India Labor & Employment Laws Overhaul

India Labor & Employment Laws Overhaul

With a more pragmatic approach along with an endeavor to better India's ease of doing business position, the Codes aim to achieve much-needed reforms to bring the labor laws of India in tune with the current requirements of employer - employee relationship, compliance standards, rendering the labor law regime a more workable and less cumbersome

Three Codes, having received assent from the Hon'ble President on September 28, 2020¹, mark the initiation of a new era in the regime of labor & employment laws of India. The said Codes, namely:

1. The Occupational Safety, Health and Working Conditions Code, 2020 ("OSHWC Code"),

2. The Code on Social Security, 2020 ("SS Code"), and

3. The Industrial Relations Code, 2020 ("IR Code")

shall revamp numerous existing laws in a more consolidated-comprehensive-collated form; and essentially aim not only to further benefit the employees/workers but also to titivate India's ease of doing business image at large by introducing less cumbersome compliance mechanism(s). The said Codes include the necessary amendments resulting out of the current pandemic-times keeping in view the unprecedented situations faced by employees, employers and above all the relevant statutory authorities.

The present article provides an overview of the key highlights that each of the said Codes shall introduce respectively so as to bring about a complete overhaul in the Indian labor & employment laws domain.

The introduction of the above stated three Codes was set into motion last year with the introduction of the Code on Wages 2019 or the Wage Code which endeavors to consolidate the provisions of four labor laws (namely the Equal Remuneration Act, 1976; the Minimum Wages Act, 1948; the Payment of Wages Act, 1936; and the Payment of Bonus Act, 1965) concerning wage and bonus payments and makes universal the provisions for minimum wages and timely payment of wages for all workers in India.²

THE OSHWC CODE

The OSHWC Code collates thirteen labor laws³ relating to safety, health and working conditions, and aims to (better) regulate the occupational safety, health and working conditions of workers employed in establishments. Awakened by the current pandemic situation and in order to address existing ambiguities for fastening accountability at authority level, this Code provides overriding powers to the Central Government to regulate general safety and health of persons residing in the whole or part of India, in the event of declaration of an epidemic, pandemic or disaster.

Contract Labor: This Code, inter alia endeavors to standardize the engagement of contract labor by offices, shops, commercial, and industrial establishments, including factories, and repeal the Contract Labour (Regulation and Abolition) Act, 1970 ('CLRA'). Regarding applicability, the Code proposes to de-regulate the establishments/contractors that employ less than 50 contract workers in order to establish homogeny by increasing the applicability threshold from 20 to 50 for all the States.

(a) To begin with, the definition of Contract Labour has been modified to include inter-State migrant workers. This widening of the definition aims to include a person who has come on his own from one State and obtained employment in an establishment of another State or has subsequently changed the establishment within the relevant State of engagement.

(b) Also, by wage ceiling will be enhanced under the Code to 18,000. Consequently, workers in supervisory capacity drawing monthly wages in excess of INR 500 and below INR 18,000, who are currently excluded, will now fall under the ambit of 'contract labour'.

(c) Contract worker is entitled to receive an experience certificate from the contractor, detailing the work performed by such contract worker.

(d) Core Activity: Activity for which establishment is set-up and other activity(ies) like housekeeping, security, canteen etc. not to be treated as core-activity. Subject to certain circumstances⁴, this Code prohibits principal employers from engaging contract labor in such core activities.

(e) This Code proposes to require contractors to provide free annual health check-up and tests for contract labor falling under the prescribed age group and/or class of employees and/or establishments.

(f) Welfare Facilities: Germinating out of provisions provided under Shops & Establishment Acts as applicable to various States, facilities such as canteen, restrooms, drinking water, and first aid, ought to be provided to contract labor engaged in an establishment, so as to ensure health, safety, compassionate working conditions for the workers. These shall be primary responsibilities of the concerned contractor which ought to be provided by a principal employer in case the contractor fails to render the same.

(g) Recovery of Wages: In addition to existing mandate⁵ of CLRA, this Code empowers the Appropriate Government⁶ to pass an order for payment of wages due to the contract labor from the security deposit furnished by the contractor while obtaining a licence.

Factory: The earlier definition of the term 'Factory' included establishments having 10 workers with the aid of power and 20 workers without the aid of power. Under the OSHWC Code, the definition of a factory has been enlarged to now mean establishments having 20 or more workers are working, or were working on any day of the preceding 12 months in any part of which a manufacturing process is being carried on with the aid of power and whereon 40 or more workers are working, or were working, on any day of the preceding 12 months in any part of which a manufacturing process is being carried on without the aid of power.⁷

Employees: Definition of Employee has been engorged to include persons doing any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward. In addition, in order to promote gender equality women workers have been allowed to work at night⁸, subject to obtaining their consent and also subject to conditions relating to safety, holidays, working hours or any other conditions prescribed by the Government. This Code shall mandatorily require contractors/employers to issue appointment letters for all workers / employees, which apart from providing a sense of job security shall render clarity on employment terms and conditions along with a scope to claim their rights under the law & engagement terms. In addition, if an employee has not been issued such appointment letter on or before the commencement of this Code, he/she shall be issued such appointment letter within three months of this Code coming into force.

Employer: A new definition of "Employer" has been proposed i.e. a person who employs, whether directly or through any person or on his behalf, or on behalf of any person, one or more employees in his establishment, and would include the person who (or the authority) which has ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager or managing director, a contractor, head of the department, occupier of the factory, manager of the factory under clause (f) of sub-section (1) of Sec 7 of the Factories Act, owner of the mine, agent or manager, and a legal representative of a deceased employer.

Centralized Registration: A common registration for every establishment employing 10 or more workers has been proposed under this Code in place of earlier registration required under the CLRA by principal employers to engage contract labor. Simply put, single registration for an establishment instead of multiple registrations in an attempt to create a centralized database to augment ease of doing business. In addition, a provision for common registers and records has been introduced for ease of compliance.

License: This Code introduces the concept of a single licence having validity of five years for contractors satisfying the prescribed qualifications/criteria otherwise the contractor will be eligible for a 'work-specific licence' (renewable as prescribed) thereby enabling the contractor to undertake work, or supply manpower, strictly in terms thereof. Currently, contractors need to obtain multiple licences in respect of each establishment where contract labor is deputed by such contractors. Clarified that, a pan-India license will have to be obtained, if a contractor intends to supply contract labor to establishments in more than one State, or all over India. Further clarified that, engaging contract labor by a principal employer through a contractor who needed to obtain a licence under the Code but failed to do so will be deemed to be a contravention of the Code on the part of the principal employer.

Penalties: This Code while collating penalties under various laws has further made the punishments more stringent. For example, an offence which leads to the death of an employee will be punishable with imprisonment of up to two years, or a fine up to 500,000 or, both. However, there is a slight deviation in CLRA qua penalty, i.e. non-compliance with the provisions for contract labor will not attract penalty of imprisonment (existing 3 months), but only a fine ranging from 200,000 to 300,000 and an additional penalty of 2000 per day for continued contravention will be applicable.

Compounding: This Code provides for compounding of offences for a sum of 50% of the maximum fine stipulated for an offence punishable with fine only and for 75% of the maximum fine stipulated for an offence that is punishable with imprisonment up to one year or with fine, except wherein any offences are repeated within three years from the first violation.

THE SS CODE

This Code consolidates nine labor laws⁹ relating to social security and aims to provide better benefits such as provident fund, insurance and gratuity to relevant workers by extending the reach of the Employees' State Insurance Corporation and the Employees' Provident Fund Organization (which regulate benefits such as provident fund, insurance, pension, etc.).

The SS Code completely changes the administration of the unorganized sector (e.g. 'self-employed worker', 'home-based worker', 'unorganized worker', 'gig workers', 'aggregator' etc.).

Wages: The SS Code proposes a comprehensive and explanatory definition of the term wages which -

(a) includes all salary components expressed in terms of money that are capable of being so expressed like basic pay, dearness allowance and retaining allowance, but

(b) excludes¹⁰ any bonus, conveyance allowance, HRA¹¹, overtime allowance, house accommodation, commission, contribution to provident fund/pension, gratuity, retrenchment compensation, remuneration payable under any award or settlement between the parties, any sum paid to defray special expenses, and any other amenities/service excluded by a general or special order of the appropriate government.

Notably, no separate definition of basic wages has been provided, so as to remove existing ambiguity regarding contributions provided for Provident Fund and Employees' State Insurance.

Gratuity: Continuous employment of 5 years remains intact for permanent employees, however, the Code introduces a provision for fixed-term employees to be eligible for gratuity, upon rendering service for a period of one year. In addition, for working journalists the eligibility threshold has been reduced from 5 to 3 years.

Maternity Benefits: In addition to benefits provided under the special statute, every woman employee shall be entitled to medical bonus of up to 3500 where pre-natal confinement and post-natal care is not provided by the concerned employer. In addition, the Code now permits establishments to avail common crèche facility of the Central Government, State Government, municipality or private entity or as provided by any Non-Governmental organization or by any other organization or group of establishments that may pool their resources to set up a common crèche.

Employees State Insurance Scheme: Under SS Code, the expanse of ESI Scheme is aimed to be available in all 740 districts across India. Voluntary registration has been introduced in cases where the employer and the majority of employees agree to obtain such registration for application of ESI. Further, this Code provides that the government can extend ESI scheme to any hazardous occupational even if a single employee is employed. New set of workers such as gig workers, unorganized workers and plantation workers will also fall under the purview of ESI. The SS Code mandates that if any employer fails to pay ESI contributions, even then ESI has to pass on the benefits to the employees, recoverable by ESI authority from the defaulting employer to the extent of the capitalized value of the benefit net of any payment of contribution amount, interest and damages payable by the employer.

Employees Provident Fund Scheme: Under the SS Code, all establishments having 20 or more workers come under the purview of EPF, which is a complete deviation from the existing mandate wherein earlier the benefit scheme was applicable only on those establishments included in the given schedule. This Code introduces mechanisms for covering the self-employed or any other category of workers under the purview of EPF scheme. As a novel measure, an establishment employing 100 or more workers may voluntary apply to the Central Government to maintain its own PF account.

Notably, the penalty amount has been increased from 10,000 to 100,000 along with imprisonment of 1-3 years on non-deduction and non-depositing of employee contribution from salary. Further, subsequent failure to pay contributions shall attract imprisonment of 2-5 years and fine of 300,000.

Social Security Boards: The SS Code augments the accountability under the statutes namely, Employee's Compensation Act, 1923, the Building and Other Construction Workers Act 1996, the Unorganized Workers' Social Security Act, 2008, for the benefit of gig-workers, platform workers and unorganized workers under the ambit of social security scheme including their registration under the scheme. The SS Code proposes to enlarge the funds sources qua Scheme by including funds from CSR or any other source as may be specified in the scheme including constituting of SPVs for the purpose of implementation of schemes for unorganized workers. The SS Code also proposes that the contribution from an aggregator will be at a rate notified by the government which is expected threshold of 1-2% (subject to a maximum upper limit of such contribution fixed at 5% of the amount paid or payable by an aggregator to gig workers and platform workers) of the annual turnover of the aggregators.

Registration, Compliance & Inspection: The SS Code proposes filing of single return, single registration common registers and records for ease of doing business and compliances. This Code also introduces web-based inspection scheme for random inspections by a centralized computer with an aim to cast accountability and increase transparency for the inspections carried out.

Bar of Limitation on Inquiries: As a welcome move, the SS Code introduces limitation period of 5 years for initiation of inquiry by the authorities for assessment and determination of money dues from employers along with an unambiguous system of assessment by the officers.

Career Centers: The SS Code introduces career platform whereon the employers, candidates seeking vocational guidance or career counseling or self-employment can register. The Code requires all establishments (except those related to agriculture, domestic services, and engagements for less than 90 days) to notify the vacancies to career centers electronically or as may be prescribed. The employers shall also be required to submit necessary returns to the concerned career center on prescribed periodic basis.

Compensation: The SS Code provides for compensation to employees in case of accidents while commuting from residence to place of work and vice versa. This is very crucial as numerous cases have been litigated or still in courts seeking compensation in such cases wherein it has been difficult to tie up liability on either the employer or insurance companies due to loopholes in exiting legal regime and/or policies & contractual documents.

Pre-Deposit: The SS Code mandates the Industrial Tribunal not to entertain any Appeal under determination and assessment of dues by the employer, unless such employer has deposited 25% of the amount due from the employer with the Social Security Organisation, as determined by an officer.

Penalties & Compounding: Similar to OSHWC Code, the SS Code also provides for stringent penalties and similar scheme for compounding of offences.

THE IR CODE

To begin with, the IR Code collates 3 major existing labor laws relating to industrial relations, namely, the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946 and the Industrial Disputes Act, 1947, and shall apply only to those establishments which fulfil the threshold limits of employees' as provided under various labor laws.

Industry and Industrial Dispute: Under IR Code, now the definition includes any systematic activity carried on by cooperation between employer and his workers, whether such workers are employed by such employer directly or by or through any agency including a contractor. However, institutions owned or managed by organizations wholly or substantially engaged in any charitable, social or philanthropic services; sovereign functions; domestic services have been excluded from the definition.

Industrial Dispute: The definition of Industrial Dispute has been modified to include the dispute arising out of discharge, dismissal, retrenchment or termination of worker(s). An Employee can raise a dispute with the employer within the time limit of only 2 years instead of 3 years.

Wages & Worker: The IR Code lays down a comprehensive definition of wages similar to that provided under the SS Code. It is noteworthy that a person employed in a supervisory capacity drawing wages more than 18000 per month¹² has been excluded from the definition of 'worker'.

Fixed Term Employees: Under the IR Code, FTEs can be engaged by an employer for specific duration (service for a period of one year) and retrenchment compensation shall not be applicable for such employees; however, FTEs will be entitled to receive same salary or social security (Gratuity, ESI, EPF, Bonus, etc.) as provided regular employee. Clarified that the termination of the engagement of FTEs as a result of completion of tenure of employment would not amount to retrenchment.

Retrenchment: The threshold limit for layoff and retrenchment of the workers or shut down of the establishment has been increased from 100 to 300 or more. The requirement for obtaining prior permission from the appropriate Government has been removed for establishments having less than 300 workers. The worker may approach the Industrial Tribunal for adjudication of the dispute related to dismissal, retrenchment or termination within 45 days after the application for the conciliation of the dispute was made. However, in cases where any worker is suspended by the employer pending an investigation or inquiry, the amount of subsistence allowance payable at 50% of the wages for the first 90 days of suspension and at the rate of 75% of such wages for the remaining period of suspension.

Strikes: A 60-day notice to be provided by a person employed in an industrial establishment before going on a strike is mandated; whereas, trade unions have to give notice of 14 days before going on a strike.

Grievance Redressal Committees: The IR Code introduces setting up of GRCs in every industrial establishment employing 20 or more workers for the resolution of disputes arising from individual grievances. Moreover, the number of members in each GRC has been increased from 6 to 10.

Re-Skilling Fund: The IR Code mandates that the Appropriate Government¹³ shall set-up a re-skilling fund consisting of contribution by an employer that is equal to last drawn 15 days wages by the worker immediately before the retrenchment. This provides for an additional compensation apart from retrenchment compensation. The IR Code prescribes that the said fund is required to be credited within 45 days of retrenchment of the worker by crediting into the worker's account.

Applicability of Standing Orders: The IR Code provides that any industrial establishment in which 300¹⁴ or more workers are employed, or were employed, on any day of the preceding 12 months, is required to have standing orders certified from the labour authorities. It has been mandated that the certification procedure ought to be completed within 60 days from the receipt, failing which the draft standing orders/modifications shall be deemed to have been certified. Moreover, the existing standing orders of an industrial establishment are required to be mapped in accordance with the provisions provided in the IR Code. Furthermore, the Central Government shall be responsible for preparing the model standing orders.

Negotiating Union and Negotiating Counsel: The IR Code introduced a novel concept that in an establishment having a registered trade union, a negotiating union for negotiating with the employer of the industrial establishment on such matters as may be prescribed has to be set up. Clarified that if there is only one trade union in an industrial establishment, the employer is required to recognize such trade union as the sole negotiating union of the workers. Further, at least 51% of the workers should support such negotiations to be recognized as sole negotiations under the IR Code. However, in case said threshold limit is not met, the establishment is entitled to create a Negotiation Council consisting of the representatives of those trade unions that have the support of at least 20% of the total workers.

Investigations or Inquiries: As per the IR Code, in case an employer suspends a worker, pending investigation or inquiry into complaints or charges of misconduct, such investigation or inquiry shall be completed within a period of 90 days from the date of suspension.

Penalties and Compounding of Offenses: The IR Code mandates stringent fines and penalties for non-compliance.15 The IR Code prescribes for compounding of offences for a sum of 50% of the maximum fine stipulated for an offence punishable with fine only and for 75% of the maximum fine stipulated for an offence that is punishable with imprisonment up to one year or with fine, except in case of offences repeated within three years from the first violation.

To conclude, with a more pragmatic approach along with an endeavor to better India's ease of doing business position, the Codes aim to achieve much-needed reforms to bring the labor laws of India attune to the current requirements of employer-employee relationship, compliance standards, rendering the labor law regime a more workable and less cumbersome.