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Ashima Ohri

A business economist, lawyer, and writer.

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Madhu Damodaran, Group Head - Legal, Quess Corp On The New Labour Codes and the Need For Collaboration between the Centre and States

Ashima Ohri, Managing Editor, BW Legal World in conversation with Madhu Damodaran, Group Head - Legal, Quess Corp

How does a consolidated Labour Code that aims to rationalise 44 central labour laws impact industries?

While new Labour Codes have been proposed by the Centre, many States are yet to implement or draw up their own rules to implement them. Labour falls in the Concurrent List and is therefore a subject jointly shared by States and the Centre, owing to which there may be disagreements. However, issues can be resolved if the focus lies on the interests of the labour force - formal as well as informal, while at the same time, not at the cost of discouraging investments or restricting industries. In the four new Labour Codes legislated by the Centre on key matters such as Social Security, Wages, Industrial Relations, and Occupational Safety, Health and Working Conditions, there is expected to be room for disagreement between States and the Centre. Several states may have reservations on a number of aspects. For instance, provisions with respect to unionisations, namely restrictions on their registration based on minimum representation of workers and their recognition by the employer. These may be politically sensitive and may not be acceptable to the unions affiliated to the ruling dispensation in the states.   In addition, there are a few practical issues, such as daily working hours, which state legislations provide at 9 hours for a Commercial Establishment, but is at an 8 hour working day in the proposed codes. 

It is imperative, therefore, to find a middle path to resolve these differences that are likely to arise as the states frame their rules to match the centrally legislated codes. Some areas that can work to the advantage of all parties involved (employees, employers, States, and the Centre), if both the Centre and States work in conjunction, are Compliance requirements, Workforce Data and Unions. It is also a good opportunity to harmonise many conflicting provisions not only between the Centre and States, but also among states, improving manifold the ease of doing business. 

What are some of the key concerns that need more attention? 

Compliance 

States will need to notify their own rules, which do not differ much from the draft rules already put out by the Centre. Adding additional compliance rules at the State level can be at cross purposes with the reduction in compliance procedural norms already proposed by the Centre. Also each state can come up with their own variations, as already being seen in the few draft rules published by states for stakeholder inputs. For companies that operate pan-India, such rules with compliance requirements that vary from state to state will only prolong the current complexities that they deal with. A case in point is that central rules provide for 125 hours of overtime (OT) per quarter, whereas UP’s draft rules provide for 20 hours per week. To add another instance, according to central rules, for a body to be recognised as the sole negotiating union, it should represent 30 percent of workers, whereas Karnataka’s draft rule states 20%. Deviations from central rule, variations from state to state will put an additional burden of compliance on organizations. It is vital for states to take into consideration that additional compliance rules will lead them to be non-competitive when it comes to attracting fresh investments from existing companies or those planning to set up businesses, vis-à-vis states that capitalize on this opportunity by aligning to central rules and making it simpler for operating businesses to comply with in their respective jurisdictions.  

Data on Workforce

There is currently a lack of authentic data on the workforce in the country, especially when it comes to migrant labour and the informal sector. Added to this are gig employees who have now joined the workforce in large numbers, especially in big cities and towns. Updated, inclusive data on the labour force in the country can ensure that the benefits of social security measures percolate down to every worker.  The lack of accurate data and its implications were brought to the fore during the first Covid-induced lockdown in the country. The migrant labour crisis could have been dealt in a better manner with greater social protection for labourers. Direct social security benefits could have been passed on to these migrant workers had there been a legal framework that enabled the collection and updation of such data. Both the Centre and States should collaborate to collect data on the workforce in the country thereby ensuring that they are able to receive social security benefits, besides going a long way towards the inclusion of a large chunk of the population that is currently unaccounted for in the national labour data. That could be largely enabled under the provisions of the Occupational Safety, Health and Working Conditions Code, which provides for easier norms to engage migrant workers while broadening the definition of who a migrant worker is. Any attempt to frame rules at state level, that adds burden on the employer, also becomes a stumbling block to the formalization of migrant workers who are currently engaged largely in the unorganized/informal sector. 

An obvious outcome of such an exercise is the ramping up and rolling out of skill development programmes. Identifying and reskilling or up-skilling workers can happen easily if the required data is available. With the Fourth Industrial Revolution underway, job redundancy is taking place at a faster rate and the only way to outpace this is to swiftly implement skill development programmes. The socio-economic impact of creating and updating labour-related data is truly manifold.  

Industrial Relations

As mentioned previously, regulations around who can associate to register as a Union, which of such unions are recognized as the sole negotiating union or can be part of a council of unions that can negotiate with an employer, are likely to find a few states at variance with the Centre’s outlook. This could, in turn, either delay rule-forming by such states and/or cause such states to use rule-making powers to scuttle the intent of the Centre.  This situation can arise especially with respect to the IT/ITeS sector. While some states have exempted the IT/ITeS sector from trade union laws, others have not. This will also lead to disparities between states when it comes to delegated legislation in matters related to trade unions.

However, it is essential to note that the Code on Industrial Relations does not intend to abrogate or nullify the right of workers to associate or join a union of their choice, or even form one. It merely provides the criteria for recognition of a body as a negotiating union, sole negotiating union, or a member of a negotiating council. This ensures that unions with a certain percentage of membership are eligible to negotiate with the employer. The problem being addressed here is that of identification of stakeholders and allowing those legitimate to place their claims before an employer. From the employer’s standpoint, it becomes clear as to who the bonafide negotiating party is on behalf of the employees. Workers too can identify and associate with those unions that represent their interests, rather than be pawns of those who are not concerned with their welfare. Such a move will also help reduce the time spent on arbitrations to the benefit of both parties.

In conclusion, while differences may exist between the Centre and States with respect to different aspects of the Labour Codes, there is a need for consensus in approach. This will be essential to achieve the objective of meeting the interests of all stakeholders. Flexible labour laws will encourage investments, while at the same time help ensure that protections under the same are extended to all sections of the workforce, be it formal or informal, organized or unorganized. What is crucial is for the Centre and States to align their respective rules under the Codes on maximum aspects, in order to foster common compliance requirements nationally for employers, and work towards uniform provisions on contentious points over a period of time.

How as the Group Head-Legal are your preparing for the new Labour Code? What are some of the other live legal issues plaguing organizations currently that need legislative force or reforms; any red flags that you see in the future for company law departments?

Other live legal issue

  • Creation of Burdensome Compliance Requirements

While we are not averse to compliance requirements in and of themselves, we believe that the same must be aligned with the object of the act and should be rationalized such that it is aligned with the rapidly changing business environment. For example, the Legal Metrology Act, the intent of the Act is noble as it seeks to protect consumers it ends up being burdensome due to the lack of clarity surrounding the provisions of the Act and its related Rules. There is a general lack of practical procedures offered for revision of maximum retail price of products. Further, the procedure with regard to treatment of imported goods equitably vis-à-vis domestically manufactured goods leads to frequent litigation. Another instance would be the procedure for obtaining police clearance for getting a license under the Private Security Agencies (Regulation) Act. As per the procedure under this law police clearance is required to be conducted individually for each State wherein a license is sought. Moreover, this clearance is ordinarily sought from Directors of companies which becomes burdensome and time-consuming for key managerial personnel occupying such positions. 

Imposition of Irrational Regulatory Norms 

This refers to a situation wherein a domain that prima facie requires no regulation becomes subject to norms that are made either with an overarching political motive or in ignorance of the business environment. For example, Haryana State Employment of Local Candidates Act, 2020 reserves 75% of jobs under the threshold of INR 50,000 for local candidates under Section-4, however it does not define the term domicile. It imposes burdensome compliance requirements on employers and is wholly reliant on the operation of a job portal that shall allow employers to engage local candidates for jobs that pay below INR 50,000 per month. The law is patently unconstitutional and ignorant of realities of supply-demand that prevail in the labour market.

Red flags in the future for in-house departments

Aligning Non-Legal Processes in accordance with the Requirements of the imminent Data Protection law

Here the challenge would be ensuring that non-legal processes that involve the handling the personal data of employees, associates or clients as the case are modified in accordance with the requirements under the law. Additionally, we would have to ensure that the individuals tasked with carrying these processes out are aware of the requirements of the law and the interplay thereof with their particular business function. For example, HR personnel would have to ensure that an employee’s bank details/personal information is blacked out on company documents and that the same is deleted following their exit.

Adapting legal strategies in accordance with the Mediation Bill, 2021

This law has been listed in the Parliament’s agenda for the Winter Session, it gives effect to the Singapore Convention by providing for a standalone mediation law for enforcement of international settlement agreements arising out of mediation. Further, it seeks to create a robust mediation system that enhances the ease of doing business in India by providing an alternative to litigation. It recognizes is online mediation and provides for a 90 day timeline for the completion of mediation process under the Act. Mediation clauses are recognized under the Act and parties would have to enter pre-litigation mediation before approaching Courts/Tribunals. This requires in-house practitioners to develop an additional set of skills and seek to ensure that escalations of disputes to the litigation stage are kept low. 


Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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