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New Labour Code and its Impact

The new labour codes propose to broaden the social security scope by adding concert workers and seasonal workers from around the country, while moves are also being proposed to give employers more flexibility to hire and dismiss workers without government approval. Let us look at the consequences for industry in India of these labour codes.

On September 29, 2020, India's existing labour laws, i.e. the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946 ('SO Act'), and the Industrial Disputes Act, 1947, were replaced by the Government of India under a new legislation enacted as 'the Industrial Relations Code, 20201.

The Code aims at helping both employers and their workers as the industry in India is fighting the continuing COVID-19 pandemic. New labour codes simplify lawsuits, protect permanent jobs, guarantee that all major manufacturing organisations obey standing commands, create a re-skilling fund for chosen employees and increase fines to reduce non-compliance. It ensures the creation of a market harmony strategy that fosters industry-friendly cooperation, by forming a central negotiating body and enabling employers to take organisational decisions more autonomously.

Overview of the changes introduced by the Code:

  • Strengthening the grief remedy mechanism: the new code allows a limit of 10 members, in contrast to the 6 maximum members allowed under current legislation, as a pre-requisite for establishing the grievance remedy committee ('Grievance Redress Committee') The GRC is also required to have adequate representation of female workers. A 1-year suspension time is now recommended for filing grievances to the GRC. And if the GRC's decision does not settle a grievance or a worker is aggravated by it, the industrial establishment is no longer in the loop and the working party has rights to conciliation procedures.

  • Increased wage limit for supervisory employee coverage among workers: The criterion for the inclusion of supervisory personnel within the scope of "workers" was raised from INR 10,000 to INR 18,000. From now on, supervisory personnel receiving a monthly salary between INR 10,000 and INR 18,000 would automatically qualify as "workers" and their employers may need to meet the conditions of retrenchment to terminate their services, among other items2.

  • New Definition of 'Industry': Under the Code,' industry' means any systemic operation for the production, supply, or distribution of products or services between employers and employees in order to fulfil human desires or wishes that are not solely spiritual or religious, regardless of whether the activity is undertaken for profit or capital expenditure. The term explicitly excludes entities conducting charitable, social, or philanthropic roles and the sovereign functions of government and domestic services3. In addition, the Central Government could exempt any other operation from the 'industry' scope.

  • Improved standing order threshold: The formulation of standing orders and their registration ('CSO') are only required in industrial facilities specified under SO Act, with a total of 100 or more employees. Some governments have limited this threshold of applicability to 50 workers. The Code incorporates a broader "industrial establishment" definition and extends the applicability threshold for CSO to 300 or more workers. This would introduce uniformity and remove the CSO necessity for emerging smaller production firms. However, manufacturing plants with CSOs appear to be subject to the same laws as their provisions do not violate the Code. In the absence of a special or conditional exception under the Code, units of Information Technology (IT)/Information Technical Enabled Services (ITeS) should then account for CSOs4.

  • Permanent Employee Benefits extended to More Fixed-Term Workers: In fact, only industrial companies that have or require CSOs may provide permanent hires with the same or comparable jobs as fixed-term employees with such benefits. The new labour codes indicate that permanent workers of commercial enterprises requiring CSOs are entitled, including gratuity, to fixed-term compensation for one year of service. Employers hiring fixed-term jobs would have to face an additional financial burden in the future.

  • Deterrence of Arbitrary Strikes/Lockouts: As of now, following a 42-day notice of strike on the 14th day, only public utility staff are allowed on take to strike. The Code does, however, authorise workers in all sectors to submit strike notifications 60 days in advance without allowing them to strike within 14 days of that warning. The 'strike' term has since been expanded to include a Code which also allows 50 percent or more of the co-ordinated and mass casual leave on a given day. Thus, by expanding the duration of strikes and adding a previous warning Claus the code aims to discourage workers and employers from engaging in unreasonable strikes and lockouts.

  • Single negotiating body of management: The Code allows for the recognition of a negotiating union/council as the only negotiating body for negotiations on prescriptible issues with the employer of industrial establishments. An official trade union which is the sole syndicate of an organisation or is a part of at least 51% of the workers is recognised as the sole negotiating body of this institution. However, where multiple unions and there are no independent union commands with this majority, representatives of all large syndicates with at least 20% of employees must set up a negotiation council as the only negotiating body.

  • Closure, lay-off and withdrawal threshold raised in some institutions: The Code only requires the government's permission for close-up or for lay-off/reduction of its workers by industry establishments operating in factories or mines and plantations if, on average, 300 or more employees were working per day in the previous year. In addition, this threshold may be lifted by the appropriate government. The ceiling of the latest rules is 100, with a range of countries rising it to 300. This legislation not only provides all countries with uniformity but would also encourage workers to become more operationally self-employed, allowing them to recruit more people.

  • Time limits to worker misconduct disciplinary proceedings: The Code imposes a time limit of 90 days to investigate a worker's misconduct surrounding his firing by the employer or to complete the inquiry. This is supposed to protect workers' interests.

What are the changes to the hiring-firing laws according to the new Labour Codes in Industry?

Without prior permission of the GOI under the Economic Relations Code, businesses of up to 300 workers have been permitted to dismiss employees or close facilities. Up to now, prior approval is needed. The permission must also be sent to companies with about 300 employees. However, the restraining plans will be deemed approved if the authorities do not respond to their appeal. Previous laws on labour required a warning period of thirty to ninety days before the retraining of 'staff,' which could be classed solely at work. In manufacturing units, holdings, and mines with 100 or more employees, layings-off also require government approval.

How does it affect workers' right to strike?

The Industrial Connection Code establishes new conditions for individual strike employees. For 60 days, unions are now required to file a strike warning. Although cases pending before the Labour Court or the National Industrial Tribunal, workers cannot go on a 60-day strike following discharge. These principles are applicable to any or all industries. Earlier, workers could begin the strike by having between two and six weeks in advance. Light hits are now forbidden.

What do these new labour codes mean for India's industries and economy?

Economists in India have long argued that India's outdated labour laws need change in order for business to expand. The strict recruitment laws for companies of more than 100 workers almost prevented employees from leaving. It acted as an excuse for smaller companies to stay small so that the values could be avoided. India could add an estimated "2.8 million more quality formal sector workers" on an annual basis with less stringent regulations, in line with the World Bank projections.





  4. Explained: Impact of Labour Codes on IT/ITes Companies (

Author- Mrinal Kumar Student of Amity law school Ranchi, Jharkhand

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