The Code on Industrial Relations: Addressing the Key Changes and Their Impact

Sheena Ogra , Khyati Bhatia

February 14, 2023

The Code on Industrial Relations: Addressing the Key Changes and Their Impact

The Industrial Relations Code, 2020 (“Code”) has been formulated to amend and consolidate the laws relating to settlement of disputes between workers and the employers by way of minimising the scope for illegal strikes and lock-outs by workers, providing efficient dispute settlement and grievance redressal mechanism. The Code further focuses on providing better working conditions to the workers and maintaining harmonious and healthy relations between the workers and the employers.

The Code subsumes the following enactments upon its enforcement, viz, (i) Industrial Disputes Act, 1947 (“ID Act”); (ii) Industrial Employment (Standing Orders) Act, 1946 (“Standing Orders Act”) and; (iii) Trade Unions Act, 1926. The extant legislations have been incorporated into separate chapters under the Code.

This article provides a comparative analysis of the key changes introduced under the Code with the current legislation framework and its impact on the employers as well the employees in India.

Additional Resource: The Code on Wages

Contrast between the Extant Framework and the Prospective Framework:

1. Expansion of scope of ‘Industry’

  • Extant Framework: Under the current ID Act, the definition of ‘Industry’ includes in its ambit any business, trade, manufacturing or calling of employers and any calling service, employment, handicraft or industrial occupations or vocation of workmen. The said definition was though wide enough to include all form of activities that results in production or supply of good or services. However, still there used to be ambiguity with respect to classification of an organization as industry on case-to-case basis. Therefore, in order to resolve the said issue, the decision of landmark judgement of Bangalore Water Supply and Sewerage Board vs. A. Rajappa and Others [AIR (1978) SC 548] was relied upon wherein it was held that ‘if an institution involves co-operation between employers and employees to product or supply goods or services, then it shall classify under the ambit of industry’. Subsequently, an amendment was proposed to the definition of ‘industry’, which was though never implemented.

The said amendment in the definition of industry focused on clarifying the nature of activities that industry must be engaged in and proposed exclusion of certain activities from the scope of industry such as agricultural operations, hospitals or dispensaries, educational, scientific, research or training institutes, institutions owned or managed by organizations wholly or substantially engaged in any charitable, social or philanthropic service, khadi or village industries, domestic services, professional services where number of persons engaged is less than 10 (ten), any activity of the government relating to sovereign functions, activities carried on by a co-operative society or club.

  • Prospective Framework: However, the said judgment was taken into consideration and with the introduction of the new Code, the definition of ‘industry’ has been amended in order to provide clarity with respect to the activities that will be categorised within the framework of industry. The definition of ‘industry’ under the new Code includes within its ambit any systematic activity carried on by co-operation between an employer and worker (whether such worker is employed by the employer directly or by or through any agency, including contractor) for the purpose of production, supply or distribution of goods or services with a view to satisfy human wants or wishes (except for spiritual or religious in nature), whether or not any capital has been invested for the purpose of carrying out such activity or such activity is carried on with a motive to make any gain or profit. However, the new Code specifically excludes 3 (three) activities from the purview of being classifying as ‘industry’, which includes any (a) any institution owned or manged by charitable, social or philanthropic service; (b) sovereign activities of the government and; (c) domestic services. 

2. Definition of ‘workman’

  • Extant Framework: Under the current legislations framework, the definition of ‘workman’ covers in its ambit any person, including an apprentice, who has been employed in industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work (drawing wages upto INR, 10,000/- (Indian Rupees Ten Thousand only)). It specifically excluded workman who are engaged within the capacity of managerial, administrative or supervisory role earning monthly wages above INR 10,000/- (Indian Rupees Ten Thousand only).
  • Prospective Framework: However, with the introduction of the Code, the definition of workman has been expanded which will now include within its ambit working journalists as defined in section 2(f) of the Working Journalists and other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955 and sales promotion employees as defined under section 2(d) of the Sales Promotion Employees (Conditions of Service) Act, 1976. Further, the wage limit for persons employed in supervisory capacity has been increased from INR 10,000/- (Indian Rupees Ten Thousand only) to INR 18,000/- (Indian Rupees Eighteen Thousand only). With the amendment in the said definition, it can be seen that the government has intended to widen the scope of ‘workman’ by way of including sales personnel and working journalists within the ambit of workman.

3. Fixed Term Employment

  • Extant Framework: The definition of the term ‘fixed term employment’ was not defined in the erstwhile labour law legislations.   
  • Prospective Framework: Under the Code, the definition of fixed term employment has been introduced wherein it has been stated that any engagement of an employee on the basis of a written contract of employment for a fixed period will be termed as ‘fixed term employment’. The Code has further clarified that the working hours, wages, allowances, and other benefits of an employee who has been appointed on fixed term basis shall not be less than that of a permanent employee and such benefits shall be proportionate to the period of service rendered by such employee who has been appointed on fixed term basis. However, it has been clarified that the Fixed-term workers shall be eligible for gratuity only if they render service under the contract for a period of atleast 1 (one) year.

4. Standing Order

  • Extant Framework: As per existing Standing Orders Act, the industrial establishments which have 100 (hundred) or more workman are required to comply with the provisions of Standing Orders Act. Further, standing orders are prepared by the employer with respect to the matters mentioned in the first schedule. These matters include classification of workmen into different categories such as, permanent, temporary, apprentices, probationers, working hours, holiday entitlement, wage rates, shift working, attendance and late coming, termination of employment and the notice thereof, to be provided by employer and workman, suspension or dismissal for misconduct etc. In addition to this, the existing Standing Orders Act has no set time period provided within which disciplinary proceedings against the employee shall be completed.
  • Prospective Framework: With the introduction of new Code, the government has tried to cover the existing loop-holes and ambiguity and have provided for a better set of timeline for completion of disciplinary proceedings that has been initiated against any employee of the industrial establishment. Considering the same, any disciplinary proceeding that has been initiated against the employee or any inquiry/investigation for charges of misconduct shall be completed within the time bound manner of 90 (ninety) days from the date of suspension of such employee. Further, the applicability threshold for standing orders has been increased from 100 (hundred) to 300 (three hundred) workmen.

5. Arbitrary Strikes and Lock-outs

  • Extant Framework: Under the ID Act, strikes include cessation of work by workmen employed in any industry or refusal to work under a common understanding. Further, the provisions of strikes and lock-outs are currently applicable on person employed in a public utility service.
  • Prospective Framework: However, the Code has now modified the definition of strike to include a situation wherein if on any given day, more than 50% (fifty percent) of workmen are casually on leave then such act shall also be covered within the ambit of strike. Further, the provisions pertaining to strikes and lock-outs have now been extended to all workers employed in industrial establishments. Thus, by expanding the scope of strikes and lock-outs to all workers of industrial establishments, the government endeavours to deter workers from indulging in the act of arbitrary strikes and lock-outs.

6. Grievance Redressal Machinery

  • Extant Framework: Under the ID Act, every industrial establishment employing 20 (twenty) or more workmen shall have 1 (one) or more Grievance Redressal Committee (“GRC”) for the purpose of resolving the disputes arising out of any individual grievance. The total number of members of GRC shall not exceed 6 (six) and it shall have equal number of members from the employer and the workmen.
  • Prospective Framework: Under the new Code, the number of members of GRC has been increased to 10 (ten) members and the Code has further introduced the limitation period of 1 (one) year for presenting grievances to GRC.

7. Increase in threshold for closure, lay-off and retrenchment

  • Extant Framework: Under the ID Act, the threshold for applicability of provisions pertaining to lay-off or retrenchment of workmen employed in industrial establishment is 100 (hundred) workmen.
  • Prospective Framework: Whereas under the new Code, the threshold has been increased to 300 (three hundred) workers wherein the industrial establishment would be required to obtain permission from the appropriate government for closure of establishment, lay off or retrenchment of workmen. 

8.Worker’s Re-skilling Fund

  • Extant Framework: Under the existing labour law legislations, as repealed through the Code, there was no concept of worker’s reskilling fund.
  • Prospective Framework: Under the new Code, the provision with respect to re-skilling of workers who have been retrenched by their employers has been introduced. The said fund has been introduced to provide monetary protection to the workers period and it shall consist of:

(a) the contribution of the employer of an industrial establishment an amount equal to 15 (fifteen) days’ wages last drawn by such worker immediately before retrenched and; (b) the contribution from any other sources as may be prescribed by the appropriate government.

It is however mentioned under the Code that the Central Government, by way of notification, can increase number of days which shall be taken into consideration for contribution to the said fund.

9. Penalties

  • Extant Framework: Under the ID Act, any person who contravenes the provisions of the act, were punishable with imprisonment for a term which ranges from 1 (one) month to 6 (six) months along with a fine which may extend to INR 5,000/- (Indian Rupees Five Thousand only).
  • Prospective Framework: However, in the new Code, the government has specified the penalties for industrial establishment who contravenes the provisions pertaining to (i) prohibition of lay-offs; (ii) violation of conditions precedent to retrenchment of workers; (iii) breach of procedure for closing down an industrial establishment, will be punishable with a fine which shall not be less than INR 1,00,000/- (Indian Rupees One Lakhs only) and in the event of repeat offence, such industrial establishment shall be punishable with a fine which shall not be less than INR 5,00,000/- (Indian Rupees Five Lakhs only) which may extend to INR 20,00,000/- (Indian Rupees Twenty Lakhs only) or with imprisonment for term extending to 6 (six) months or with both. The Code further specifies the penalties for breach of different provisions of the Code which ranges from INR 50,000/- (Indian Rupees Fifty Thousand only) to INR 5,00,000/- (Indian Rupees Five Lakhs only).

A&A Analysis

In the backdrop of the existing labour law legislations which will be repealed after enforcement of the Code, it can be seen that the sweeping changes that have been intended to be brought by the Code are basically the long standing demand for the labour law reforms. Further, by way of such amendment, the government has focused on increasing the global competitiveness and fairness in the labour and employment legislations. The modification in the definition of worker will have bearing on the interest of the workers due to the reason that it now specifically excludes workers employed with the departments associated with space, defence research and atomic energy. This curtails the rights of employees of space or defence research organization. Further, any casual leave taken by more than 50% (fifty percent) or more workers will be implied as strike.

It can be seen that the introduction of fixed-term employment will provide some benefit to the employees who are being employed as fixed term employee as they shall now also be entitled to statutory benefits and the terms of their employment will now be regulated. This can be considered as a welcome move towards recognizing the rights of the fixed term employees. However, there is no provision captured pertaining to requirement or instances as to when these fixed term employees can be granted permanent status. There will, no doubt, be a constant fear of non-renewal of their fixed term contracts, which Code has not addressed. 

In addition to this, it is interesting to note that with the introduction of the Code, relaxation has been given to the employers of factories, plantations and mines having less than 300 (three hundred) workers to obtaining prior approval from appropriate government before laying-off, retrenching any worker or closing the establishment. While introducing the said change, the government has provided reasoning that this change has been made in order to reduce the tedious process of acquiring permission and further making the process of obtaining hassle-free permission.

Lastly, the government has now stringent the penalties and imprisonment term for the industrial establishment who will breach any provision of the Code. With this, it can be seen that the government intends to implement the provisions of the Code with stringent approach and is leaving no stone unturned for making sure that the industrial establishments follow the provisions and rules as set out in the Code. Further, the Code has further empowered state government on formulating rules for better implementation of the provisions of the Code.

Considering the changes brought in through the Code, the government has focused on safeguarding the interest of the workers. However, it is yet to observe and analyse how these changes will be implemented by various industrial establishments specifically, the transition from the existing labour law legislations to the new Code. Further, the steps that will practically be taken by the government for checking the enforcement of the labour reforms, evasions made by the industrial establishments/employers and the extent of improvement of administrative hurdles in enforcing such changes. 

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