 2019 leading towards a social growth of the country. The Act, amongst other provisions, prohibits discrimination against a transgender person, including unfair treatment in relation to employment, discrimination in employment matters (recruitment and promotion) etc. Employers have to inter alia designate a complaint officer responsible for dealing with violations of the legislation. The employers will have to ensure that this Act is complied with in addition to other labour law compliances.


COVID-19 and Labour Laws

In tough times like these, brought about by the coronavirus pandemic, industries and businesses are facing challenges and there is a need to create an environment in which they can survive in the present and grow in the future for which some changes in norms and regulations may be necessary over a specified time frame and the ordinances proposed by the state governments have tried to make sure of that. This context is important because a number of states are making these changes with an idea of attracting business that would have otherwise gone to China or any other coronavirus stricken country. Whilst the major changes were proposed by the states of Uttar Pradesh, Madhya Pradesh and Gujarat, other states such as Rajasthan, Punjab and Odisha also made small changes. While Madhya Pradesh has issued more nuanced changes to the labour laws, the Uttar Pradesh government has summarily suspended the application of almost all labour laws including Minimum Wages Act in the state for the next three years. Gujarat, on the other hand, has extended working hours in factories and stated that wages must also be increased proportionally. Provisions relating to hazardous processes, overlapping shifts and welfare measures like canteen, crèche, shelters have also been dispensed with in these states.

Madhya Pradesh has amended certain labour laws only for new industries that start production for the first time in the next 1,000 days and has also amended the Industrial Disputes Act, 1947, that lays down provisions for the investigation and settlement of industrial disputes. Further, all businesses registered under the Factories Act in Madhya Pradesh have been exempted from its requirements for three months barring the provisions that relate to: 

  • Approval, licensing and registration; 

  • Appointment of inspectors; Safety in the factory premises; 

  • Extra wages for overtime, annual leave with wages; and;

  • Prohibition of employment of young children.


Businesses and factories are at a standstill due to the nationwide lockdown. The shutdown factories have directly made a severe dent on the employment condition of the country. The unemployment rate rose to the highest level of 27.1 per cent in the week and the wage workers and the small traders seem to be among the worst hit from the lockdown. More than 9 crore people within this section of the society lost their livelihood in just about a month. In this context, the increase in working hours is being seen as an opportunity to produce more even with the shortage of manpower, which is going to hit all sectors, especially the manufacturing sector.

Even as the reform in labour laws is something the industry and free-market experts have been calling for long, it needs to be ensured that the worker welfare is not compromised. The change in labour laws is trying to promote ease of doing business, but it is crucial that both the industry and government safeguard the interest and social security of the workers as change is important, but the change should come with a focus on workers. If more work opportunities come up as a result of these changes in norms and regulations, it will definitely benefit all stakeholders, including labour, business units and the Indian economy. 

Some of the changes and ideas proposed mostly look like wishful thinking but India has already faced a major economic mismanagement in the last few years and dip in the economy during lockdown. This however doesn’t exactly reflect an ease of doing business but is enough for the country to rise from this situation.


There has been an unsaid aspect of reforms in India which shows light towards crisis whether it is economical or a pandemic. But, this usually means that this is also a time where these changes can be implemented as the crisis gives the government the kind of pushback that makes it hard for those laws to be changed in normal times. That may be seen as a good thing as fewer laws mean better monitoring, easy compliance and benefit to both industries and workers. In India the entire system of labour laws should be made simplified by clubbing together wherever possible and made less cumbersome to make the labour environment more employment friendly. The main objective of these reforms in labour laws is required to make India a more attractive country for investments, and to enable manufacturing here to become globally competitive; which is a necessary condition for Make in India. 

However, proposed amendments to the labour laws do require consultations with the trade unions to have a look at the workers’ perspective, and the government cannot bypass this process. The imbalance between the capital and labour rights is increasing day by day and the government should look into partnering with the industry and allocating some percentage of GDP towards the labour class ensuring their wage rights, health and safety.



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