Reforms 2.0

Make Labour Laws Less Laborious

Reform Idea

Reduce the number of labour laws in the country by amalgamating them into simplified codes.

The Need for Amalgamation

The evolution of labour laws in India has been erratic. Over the years, we have enacted legislations to address very specific issues, resulting in over forty statutes that regulate various aspects of employment. This multiplicity of laws makes for cumbersome implementation and, because the scope of several of these statutes often overlap, sometimes results in contradictions.

The lack of uniformity that this leads to can be seen in many different ways:

  1. The presence of multiple laws often results in multiple definitions of the same thing.

Now here is this more evident than in the definition of a wage. We have at least half a dozen statutes in the country that define what a wage is, with not all of them defining it in the same way. This includes the Payment of Wages Act 1936, the Minimum Wages Act 1948, the Equal Remuneration Act 1976, the Payment of Bonus Act 1965, the Payment of Gratuity Act 1972, and the Workmen’s Compensation Act 1923.

  1. Implementation of the laws is made difficult by different thresholds of applicability.

Most labour laws stipulate their own thresholds which must be met before they become applicable. Therefore, a particular statute might be applicable to:

  • An establishment employing a certain number of personnel.

For instance, the Payment of Gratuity Act 1972 and the Maternity Benefit Act 1961 become applicable if ten or more personnel are employed. However, this threshold is twenty under the Payment of Bonus Act 1965.

  • Employees earning below a specified wage threshold.

The Payment of Wages Act 1936 only applies to employees drawing wages up to INR 18,000 per month whereas the Employees’ State Insurance Act 1948 applies to individuals earning INR 21,000 or less per month. The Industrial Disputes Act 1947, on the other hand, applies to all employees but carves out exceptions for employees engaged in managerial and supervisory roles.

  1. The potential application of labour law statutes is often complicated by State amendments.

Labour is a concurrent subject under the Indian Constitution and it is common to see State governments enact amendments to Central legislations. To take but one example, the Payment of Wages Act 1936 provides for a list of scenarios in which an employer is empowered to make deductions from the wages given to an employee. Several States have amended this list to accommodate their own inclusions.

  1. Some labour statutes are enacted solely by individual states.

Almost every state in the country has its own Shops and Establishments Act, which provides for various aspects of employment, including opening and closing hours, probationary periods, leave, notice period, overtime hours, etc. An employer based out of multiple locations in the country would be obligated to keep track of all these state-specific legislations.

The Impact of Amalgamation

The status quo as outlined above has compromised our ability to effectively regulate employment in the country. Prospective employers are put off by the effort and red tape involved in ensuring they’re compliant with employment laws. Employees are unsure of what their rights are, leaving them open to exploitation. The resources of the government are stretched thin in administering all the multitudinous laws, with the complexity of the statutes also providing a perverse incentive for unscrupulous elements to foster corruption.

Given this, amalgamation would go a long way in lending clarity and uniformity to the labour laws in the country. In addition, the process of amalgamation will also provide the opportunity to do away with several archaic and outdated provisions that continue to exist in the labour laws of today.

Achieving Amalgamation

The idea of amalgamation is not novel. The report of the second National Commission on Labour had, as far back as 2002, called for simplifying and codifying labour laws. The present government, after the last general elections, also stressed on the need for labour reforms, primarily through the enactment of four consolidated codes. These codes would legislate on industrial relations, wages, social security and welfare, and safety and working conditions, respectively. These codes would need to be enacted under the aegis of the Central government and will need to be introduced and passed in the Parliament before they can repeal the existing labour statutes.

Potential Roadblocks

The enactment of the codes will not only require significant political will, given the government’s lack of a majority in the Upper House, but also a semblance of consensus between the concerned stakeholders around the content of the codes. At a time when a more concerted effort is needed to promote the idea of codification, it is disappointing to see the government pushing individual States to bring about local amendments, which will only serve to exacerbate the problems that exist today.

Another possible objection could come from the States, which might contend that any attempt at consolidation at the Central level will undermine the federal spirit of the country. To this contention, one can point to the benefits listed above, as well as two additional reasons that warrant amalgamation. One, since the concurrent status of labour laws continues to exist, States will retain the ability to make minor changes in the laws to suit their local needs while leaving large portions of the law to be uniform across State borders. Second, as with most labour laws presently in force, the appropriate government to enforce implementation can, and should, be the respective State governments.

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About the author

Ajay Patri

Ajay Patri is an Associate Fellow at the Takshashila Institution. He is a graduate of National Law School of India University, Bangalore and has worked at a corporate law firm in the past.