Wage Code Bill (1).docx

“LABOUR REFORMS- NEED AND IMPLICATIONS”

Complied by TRUSHITA & ORS

EXECUTIVE SUMMARY Clash between the Labour and Management of Honda Motors and Scooters India in Gurgaon has again brought back the bogey of strikes of socialist era. Everyone

including MNCs, government, economist and employers are sceptical of resurgence of Labour movement. If labour Movement gets a new life, it can give a severe jolt to Indian economy. Therefore, it is necessary to analyze the reason behind these events and curb the nip in the bud. Globalization and Liberalization has forced government to give a serious thought to our anarchic labour law, which makes our companies uncompetitive globally and discourages foreign companies from investing in India. Indian labour laws are among the most rigid in the world. Some recent data compiled by the World Bank collate the level of rigidity of hiring and firing rules in different nations -100 being the score of the highest conceivable rigidity. India is among the most rigid countries with a score of 48. China has a score of 30, Korea 34, Norway 30; Singapore closes to 0. Therefore this crisscrossing network of chaotic, strangulating, overlapping and oftencontradictory laws need an overhaul. The single most important labour law is arguably the Industrial Disputes Act (IDA), 1947. This was enacted a few months before India's independence and guides the hiring and firing rules of the industrial sector and is a good example of a well-meaning policy that is founded on antiquated economics and a handsome misunderstanding of the way markets function. The IDA makes it very hard for firms to fire workers. This law has probably done more to hold back the growth of India's manufacturing sector than any other policy. In this scenario, Government recognized the need for increased flexibility in Labour market, but they cannot bring the policy of hire and fire approach, more so, since the institutions of social security, particularly unemployment insurance are not well developed in our country. Therefore structural reforms in labour laws must ensure the welfare of workers. Reforming labour laws will boost industry and create more jobs. Besides Government, it is the responsibility of the employer to develop some well specified procedure that must not create undue unrest among workers and whenever they need more manpower ,they should a give preference to the workers it is retrenching at present. They should also introduce some Unemployment Insurance schemes made by the contribution of employees and employer. The fact that the less rigid nations also have more efficient economies, higher wages and a smaller share of labourers who are long-term unemployed is not a matter of coincidence. Given that the reform of labour laws is, contrary to popular perception, in the interests of the workers, what government needs to do is have this topic debated and explained so that workers, instead of opposing such reform, become its advocate. Industrial relations has become one of the most delicate and complex problems of modern industrial society. Industrial progress is impossible without cooperation of labours and harmonious relationships. Therefore, it is in the interest of all to create 2

and maintain good relations between employees (labour) and employers (management).

In order to prepare an Agenda for Labour Reforms, Several Commissions have examined the various issues involved in the light of available empirical evidence, nationally and internationally, so as to arrive at conclusions that are not influenced by dogmatic opinions held by many participants in the debate on the subject. Some of the important issues, which have been identified as need for labour reforms, are discussed below: 1. Multiple and Parallel Labour Legislation: There is the burden of multiple and parallel legislation that has created confusion and complexity and has resulted invast paraphernalia of regulation. Currently, there are around 50 Central Labour Laws and more than 100 State Labour Laws. Moreover, many Acts go intounnecessary details. There appears to be a need to reduce the number of laws through simplification, rationalization and codification. 2. Issues relating to appropriate government and jurisdiction: Labour is a concurrent subject in the Constitution of India implying that both the Union and the state governments are competent to legislate on labour matters and administer the same. The bulk of important legislative acts have been enacted by the Parliament. These statutes have sought to determine the respective jurisdiction of the Central and state governments through the device of introducing the concept of appropriate government in most statutes for various purposes. This matter of jurisdiction has led to much confusion. What is the most appropriate way of demarcating jurisdiction of 3

the central and state governments in matters of labour laws, therefore, needs to be examined. 3. Multiplicity of authorities: Due to debates over the jurisdiction, not only most statutes have central authorities but state authorities too. Not only various levels of administrative or implementing authorities but also adjudicating authorities that have been instituted under different laws differ. This proliferation of authorities needs to be checked. The feasibility and the desirability of having a single Labour Authority dealing with all aspects of labour at the state as well as central level need a thorough examination. (In this regard the desirability and feasibility of Industrial Relations Commissions as recommended by the first and the second National Commissions of Labour may need to be examined). 4. Lack of uniformity in definitions: There is a lack of uniformity in respect ofkey definitions in many of the labour laws. Many common items like workmen, wages, employee, and industry are defined differently in different Acts pertaining to the same sector. The Payment of Wages Act comes up against the different definitions of wage in different labour legislation. Thus, while defining wages in any statute, the cognate definition in another statute does not appear to have been kept in mind. In this context, it needs to be examined as to what is the best way of finding common definitions so that these are not subject to different interpretations. 5. Minimum wages: There are a bewildering variety of minimum rates of wages that have been fixed by various state governments under the Minimum Wages Act, 1948. Moreover, while setting wage limits for the applicability of a statute, the wage limits in other statutes do not appear to have been kept in mind. Most wage limits are also out of tune with the industrial realities today. Following questions need answers in this context: What is the rationale for fixing minimum wage? What is the rationale for industry or occupation specific minimum wages? Can the number of minimum wages set be reduced to manageable levels? How realistic would the concept of a basic minimum wage or a national minimum wage be which would serve as a floor level? What is the methodology followed while fixing minimum wage? This needs to be examined and recommendations made for improving upon it. 6. Inspector Raj: Streamlining of the present inspections regime is an important issue. Satisfactory answers to the following questions will have to be found for this issue to be resolved. • What may be better and less vexatious alternative to the present system of inspection? Can the inspection system be replaced by a system of selfcertification? Can self-certification be introduced for all labour laws or whether it may be desirable to have it in case of selected labour laws only? What are the correctives which may have to be prescribed to cope with the problem of moral hazard which would be present under such a system? What may be the level of authority that should certify? What may be the frequency of inspection once 4

this system is put in place? Whether simple certification would suffice or certification on oath/affidavit? The experience of some of the States which have introduced selfcertification schemes or put restrictions on inspection by the labour inspectors would have to be critically examined in this context. • Can a system of labour audit on the lines of conventional audit be considered to cope with the shortcomings of the inspection system? Who would qualify to be labour auditors? What would be the merits and demerits of such a system? What changes would be required in the legal framework for having a system of labour auditors? • The feasibility of replacing the system of maintaining and submitting to different authorities multiple registers and records by one register for each broad area such as muster roll, accidents, wages etc. needs to be explored. Any other feasible alternative may also be looked into. 7. Industrial Disputes Act, 1947: Under the Industrial Disputes Act, 1947downsizing cannot be resorted to without Government permission. The Act is applicable to establishments employing 100 workers or more. IDA has been one of the most controversial aspects of the on-going debate on labour law reforms leading to sharp, polarized views among employers and labour unions. Following aspects need clarifications for a satisfactory solution to the problem. What is the rationale for obtaining Government permission for downsizing, the need for which may be arising due to sharpening economic competition? Has the prevailing legal framework really worked or has it created problems? What suggestions can be made for reducing the difference between the positions of the trade unions and employers? Is there any scope for reaching a common ground between the two positions? What has been the position of earlier Labour Commissions/ other relevant committees in this respect? What has been the international experience in this regard? To what extent provision of adequate compensation and/or unemployment allowance to retrenched employees will act as a reasonable solution? This requires fresh thinking and an examination of feasible ideas. The feasibility and desirability of having a system of unemployment insurance need to be examined in this context. 8. Contract Labour (Regulation and Abolition) Act, 1970: Given the competitive pressures, businesses are constantly striving to increase efficiency by cutting costs. Employment of contract labour is one of the ways in which such cost cutting is being attempted. The following questions appear relevant in this context: Are there ways in which the employment of contract labour can be encouraged without making the employees feel that they are losing out in terms of important benefits? How can flexibility in employment be promoted best? By putting aside a few categories of occupations in a list which is exempted from the provisions of the Contract Labour Act or by putting a ceiling on the percentage of labour force which could be employed as contract workers by an enterprise? What are the merits and 5

demerits of the two systems? Are there any alternatives to contract labour that may provide employment flexibility without affecting labour rights? 9. Sectoral Demands: Demands have been voiced that if economy-wide labour reforms cannot be implemented immediately, attempts may be made for providing flexibility in labour laws at least in certain areas, eg Textile industry, SEZs. In case of Textile industry, it needs to be examined as to what is the best way of meeting the requirements of such units, which are catering to the export markets. As far as SEZs are concerned, if their promotion is to be viewed as part of a growth strategy to increase employment, then the question arises as to what is the best way of promoting growth – whether through giving exemption to selected production units from applicability of labour laws or through other promotional measures. The relative importance of the two sets of factors needs to be examined. Other promotional measures for increasing growth and employment generation need to be identified and recommended for adoption. 10. Labour standard and size of establishment: Whether labour standards can be divided as core labour standards which are applicable to all enterprises and other labour standards which may be linked to the capacity to pay of an enterprise? Core labour standards may include standards relating to treatment of hazardous material, prohibition of child labour etc. 11. Better enforcement of workers’ rights: How can enforcement of labour laws be improved? How to limit the extent of judicial scrutiny so as to check the number of cases that end up as court cases? How can the process of in house/domestic disposal of dispute or grievances within an establishment be made more fair, just and transparent? How can the process of collective bargaining be improved and made more effective in solving disputes? How can mediation and arbitration provisions of the labour laws be strengthened? 12. Labour laws and the unorganised sector: At present majority of labour laws are applicable to the organised sector and only a few to the unorganized sector. Is there a need for review of the existing system? If yes, is there a need to link labour laws in the unorganized sector to the enforcement of a set of core labour standards? Many of the issues discussed above do not admit of clear-cut answers. The need is to examine them with an open mind, taking in view the available empirical evidence, the ground realities, and the relative importance of the issues being examined. For instance, there is a demand for flexibility for hire and fire by large enterprises by relaxing Chapter VB of the Industrial Disputes Act wherein government permission is mandatory for layoffs and retrenchment. However, the applicability of Ch.VB of the IDA is perhaps limited to one percent of the workforce in the economy (i.e. units employing more than 100 workers). Moreover, the Act itself allows for deemed permission under certain circumstances if no reply is forthcoming within sixty days. Indeed, as noted by many studies, there is hardly any problem for such units to take 6

recourse to layoff and retrenchment whenever they feel necessary. Permission to downsize has been fairly easily accorded to existing enterprises in the past few years. In fact, this points to the need for an income security for workers while they are out of work. Therefore loss of job needs to be considered in relation to the existence of an income security net.

Wage Code BILL ,2015 1. The labour law domain in India is a reaffirmation of India’s colonial past and industrial revolution. While current labour legislations have been significantly tailored to suit the unique conditions of the Indian industry and labour force, they are nevertheless still largely influenced by issues of a bygone era. Adding to this, even the legislations which were drafted afresh after independence were done many decades ago, and though they have been subject to multiple amendments, there is now a pressing need to replace them altogether with laws which reflect India’s real story today – the India which is growing at more than 7% annually and has a labour force of more than 500 million . 2. The Constitution of India lists labour related subjects under the Concurrent List.This means that both the Centre and the States are equally competent and permitted to enact labour legislations, keeping in mind the federal structure of the country. As a result, there are, at present, more than 45 major central legislations and more than 100 labour related state legislations operating in India, many times on overlapping matters. The multiplicity of these laws and their compliance burden has often been cited by domestic industries and foreign investors as an obstacle to investment [see end note 4]. Therefore, with an objective to soothe investor confidence, as well as to “simplify, rationalise, and amalgamate the existing labour laws” the incumbent government in its annual budget presentation this year announced merging of 44 labour laws into 4 codes on (i) wages; (ii) industrial relations; (iii) social security and welfare; and (iv) safety and working conditions

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Understanding the Code 1. The objective of the Wage Code is to consolidate 4 existing labour laws relating to wages – (i) the Minimum Wages Act, 1948; (ii) the Payment of Wages Act, 1936; (iii) the Payment of Bonus Act, 1965; and (iii) the Equal Remuneration Act, 1976 – into one integrated code. Evidently, all these legislations govern various aspects of the same subject, i.e., wages, and therefore to combine and cover all these aspects in one law, the Wage Code is proposed to be enacted. This exercise implements the proposal of the Second Indian National Labour Commission, which suggested rationalisation of labour laws in India way back in 2002 . 2. The Code is divided into separate chapters dealing with minimum wages, payment of wages, and provisions relating to bonus. Provisions relating to equal remuneration have been incorporated in different chapters, wherever necessary. There are then separate provisions and chapters concerning advisory boards, dues and claims, offences and penalties, as well as those relating to establishment and powers of various governmental and quasijudicial authorities to monitor and implement the Code. 3. The most obvious and useful feature of the Code is rationalisation of various definitions contained in the 4 present legislations, which were, till now, subject to varied interpretations even though they regulated the same subject matter. For example, giving a singular definition of “wages” in the Code will allow consistent interpretation of the term, which was hitherto defined in modified forms in different legislations, sometimes even as “salary" or “remuneration" .

4. Another important feature of the Code is the introduction of a universal minimum wage. Under the Minimum Wages Act, 1948, State Governments have the mandate to fix minimum rate of wages for employees employed in a scheduled employment . On the contrary, the Wage Code proposes that Central Government will fix a universal minimum wage for all employees, irrespective of the type of employment or establishment they work in. Currently, this universal monthly minimum wage is proposed at Rs. 18,000. Once the Wage Code is enacted, States will have the liberty to increase this amount, applicable for their State, though they cannot propose a reduction. The Wage Code also seeks to: 

Allow payment of wages through electronic means (bank transfer) in addition to payment by cash and cheque. This incorporates the changes made to the Payment of Wages Act, 1936 by the Payment of Wages (Amendment) Bill, 2017 and is a possible effect of government’s drive of demonetisation and less-cash society;

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Consolidate the compliance requirements – employers under the Wage Code would be required to maintain a single register for the record of employees, wages, bonus, muster roll etc. This would ease the requirement for employers to maintain separate records under different legislations. Though the Code does not prescribe the form and manner of maintenance of this register, it is possible that the register could also be maintained electronically;

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Establish a common authority for claims – the Wage Code requires the State Governments to establish one or more authorities to handle claims under the Code like payment of wages, incorrect deductions, non-payment of wages, un-equal remuneration, non-payment of bonus, etc. These authorities will have powers to issue orders against employers for compensation, as well as issue orders for recovery of dues. The State Governments will also be required to establish appellate authorities to such authorities;

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Give a new role to “facilitators” – the existing legislations provide for labour “inspectors” to conduct inquiry and investigation of an employer to ensure compliance. The new Code will replace this role with that of facilitators, who will, in addition to the powers of inspectors, be assigned the role of supplying information and advice to employers and workers on effective means of complying with the provisions of the Code;

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Re-emphasise the role of women and employment opportunities for women, a subject which will have to be statutorily deliberated by the Central and the State Advisory Boards under the Code;

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Expand the definition of “industrial dispute” than to the one provided under the Industrial Disputes Act, 1947.

India’s benefit or loss? Undoubtedly, the consolidated Code will offer compliance benefits. An entity complying with 4 different legislations containing somewhat similar and overlapping subjects and maintaining records and compliance in 4 different forms, would certainly breathe a sigh of relief. On the same footing would be a foreign investor looking at India as a potential destination for lucrative return on investment with cheap and abundant labour. All the features of the Code noted above are bound to enhance investor confidence and allow ease of doing business in India. For employees and workers , it’s an advantageous situation as well. The Code offers broadly the same extent of protection of labour rights and protection of workers in relation to their wages, as the existing legislations do. At the same time, it extends the applicability and benefits of the existing legislations as well. Not only do existing employees earning less than Rs. 18,000 a month get a guaranteed payment of this amount every month, but all those employees in the organised and unorganised sector, who did not fall within the ambit of current legislations merely by reason of their industry or establishment not being mentioned in the Schedule, will get covered 9

by protection of the Code. This will help improve standard of living across India. Recent news articles state that this universal minimum wage could benefit approximately 40 million employees (4 crore employees). The Code is not, however, all beneficial for employers and employees. The earlier draft version of the Code, which was circulated in 2015 for comments from industry and trade unions, received scathing remarks on the lacuna and poor drafting .Most of those provisions from the draft have been carried into the Code without much change. Some of the reasons why the industry, trade unions, and even labour rights’ organisations are unhappy with the Code are: 

Imposing a universal minimum wage on all States in India does not take into consideration the diverse demography, topography and living standards across India, as well as the development and prosperity of different States. While Rs. 18,000 a month may be easy for an employer in Maharashtra to pay, the same may not be possible in Uttarakhand or Tripura. Various news articles have reported that the industry reaction to the proposed minimum wage is fairly negative and it is feared that the Code may impact hiring.The Supreme Court in the case of Hydro (Engineers) P. Ltd. v. Workmen had held that minimum wages should be defined by needs-based criteria that extend beyond physical needs. This should include nutrition, clothing and housing needs, fuel, lighting, family expenses, etc. All these factors are, undoubtedly, different in different States in India.

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Universal minimum wage will also affect the wage competition between States. States often allow lower wages than their neighbouring States to attract investment to their State. This in turn has helped States grow and promote a spirit of competition, fostering more investment. This will, to a great extent, be eliminated under the Code.

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The added wage burden may push industries to automate at a faster pace.

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Provisions of the Equal Remuneration Act, 1976 are scantily referred to in the Code. The Equal Remuneration Act, 1976 has, in essence, been confined to Sections 3 and 4 of the Code. Further, when the draft code was released in 2015, the equal remuneration provisions gave recognition to the third gender and provided that no discrimination should be made between men, women and transgenders. The third gender, however, does not find reference in the Code.

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The Code also does not include any measures to prohibit discrimination in employment on the basis of caste, religion or social origin, something which is much required in a country like India.

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Unlike the provisions of the Minimum Wages Act, 1948 and the Payment of Bonus Act, 1965, the Code decriminalises the penalty provisions at first instance. Thus, where an employer pays less to an employee than the 10

minimum wage, at first instance, the employer will only be penalized by a fine of Rs. 50,000 under the Code. On the contrary, under the existing legislations, imprisonment term is prescribed for such offences. These, along with other issues like diluting the scope of overtime pay, replacement of judicial appellate authority with an authority which may or may not be judicial, limiting the scope of trade unions and employees to question the balance-sheet or the profit and loss account of the employer (for the purposes of payment of bonus), etc., are some issues which may hinder the effective implementation of the Code. What next? As noted above, the Code is yet to become an Act and thereby come into operation. It is pending in Lok Sabha and then has to undergo the process of scrutiny and approval of the Rajya Sabha. It is likely that some of the issues noted above relating to misalignment between the current legislations and the Code may be resolved, though it is unlikely that other issues like easing the hiring fears of industries or addressing the issue of universal minimum wage mismatch with India’s diverse topography, etc., will find a mention. We will get to know of this in the winter session of the Parliament. Nevertheless, the Code is a positive move to ease the process of doing business in India. It also lives up to the statement made by the Union Finance Minister in his 2017 budget speech where he said the government is “keen on fostering a conducive labour environment wherein labour rights are protected and harmonious labour relations lead to higher productivity”. It is reported that along with the Wage Code, the government may soon introduce the code relating to industrial relations as well as the social security and welfare, the latter of which is already available in draft form on Ministry of Labour’s website for comments. It is about time that India takes a step in the direction of revamping its labour laws and attunes them to India’s present growth story.

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