High voltage pressure building up: Govt, Reconstitutes committee to bring in amendments.
Karma Global is in the business of establishment and vendor compliance management. It has hundreds of elite clients on its excellent service dispensing list. The expert staff on its roll deals with thousands of regulatory compliance acts on a Pan India basis, some of the acts being state-specific while others are enacted by the Central Government.
The central government proposes to replace 29 existing labour laws with four Codes. The objective is to simplify and modernize labour regulation.
The major challenge in labour reforms is to facilitate employment growth while protecting workers’ rights. Key debates relate to the coverage of small firms, deciding thresholds for prior permission for retrenchment, strengthening labour enforcement, allowing flexible forms of labour, and promoting collective bargaining.
Most labour laws apply to establishments over a certain size (typically 10 or above). Size-based thresholds may help firms in reducing the compliance burden. However, one could argue that basic protections related to wages, social security, and working conditions should apply to all establishments. Certain Codes retain such size-based thresholds.
KEY ISSUES IN LABOUR REFORMS
Simplification of labour laws
The 2nd National Commission on Labour (NCL) recommended the consolidation of central labour laws. It is observed that there are numerous labour laws, both at the center and in states. Further, labour laws have been added in a piecemeal manner, which has resulted in these laws being ad-hoc, complicated, mutually inconsistent with varying definitions, and containing outdated clauses
While the Codes consolidate and simplify existing laws to some extent, they fall short in some respects and some of these important aspects are listed below :
Facilitating job creation while protecting work
The 6th Economic Census (2013-14) reported that there were 5.9 crore establishments in India employing 13.1 crore people (of which 72% were self-employed and 28% hired at least one worker).[4] A total of 79% of workers were in establishments with less than ten workers. The central challenge to labour regulation is to provide sufficient rights to workers while creating an enabling environment that can facilitate firm output and growth, leading to job creation.
Coverage of establishments under labour laws
Context: Most labour laws apply to establishments over a certain size (typically 10 or over). Low numeric thresholds may create adverse incentives for establishments sizes to remain small, in order to avoid complying with labour regulations. Further, these laws only cover the organized sector (around 7% of the workforce).9
Reforms proposed: It has been argued that small firms may be exempted from the application of various labour laws in order to reduce the compliance burden on infant industries and to promote their economic growth. However, low numeric thresholds may create adverse incentives for establishments sizes to remain small, in order to avoid complying with labour regulations.
Thresholds for lay-off, closure, and retrenchment
Context: The Industrial Disputes Act (IDA) 1947, requires factories, mines, and plantations employing 100 or more workers to obtain prior permission from the government before closing down, laying off, or retrenching workers. It has been argued that the requirement of prior permission has created an exit barrier for firms and hindered their ability to adjust labour workforce to production demands.
Reforms proposed: The Standing Committee on Labour (2009) recommended that the government consider amendments to include provisions of prior notice, adequate compensation, and other benefits for retrenched workers to balance the need for economic efficiency of businesses. NCL noted that unviable firms should be allowed to close while also ensuring prior scrutiny of grounds of closure and reasons for loss of viability. Therefore, it is recommended that the requirement of prior permission may be retained for the closure of establishments that hire 300 or more workers and be made applicable to all types of establishments
Labour Administration
Context: All labour laws have distinct compliance requirements for employing units. A multiplicity of labour laws has resulted in multiple inspections, returns, and registers. One private study reported that states have 423 labour-related Acts, 31,605 compliances, and 2,913 related filings. On the other hand, it has been argued that the labour enforcement machinery has been ineffective because of poor enforcement, inadequate penalties and rent-seeking behaviour of inspectors. Further, dispute resolution processes need reform to make them more effective.
Reforms proposed: Various committees have proposed reforms to tackle three types of issues: compliance burden, enforcement of laws, and resolution of disputes.
Contract Labour
Context: It has been argued that labour compliances and economic considerations have resulted in increased use of contract labour. The share of contract workers in factories among total workers increased from 26% in 2004-05 to 36% in 2017-18, while the share of directly hired workers fell from 74% to 64% over the same period. This flexibility has come at a cost of increased vulnerability since contract labour has been denied basic protections (such as assured wages) and is not entitled to be regularized in cases where contract labour is prohibited by the government.
Reforms proposed: The NCL noted that organizations must have the flexibility to adjust their workforce based on economic efficiency. Currently, the Contract Labour (Regulation and Abolition) Act, 1970 empowers the government to prohibit employment of contract labour in some cases including where: (i) the work is of perennial nature, or (ii) the work performed by contract workers is necessary for the business carried out by the establishment, or (iii) the same work is carried out by regular workmen in the establishment.
Trade Unions
Context: There are a large number of registered trade unions, including several within an establishment. There are no criteria to determine which unions can formally negotiate with the management. Settlements made with unions are only binding on the participating unions. This has affected the collective bargaining rights of workers. Further, questions have been raised on the extent to which non-employees may be permitted in trade unions.
Reforms proposed: As of 2015, there were 12,420 registered trade unions in India with an average membership of 1,883 persons per union. A large number of unions within an establishment hampers the process of collective bargaining as it is difficult to reach a settlement with all of them. Employers may also seek legitimacy for a favorable settlement by reaching an agreement with a compliant union though it may not have the support of a majority of workers.
Delegated Legislation
Under the Constitution, the legislature has the power to make laws and the government is responsible for implementing them. Often, the legislature enacts a law covering the general principles and policies, and delegates detailed rule-making to the government to allow for expediency and flexibility. However, certain functions and powers should not be delegated to the government. These include framing the legislative policy to determine the principles of the law. Any Rule should also remain within the scope of the delegating Act. The question is which matters should be retained by the legislature and which of these could be delegated to the government.
Emerging challenges
Based on government statistics, McKinsey Global Institute (2016) estimates that 10-15% of working-age adults in the US and the European Union earn their primary living from “independent work”. In addition to traditional freelance work, independent work would include emerging digital platforms that provide opportunities for task-based “crowd-work” (e.g., freelance work over digital platforms) and “on-demand work” (e.g., taxi and restaurant aggregators). One of the questions the Codes need to address is whether any distinction must be drawn between self-employed persons (e.g., freelancers) who exercise independent control over their work (including terms of service, scheduling and payment terms), and self-employed persons who predominantly work with a single platform which may exert some degree of control over the terms of their work (e.g. aggregators).
If so, the Codes will also need to consider the extent to which various provisions that provide rights to employees should be extended to the latter category.
LATEST DEVELOPMENT ON THE LABOUR REFORMS FRONT FROM THE GOVERNMENT
The latest in the journey is the reconstitution of a working tripartite committee already formed with the objective of preparing a report on essential and critical amendments relating to labour laws by next month.
The Government of India’s Ministry of Labour and Employment Department issued a gazette notification last Sunday, clearly giving the ultimatum of September 30 as the last date for submitting a report to the reconstituted committee after taking into consideration all the insights and inputs of owners and employees.
This strategizing has come about on the part of the Government in order to toe the line as envisaged by the European Union and International Labour Organization to amend the labour law in compliance with ILO standards by March 2023.
In this connection, the government has already prepared an action-packed plan whereby the critical and essential labour reforms are to be concluded by March 2023 and also EPZ act by 2025, and the elimination of child labour by 2025.
The benefits of International Labour Standards
The challenges of globalization have made international labour standards more relevant than ever.
What benefits do they provide today?
A path to full and productive employment and decent work for all: The 2030 goals
International labour standards are first and foremost about the development of people as human beings. It has recognized that “labour is not a commodity”. Labour is not an inanimate product, like an apple or a television set, that can be negotiated for the highest profit or the lowest price.
Work is part of everyone’s daily life and is crucial to a person’s dignity, well-being, and development as a human being.
Economic development should include the creation of jobs and working conditions in which people can work in freedom, safety, and dignity.
An international legal framework for fair and stable globalization
Achieving the goal of decent work in the globalized economy requires action at the international level. The ILO contributes to this legal framework by elaborating and promoting international labour standards aimed at making sure that economic growth and development go hand-in-hand with the creation of decent work. The ILO’s unique tripartite structure ensures that these standards are backed by governments, employers, and workers alike. International labour standards, therefore, lay down the basic minimum social standards agreed upon by all the players in the global economy.
A level playing field
An international legal framework on social standards ensures a level playing field in the global economy. It helps governments and employers to avoid the temptation of lowering labour standards in the hope that this could give them a greater comparative advantage in inter-national trade. In the long run, such practices do not benefit anyone. Lowering labour standards can encourage the spread of low-wage, low-skill, and high-turnover industries and prevent a country from developing more stable high-skilled employment, while at the same time slowing the economic growth of trade partners. Because international labour standards are minimum standards adopted by governments and social partners, it is in everyone’s interest to see these rules applied across the board, so that those who do not put them into practice do not undermine the efforts of those who do.
A means of improving economic performance
International labour standards have been sometimes perceived as being costly and therefore hindering economic development. However, a growing body of research has indicated that compliance with international labour standards is often accompanied by improvements in productivity and economic performance.
Minimum wage and working-time standards, and respect for equality, can translate into greater satisfaction and improved performance for workers, and reduced staff turnover.
The beneficial effects of labour standards do not go unnoticed by foreign investors. Studies have shown that in their criteria for choosing countries in which to invest, foreign investors rank workforce quality and political and social stability above low labour costs.
A safety net in times of economic crisis
Even fast-growing economies with high-skilled workers can experience unforeseen economic downturns. The Asian financial crisis of 1997, the 2000 dot-com bubble burst and the 2008 financial and economic crisis showed how decades of economic growth can be undone by dramatic currency devaluations or falling market prices. For instance, during the 1997 Asian crisis, as well as the 2008 crisis, unemployment increased significantly in many of the countries affected. The disastrous effects of these crises on workers were compounded by the fact that in many of these countries social protection systems, notably unemployment and health insurance, active labour market policies, and social dialogue were barely developed.
The adoption of an approach that balances macroeconomic and employment goals, while at the same time taking social impacts into account, can help to address these challenges.
A strategy for reducing poverty
Economic development has always depended on the acceptance of rules. Legislation and functioning legal institutions ensure property rights, the enforcement of contracts, respect for the procedure, and protection from crime – all legal elements of good governance without which no economy can operate. A market governed by a fair set of rules and institutions is more efficient and brings benefits to everyone. The labour market is no different. Fair labour practices set out in international labour standards and applied through a national legal system ensure an efficient and stable labour market for workers and employers alike.
The sum of international experience and knowledge
International labour standards are the result of discussions among governments, employers, and workers, in consultation with experts from around the world. They represent the international consensus on how a particular labour problem could be addressed at the global level and reflect knowledge and experience from all corners of the world.
Governments, employers’ and workers’ organizations, international institutions, multinational enterprises, and non-governmental organizations can benefit from this knowledge by incorporating the standards in their policies, operational objectives, and day-to-day activities. .
ROLE OF KARMA GLOBAL IN THE JOURNEY TOWARDS CHANGING REFORMS :
Karma Global has played a pivotal role in the last 3 years or so, right from the inception of the labour codes in 2019, to give contributory insights into the suggestions and recommendations sought by the officials in the Ministry.
It has also simultaneously conducted many seminars and workshops on labour codes and with a huge success rate of attendance, it has been able to garner varying first-hand inputs directly from the participants who are heading seniority positions in medium and large organizations.
The last such seminar was held on 16th July 2022 at Hotel Tunga International at Andheri East, Mumbai which is only a reflection of its continued interest in giving a fair encouragement to the implementation of labour reforms in our country in a manner acceptable to all the players in the industry, the Government, the Establishment, the Workers, and various Trade Bodies and Associations.
Proprietory blog of Karma Global Management Tech Firm
This blog has been compiled by the internal staff of Karma Global with the knowledge and expertise that they possess, for its monthly newsletter Issue 03 of September 2022 in case of specific or general information or compliance updates for that matter, kindly reach out to the Marketing Team – Kush@karmamgmt.com / yashika@karmamgmt.com