Labour Law changes: All you need to know

Changes in labour laws have to be made with utmost caution, keeping in mind the interests of both the employer and the employee.

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While the economy is struggling to stabilise and workers and organisations are staring at an uncertain future, a few state governments have decided to make some changes to address the issue. In the past week, states such as Uttar Pradesh, Madhya Pradesh and Gujarat have made some significant changes in their labour laws. Other states, such as Rajasthan, Punjab and Kerala have also made alterations, albeit with a narrower scope.

Let us have a look at what these changes are.

The boldest move has come from the Yogi Adityanath-led government in Uttar Pradesh. It has made defunct all laws including the Minimum Wages Act. The laws that are relaxed include those relating to settling industrial disputes, occupational safety, health and working conditions of workers and those pertaining to trade unions, contract workers and migrant labourers for the next three years.

In Rajasthan, the government has increased the threshold for layoffs to 300, from the earlier 100. Moreover, membership threshold for trade unions has been increased from 15 per cent to 30. Working hours have also been raised to 12 hours per day from the earlier eight. Other states, such as Punjab, Himachal Pradesh and Gujarat have also increased the working hours.

Praveer Priyadarshi, HR specialist, says, “The current crisis has resulted in worker shortage, and therefore, we need to have people working extra hours. This is why, overtime is one of the areas being looked at. As an emergency measure, this seems a step in the right direction but in the longer run, there needs to be a better analysis and more understanding of the impact.”

In Kerala, it will be possible to get a new industrial license within a week of filing the application.

Ravi Mishra

A clearer picture will emerge when more specific details and the fine print regarding the matter come out

These laws, it is claimed, will bring about increased and incentivised economic activity. The rationale behind it being that the labour laws in India are too restrictive or inflexible, and because employers have to go through a plethora of restrictions before firing an employee, they hold back on hiring, and this has impeded the growth of organisations in the past.

Following this logic, organisations will have an easier time adjusting to market conditions leading to growth and better benefits for workers.

While there is much contestation on whether the change will be positive or will end up adversely affecting industrial relations as we know it, the result is yet to be seen.

Suspending all labour laws, barring a few, may be seen as an understandable move by the governments of, say, Uttar Pradesh and Madhya Pradesh. However, the manner in which this has been carried out may raise questions on how it will affect employees and employers alike.

There are potential pitfalls in the move concerning labour law amendment. Few come to mind as being more prominent than others, such as change regarding the Industrial Disputes Act, 1947, and the Industrial Relation Acts, 1960.

Cessation of the entire dispute-settlement mechanism will mean labour courts, tribunals, works committee and conciliation officers to be rendered null and void.

This may lead to potential unrest and aggressive campaigning for even minor disagreements.

In addition, the suspension of the Industrial Relations Act, 1960, is further damaging to the workers. The provisions of this law ensured that unions were recognised and workers were protected from unfair dismissal and reduction in pay.

Suspension of provisions, such as these, further makes labourers vulnerable to exploitation. Removal of most labour laws renders the workers victims to lower wages and no rights. Moreover, extending working hours will only ensure that companies employ lesser numbers of workers and take responsibility only for them. Fewer workers will work for longer hours and employment will take a hit. With firms doling out pay cuts and job cuts, the question remains as to who will hire more employees now. In Uttar Pradesh, however, provisions relating to minimum wages and safety provisions under the Factory Act, 1948 and Building Act, 1996 will continue to apply to all organisations. In Gujarat as well, similar provisions have been assured.

A recent statement by the Finance Minister says that the Government is now working on a national floor wage to do away with different minimum wage rates across states in the country.

On the other hand, this may pose problems for the employers as well. If we look at the Industrial Disputes Act, Employment Standing Orders Act and the Indian Trade Union Act with regard to employers’ rights, few points emerge.

For instance, strikes cannot be declared illegal anymore as the law dealing with them – where conciliation is called by the labour department and the strike becomes illegal— has been done away with. As a result, ‘no work, no pay’ cannot be enforced anymore.

The code of conduct as per the approved standing orders will not exist. Hence, no employee can be held accountable for any misconduct and no disciplinary action is possible. Punishments will be arbitrary and not backed by any legal protection or authority.

Praveer Priyadarshi

As an emergency measure, this seems a step in the right direction but in the longer run, there needs to be a better analysis and more understanding of the impact

Trade unions will not have any legal sanctity and any agreements signed on behalf of the employees will no longer be binding. Labour departments will become defunct and labour officers will not have any authority anymore.

The move by the state governments may help bring about some procedural relief for businesses. For instance, in Madhya Pradesh, factories falling in the non-hazardous category and employing less than 50 workers will be exempt from the inspection process. License renewals will involve lesser red tape.

Ravi Mishra, SVP-HR, Epoxy business, Aditya Birla Chemicals, opines, “A clearer picture will emerge when more specific details and the fine print regarding the matter come out.”

Moreover, theoretically, it is possible to generate more employment and output in states with lesser labour law restrictions. A study by Timothy Besley and Robin Burgess (2004) found that restrictive labour laws tend to be detrimental to increased output and employment in states. Another study by Rana Hasan, Poonam Gupta and Utsav Kumar (2009) revealed that output and employment growth in labour-intensive industries was slower in states with more rigid labour laws as compared to others.

However, for productivity, few points need to be kept in mind, such as occupational safety and healthcare. In Madhya Pradesh, all provisions relating to hazardous processes, overlapping shifts and welfare measures have been done away with.

Any change going forward will need to take into consideration the best interests of both the employer and the employee, even while ensuring a balance between them.