On September 23, 2020, India’s Parliament passed 3 (three) long-awaited labour codes:
The Industrial Relations Code Bill, 2020
The Code on Social Security Bill, 2020
The Occupational Safety, Health and Working Conditions Code Bill, 2020
The labour codes subsequently received the Presidential assent on September 29, 2020, marking a significant milestone in ushering reforms in the labour sector.
The Industrial Relations Code Bill, 2020 (“IR Code”) was first introduced in November 2019, and was after that referred to the Standing Committee on Labor 2019-2020 (Standing Committee) for its evaluation and comments.
The Industrial Relations Code Bill, 2020 are discussed in the first series (Part I) hereunder. Changes introduced through the Code on Social Security Bill, 2020 will be addressed in the second series (Part II) of the Labor Code article.
Legislations Repealed:
The IR Code will repeal the following legislations (“Erstwhile Legislations”) from the dates to be notified by the Central Government:
- The Industrial Disputes Act, 1947 (“ID Act”);
- The Industrial Employment (Standing Orders) Act, 1946 (“SO Act”); and
- The Trade Unions Act, 1926 (“TU Act”).
Definition of Industry:
The definition of ‘industry’ has been replaced under the IR Code. The term ‘industry’ now means any systematic activity carried on by co-operation between an employer and worker (whether employed directly or by or through any agency, including a contractor) for the production, supply or distribution of goods or services to satisfy human wants or wishes.
activities of the appropriate Government relatable to the sovereign functions of the proper Government including all activities carried on by the Central Government departments dealing with defense research, atomic energy and space; any domestic service; or any other action as may be notified by the Central Government.
Fixed Term Employment:
The IR Code has introduced a new term, ‘fixed-term employment,’ which means employee engagement for a fixed period based on a written contract. A worker employed for a specified time would be:
Entitled to the same benefits available to a permanent worker doing the same or similar work.
Eligible for statutory benefits available to a permanent worker proportionate to the service period rendered and irrespective of whether the employment period does not fulfil the qualifying period under the statute.
Eligible for gratuity if service is effected for a period of one (1) year.
Termination of employment by way of expiry of the fixed term would not qualify as retrenchment under the IR Code.
Applicability of Special Provisions:
The ID Act and the Industrial Relations Code, 2019 (“Previous IR Bill”) had specific special provisions, which among other things, required employers to obtain the prior permission of the appropriate Government to lay off/retrench any employees or close down an establishment and applied to specified kinds of establishments employing hundred (100) or more workers on an average in the preceding twelve (12) months.
In line with amendments made by various states in this regard recently, IR Code has increased this threshold to three hundred (300) or more workers.
i.e., no prior permission of the appropriate Government is needed to lay off/retrench any employees or close down an establishment if the number of workers in the establishment is less the above threshold.
Further, while the Previous IR Bill permitted the appropriate Government to increase or decrease the threshold as it deemed fit, the IR Code provides for the notification of a higher number of workers by the Government, thereby ensuring a minimum applicability threshold of three hundred (300) workers across India.
Increase in Wage Ceiling for Worker:
‘workman’ did not include persons employed in a supervisory capacity, drawing wages exceeding INR 10,000/- per month, or exercises function mainly of managerial nature. Under the IR Code, the wage ceiling of a ‘worker’ employed in a supervisory capacity has been increased to INR 18,000/- or the Central Government may notify such amount.
Wages:
The IR Code has re-defined the term ‘wages’ to mean all remuneration whether, by way of salary, allowances or otherwise, which would, if the terms of employment (express or implied) are fulfilled, be payable to a person employed in respect of his/her work, and includes basic pay, dearness allowance and retaining allowance but doesn’t among other things include any bonus.
which doesn’t form part of the remuneration, the value of any house accommodation, or the supply of light, water, medical attendance, any conveyance allowance, overtime allowance etc.
However, a proviso to the definition stipulates that the excluded components under the purpose exceed fifty (50) per cent of the entire remuneration paid, then the amount above this fifty (50) per cent shall be construed within the ‘wages’. This change is to ensure that the wage proportion remains at fifty (50) per cent.
Worker Re-skilling Fund:
The IR Code prescribes for the creation of a worker re-skilling fund by the appropriate Government, which shall consist of (a) an amount to be contributed by the employer of an industrial establishment equal to fifteen (15) days wages last drawn by the worker immediately before the retrenchment, or such other number of days as may be notified by the Central Government, for every retrenched worker in case of reduction only; and (b) contribution from such other sources as may be prescribed by the appropriate Government.
Change in Penalties:
There have been changes in the penalties prescribed for various offences under the IR Code than the Erstwhile Legislations. For instance, the penalty for contravention of the provision related to retrenchment of workers under Chapter VB of the ID Act was imprisonment for a term which may extend to one (1) month and with a fine which may extend to INR 1,000/- (Rupees One Thousand) whereas under the IR Code, a similar contravention is punishable with fine only which may range between INR 1,00,000/- to INR 10,00,000/-.
Central and State Recognition of Trade Unions:
The IR Code empowers the Central Government and State Governments to recognize a trade union or a federation of trade unions as a central trade union or state trade union, respectively.
Considering that the IR Code has raised the threshold for lay off/retrenchment requiring prior government approval from the existing one hundred (100) workers to three hundred (300) workmen industry, it is likely to provide more flexibility to employers for hiring and firing workers without government permission.
Also, raising the threshold for a standing order requirement in industrial establishments to over three hundred (300) workers implies that industrial establishments with up to three hundred (300) workers will not be required to furnish a standing order. The IR Code also has also introduced new conditions for carrying out a legal strike.
The changes introduced through the IR Code is intended to provide much-needed flexibility of operation to the industry. However, many trade unions have expressed displeasure on the new IR Code, asserting that the new code will promote hire and fire policy by enterprises and enable industries to introduce arbitrary service conditions for workers and are therefore anti-workmen.