Most employers have broadly welcomed these codes, hoping that they would make production more competitive. Conversely, most workers, unions and the apex national bodies have criticised these laws.


In addition to the much publicised agri-market bills which stole most of the attention, three labour codes that replaced 29 Central laws were enacted in the short parliamentary session that ended last October. Together, these labour codes are being heralded as the first set of major labour reforms in the last three decades. In a recent media interaction, Prime Minister Narendra Modi himself underscored their significance when he stated rather eloquently: “Essentially, reforms for the manufacturing sector were in place with one piece of the jigsaw remaining—the labour reforms. We have done that as well. It was often jokingly said India had more labour laws than labour in the formal sector. Labour laws often helped everyone except the labour.”

Following years of dithering across the entire political spectrum regardless of who has ruled the country since 2004, and a policy approach that can be at best described as wait and watch, four labour codes were introduced in Parliament in 2019 (with approval being obtained only for the Code on Wages). In September 2020, three revised codes were introduced after a Standing Committee of the two Houses vetted the earlier versions. As in the case of the agri laws, these too were brought on the statute books without much discussion or detailed examination—in the Lok Sabha, because of the ruling party’s overwhelming majority, and in the Rajya Sabha, primarily due to absence of the Opposition members.

At the core of the government’s claims is that these enactments will do away with the prevalent vast and cumbersome complexities, facilitate better compliance, bring in effective accountability, and eventually be beneficial to both employers and workers. As PM Modi elaborated, “The four labour codes are meant to address the welfare of labour while ensuring ease of doing business for the industry. We need to come out of the mindset that industry and labour are always in conflict with each other.”

Most employers, in line with the Union Government’s position, have broadly welcomed these codes, hoping that they would make production more competitive. Conversely, most workers, unions and the apex national bodies have criticised both the process of approval and the content of these laws. A few have gone as far as accusing the Union Government of taking these steps merely to oblige the “haves”, while putting the workers increasingly at their mercy. However, unlike with the agri market laws, in this case the Modi government has not been caught off guard. Bracing itself to face critics, the government is set to ensure these laws get ushered in as soon as the rules get finalised, with 1 April 2021 being targeted as the effective date for the three enactments, as well as the Code on Wages framed last year in lieu of 15 existing Central legislations on the subject.

While the workers’ ire is against the new statutes in their entirety, the discontent is directed primarily at the provisions of the new Industrial Relations Code (IRC). These provisions include the “hire and fire” policy, which can now be applied to all establishments with fewer than 300 workers (compared to 100 at present), the further extension of the concept of fixed term labour contracts which have now been given legal backing with the power of contract  renewal resting exclusively with the employer, as well as the move to circumscribe workers’ right to strike by requiring a 14-day notice period before a strike or a closure can be declared. The fear that fixed term contracts might reduce the number of regular workers has been voiced vociferously by the Biju Janata Dal MP, Bhartruhari Mahtab, and the Chairman of the Standing Committee that had examined the 2019 version of these codes, who calls these provisions “highly inappropriate and inapposite”. Empowering states to further increase, through notifications, the threshold limits for establishments to seek permission before retrenchment also remains a cause of concern. One clear positive aspect of the new Act, however, is its prohibition of the employment of contract labour in any core activity of an establishment.

The hundred-year-old institution of unions in India (All India Trade Union Congress, which was the first worker body, was founded by Lala Lajpat Rai and Joseph Baptista in 1920) has visibly been impacted by IRC. Already worried by the changing employment scenario driven by the growth of the service sector (where unionism is almost non existent), the decline in permanent jobs, and many industries now resorting to outsourced hiring, the IRC poses new challenges. For instance, the requirement of 14 days’ notice for a strike or closure was hitherto applicable to only public utility services. The notice henceforth would have a maximum validity of 60 days, and strikes within 7 days of a conciliation proceeding and up to 60 days of adjudication by a tribunal stand barred. Furthermore, the definition of “strike” has been amended to include “mass casual leave” with any concerted casual leave on a day of 50% or more of workers henceforth being deemed a strike.

The number of unions in an establishment has also been regulated by introducing the concept of “negotiating unions”—bodies that must have at least 51% of the workers’ support. If no union can demonstrate such an extent of representativeness, a “negotiating council” consisting of all unions in the organisation will negotiate the labours’ terms of engagement. Permitting the “appropriate governments” to exempt any establishment or a class of establishments from its provisions on public interest grounds, and leaving it to the states to prepare the rules for trade unions, are other macro issues of concern for worker bodies. Another major change is the increase in threshold limits from 100 to 300 workers for issuing compulsory standing orders (which are legally binding collective employment contracts) on matters such as work hours, wage rates, worker –classification, holidays, wage days, termination of employment and grievance redressal mechanisms. Given such orders often prevent against the arbitrary dismissal of employees, the revision will mean such protection would now be available to fewer workers.

The Social Security Code (SSC) and the Occupational Safety, Health Conditions Code 2020 (OSHWCC) also pose problems for worker bodies with their provision on the discretionary granting of exemptions in public interest to an establishment or a class of establishments. Whereas the earlier statutes would only allow for exemptions during public emergencies and for a maximum period of three months, the new indiscriminate exemptions could further reduce the protective cover to labour, and tip the scales towards employers. Workers apprehend that chasing greater production would make states gravitate towards ecosystems founded on low wages and longer working hours. The recent action, during the ongoing Covid-19 pandemic, of the governments of Gujarat, Madhya Pradesh and Uttar Pradesh to exempt factories from following certain worker protection measures by amending their laws through the issue of ordinances has lent further credence to their fears.

The Union Government’s failure to extend social benefits to the entire workforce—both in the formal and informal sectors—has also been highlighted as a shortcoming of SSC. This is despite the change that now makes it applicable to the gig or the platform economy, where workers have the flexibility to perform work on demand and negotiate terms (about 1 million people might join the new social security regime in the very first year). Another deficiency pointed out centres on a labour official’s ability to act on, and protect, the interest of workers. There has been a reduction in the power of labour inspectors to ensure compliance with the new codes through limitations on their ability to reopen old cases of provident fund & Employees’ State Insurance dues; to decide the quantum of PF and ESIC outstandings from employers; and in determining the penalties for obstructing officials from performing their duties.

OSHCC, which subsumes 13 Acts including the Factories Act 1948, and removes the blanket prohibitions on employment of any class of workers, no doubt allows the employment of women in all establishments. But it bars their employment within six weeks of delivery, miscarriage or medical termination of pregnancy. Maternity benefit can now be claimed only if the worker has put in a minimum of 80 days of employment preceding delivery. The Code while prescribing safety standards and maximum working hours, also exempts small establishments from its purview. The threshold limit for application of this law has been doubled and raised to 20 workers in the case of establishments with electrical power, and 40 for establishments not using such energy.

As with any new, sweeping reforms, questions remain on whether the new labour codes will bring about an appropriate compromise between economic growth and labour welfare. For decades, a degree of overzealous protection in certain labour regulations may well have hampered the trajectory of economic activity. However, in a labour surplus country like India, the contractual relationships also have profound effects on worker interests. All these years, policymakers were expected to work on diligently ascertaining and effecting the right balance between efficiency and equity; whether they have succeeded in doing so this time around remains to be seen.

Dr Ajay Dua, a public policy specialist and development economist by training, is the former DG ESIC and Union Secretary, Commerce & Industry.

PART 2 of this Article on ensuring the new Labour Codes benefit both workers and employers more effectively will appear next week.