Wednesday, July 1, 2015

India - Changing Winds of Employment Laws

By Poorvi Chothani, Esq., LawQuest

With a view to improving the business environment in India, the current government that took power in India in 2014 has been announcing changes in various areas. In keeping with this, the government is eager to reduce the number of onerous labor laws in the country.

India does not have one law that governs employment and labor but works with a network of laws that regulate matters like conditions of service and work, wages and allowances, labor relations, social security and welfare. Under the Constitution of India, labor matters are regulated by the Central (Federal) Government and the State Governments. The labor laws consist of statutes, statutory regulations, administrative rulings, and judicial precedents. Government policies in this area have not been evolving fast enough in response to the changing needs of economic development and social justice, thus stifling business growth especially in labor-intensive industries. Several aspects of white-collar work are subject to contractual agreements with a limited effect of labor law.

At present there are roughly 200 labor laws in India, of which more than 40 are statutes enacted by the Central Government. Complying with these laws often proves an impediment to business. For example, a very significant regulation is the Industrial Disputes Act that requires certain organizations employing more than 100 workers to seek permission from the government in the state where they operate before restructuring or laying off workers. Another deterrent has been the stong provisions for collective bargaining by trade unions and the large number of the myriad warring trade unions. These are believed to have been a great deterrent to business growth and job creation as well as foreign direct investment in the Indian manufacturing sector.

Changes at the Central (Federal) Level

With a view to easing these restrictions, the current Indian government plans to replace 44 of of the labor laws with five codes relating to wages, industrial relations, small factories, social security and welfare. It appears that the proposed codes aim to (i) reduce Central Government control over the State Governments, making it easy and quick to introduce changes, (ii) reduce/streamline the number of applicable statutes, (iii) increase employer penalties for infractions, (iv) ease the restrictions on businesses that want to reduce work forces or close, and (v) curtail trade unions, among other things.

Each code will address specific issues and include or eliminate relevant statutes. For example several industrial safety and welfare laws such as the Factories Act, the Mines Act and the Dock Workers (Safety, Health and Welfare) Act, will be merged to create a single code on industrial safety and welfare; while the Minimum Wages Act, the Payment of Wages Act, the Payment of Bonus Act, the Equal Remuneration Act and a few others will be merged to create a “single legislation called the Wage Code Act”. In addition, several laws related to social security, including the Employees’ Provident Fund and Miscellaneous Provisions Act, Employees’ State Insurance Corporation Act, Maternity Benefits Act, Building and Other Construction Workers Act and the Employees’ Compensation Act will be merged to create a single social security code.

The fourth code, likely to be known as the Labor Code on Industrial Relations, will combine the Industrial Disputes Act, 1947, the Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946.

Changes at the State Level

With a view to attracting more business investments, a few states are modifying certain statutes. For example, the state of Rajasthan amended the law, applicable to specific organizations that engaged 100 or more employees, that required advance government permisssion before restructuring or closure. It has raised this threshold and advance permission will only be required from organizations that employ 300 or more workers. Other states like Madhya Pradesh and Maharashtra have followed Rajasthan’s initiative in a bid to attract more business and have made or are in the process of introducing similar changes.


Considering the above reforms, for the first time in decades, there appears the possibility of meaningful reform bringing Labor law into line with business needs and the possibility of a new era where government plays a facilitative rather than an antagonistic role in its dealings with business.