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Demystifying The Grey Areas in India’s New Labour Codes

The authors are Saima Khan & Sarthak Chaudhary, third year students at Dr. Ram Manohar Lohiya National Law University, Lucknow


Till recently, the condition of labour in India was governed by legislations dating back to the British Raj. In the years 2019 & 2020, the Central Government proposed the amalgamation of the existing twenty-nine labour laws into four codes: the Industrial Relations Code 2020, the Code on Wages 2019, the Code on Social Security 2020 and the Occupational Safety, Health and Working Conditions Code 2020. The draft rules for these codes have already been published by the Central Government, but they still await implementation by States.

Currently, there are over forty central laws and numerous state laws overseeing various aspects of labour in India. However, the lackadaisical implementation of these laws has prevented workers from extracting appropriate benefits from the welfare policies of both the Centre and the State. Moreover, the multiplicity of laws has given rise to distinct compliances. This has enhanced the compliance burden on firms. Further, too many licensing and registration requirements has been another pressure point for business establishments.

Analysing the ‘reformatory’ nature of the new labour codes

The primary justification that the government has provided for the enactment of the four labour codes is that they would pave way for the simplification as well as modernisation of labour law in India. The idea of amalgamation of these laws into four codes is indeed a good one, but there are several concerns that it fails to address.

The Industrial Relations Code has faced a severe backlash from many trade unions across India. The code provides that if an establishment consists of multiple trade unions, the one with 51% support of the workers will be recognised as the sole negotiating union. The main concern of the trade unions is that this will lead to the monopoly of a single union at the negotiating table. The code further provides for the constitution of a negotiating council in the absence of the support of 51% membership for any trade union. However, the voting process is not clearly mentioned anywhere in the code. Furthermore, the code weakens the collective bargaining power of the workers by making a prior two-week notice mandatory before going on strikes. Additionally, the code makes it difficult for workers to form unions by laying a condition that a registered union should have either 100 workers or 10 percent of the total workers as its members.

The code has also brought changes in the process of resolving disputes. Dismantling the district labour courts, it provides for the constitution of industrial tribunals in each state. The dispute redressal mechanism has certain discrepancies as the code provides that matters other those listed under section 44 (7) shall be heard either by a judicial member or an administrative member, whose qualifications are not mentioned anywhere in the code. Therefore, leaving such matters to be decided by an inexperienced administrative member may adversely affect the quality of justice delivered by these tribunals.

Another major reform that the government has been vouching for is the amendment of standing orders passed under the Industrial Disputes Act, 1947. The Industrial Relations Code increases the threshold for obtaining prior government permission for closing down, laying off or retrenching workers from the previous limit of 100 workers to 300 workers. This amendment will undoubtedly be beneficial for the industries and provide the much needed boost to the industrial sector. However, when it comes to protecting the workers’ interests, it fails miserably. The provision makes it easier for establishments up to 300 workers to hire and fire workers without prior notice. Due to the increase in threshold, a large number of firms which earlier required permission for closure, lay off and retrenchment have now been exempted. Therefore, this reform injudiciously prioritizes the employers over employees, and compromises with the rights of employees by a large extent.

Since the current Industrial Disputes Act 1947 applies only to permanent workers, industrial establishments take advantage of this loophole and tend to employ contract workers instead of permanent workers so as to evade the stringent requirements under the act. In 2001, the Supreme Court in Steel Authority of India Limited v. National Union Water Front Workers ruled that contract workers do not have the right to be regularized automatically in the workforce. Consequently, it became easier for employers to hire contract workers. It is relevant to note that contract workers do not enjoy adequate protection under law and are denied assured wages, social security and the right of collective bargaining. In order to address these issues, the Industrial Relations Code proposes a new kind of employment, known as fixed term employment. It provides a higher level of job security and more rights to fixed term workers. The code states that a fixed term worker shall be eligible for gratuity if he renders service under the contract for a period of one year. However, the code lacks clarity in relation to payment of gratuity in case of renewal and extension of contracts.

The Code on Occupational Safety, Health and Working Conditions has not brought sufficient reforms to address the grievances of contract workers. The code merely transfers the duty of ensuring welfare facilities from the ‘contractor’ to the ‘principal employer’ and leaves the conditions for granting contract license to rules. The code also falls short in certain respects when it comes to providing a safe working environment to employees. Under the code, safety committees are required to be constituted in firms having more than 250 workers. This will lead to the exclusion of 90% units from the purview of such committees. It must also be noted that the code does not impose stringent penalties as it contains a provision that the employer can be criminally prosecuted only for repeated offences. It even goes to the extent of disallowing surprise inspections by the labour inspector, thereby compromising with the safety of workers.

Further, the code has failed to bring specific provisions for the welfare of women workers. Female participation rate in India was around 20% in 2021 as per the data provided by the World Bank and is consistently showing a downward trend due to the lack of proper infrastructure and safety at workplace for females. This trend is unlikely to change owing to the shortcomings of the code in this respect. The code opens all kinds of work for women employees, including hazardous activities. This is a progressive measure in terms of equality between male and female workers, but failure to provide adequate safeguards for women engaged in such type of work makes the code inadequate in terms of affording protection to women.

The Code on Social Security also has certain fallouts. The code defines gig workers and platform workers, but no differentiation has been made between ‘self-employed’ and other workers. Self-employed workers constitute more than 51 percent of the total workforce in India. Therefore, it becomes extremely relevant to make such distinctions with appropriate provisions for compliance with standing orders. With respect to independent contractors, there are no clear principles within the code to determine the relationship between employee and employer. Globally, certain principles have been laid down to determine the employee-employer relationship. For instance, California passed a bill in 2019 which classified certain independent contractors as employees and brought them under the social security net. Therefore, there is a need to take a cue from other countries and establish clear principles for identifying the employee-employer relationship. Also, all kinds of workers must be covered under basic welfare schemes to prevent their exploitation. Furthermore, the crisis faced by informal sector workers during the covid pandemic calls for a need to create a ‘labour unemployment fund’ to deal with future exigencies. The fund must be created with the help of contributions by employers and the government. Such schemes will not only develop people’s faith in the system but will also help in creating more organized employment ultimately leading to more social and economic stability. Both the Centre and the State should balance the dividends of all the stakeholders, while respecting the idea of federalism and not dithering the interest of labourers in name of ‘welfarism’.


The introduction of the new labour codes is surrounded by enthusiasm all over the country, with the media hailing them as ‘much awaited’ and ‘long overdue’. It is therefore crucial for these codes to meet the expectations of the general public as well as the industrial sector. However, an analysis of their provisions reveals that the codes do not substantially differ from their predecessors and retain many of the old provisions. The codes have simplified the labour laws to some extent but have failed to bring inadequate reforms when it comes to strengthening the collective bargaining power of the workers, providing adequate protection to contract workers, and laying safeguards for women workers. Furthermore, the labour codes do not strike a perfect balance between the rights of workers and industrial establishments on account of their unreasonable inclination towards the industrial sector.

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