INDUSTRIAL RELATIONS CODE, 2020: TILTING THE SCALES IN EMPLOYERS' FAVOUR
Updated: Jan 30
Author: Unnati Khanna from Symbiosis Law School, Pune
The Industrial Relations Code, 2020 (Code/IRC) is an enactment which seeks to amend and consolidate the laws in relation to trade unions, employment conditions in industrial establishments, industrial dispute resolution mechanism and related matters. The Code has significantly modified the law relating to industrial relations. This note seeks to delve into the provisions of the Code with a view to study the power dynamics with respect to rights and responsibilities of the concerned stakeholders i.e., employers and workers/employees. Before analysing the provisions, it is pertinent to glance through several important aspects such as need, evolution, scope and applicability of the Code.
Call For The Industrial Relations Code, 2020: Need And Importance
The Second National Commission on Labour, constituted the chairmanship of Mr. Ravindra Varma submitted its report in June, 2002. This report characterized the existing labour law regime to be complex, containing archaic provisions and inconsistent definitions, dissonant with practical realities of India. With a view to bring uniformity and ease of compliance, the Commission suggested overhauling the existing labour law regime by consolidation of central enactments in five broad brackets, namely, (i) industrial relations; (ii) wages; (iii) social security; (iv) safety; and (v) welfare, health and working conditions. In this note, we are concerned with the analysis of the new legislation on subject-matter of industrial relations.
Pursuing the recommendations made by the Commission with regards to industrial relations and in light of the deliberations made in a triparte meeting which comprised of the Government, industry representatives and employers’, the Code on Industrial Relations, 2019 was introduced in Lok Sabha in the month of November, 2019 to seek amalgamation, simplification and rationalisation of relevant provisions contained in the 3 existing central legislations, namely, (i) the Industrial Disputes Act, 1947; (ii) the Trade Unions Act, 1926; and (iii) the Industrial Employment (Standing Orders) Act, 1946. Post introduction, the Code was referred for examination to the Parliamentary Standing committee on Labour which
recommended several modifications in the Code. This led to the withdrawal of the 2019 Bill and introduction of the Industrial Relations Code, 2020 with certain modifications.
Scope And Applicability Of The Code
The Code seeks to balance the interests of the workers and employers. It contains provisions governing rights of workers to constitute unions, protecting fixed-term workers, implementation of standing orders by large establishments, protecting re-entrenched worked by creation of re-skilling fund, enhancing penalties to punish non-compliance, streamlining the dispute resolution mechanism. The object of the Code is to establish industrial peace and harmonize industrial relations in an attempt and structurally resolve industrial disputes. Such intended industrial peace will result in unimpeded advancement of the industry resulting in growth of the economy. The code is applicable to all industrial establishments operating in India. However, the Government may exempt, conditionally or unconditionally, any industrial establishment or class of industrial establishments from all or any of the provisions of this Code.
BALANCE OF INTERESTS UNDER THE CODE: A CRITICAL ANALYSIS
This Note seeks to analyse how the provisions of the Industrial Relations Code, 2020 has disturbed the equilibrium of distribution of powers and rights between the employers and the workers/employees. While addition of certain provisions has added weight on the plate of employers, incorporation of provisions such as those stipulating stringent striking procedures has further contributed to tilting of scales towards the employers who may exploit the lacunae in the legislation to their benefit. Part I of this section deals with the Negative Implications of the Code on Worker’s Rights, followed by Part II which further makes a case for an unbalanced position of law under the Code, by shedding light on the increased flexibility afforded to the employers.
Provisions Negatively Impacting Employees
1. Statutory Restrictions and Increased Penalties on Strikes: The Code has imposed statutory restrictions on the right to strike in the form of requirement for a mandatory 60 days’ notice from workers in all kinds of establishments before going on a strike.
Critical Comment: Earlier, this restriction was only placed on industries rendering public utility services. Moreover, under the Code, after receiving such notice, conciliation meetings are held and workers are strictly prohibited from going on strikes during or seven days after the conciliation proceedings, failing which the strikes shall be illegal. In case of genuine disputes, the abovementioned provisions completely restrict the right to strike of workers. The provisions which render it difficulty to strike legally are contradictory of the principles of freedom of association designed by ILO’s Expert Committee on the Application of Conventions and Recommendations. Further, participating in an illegal strike, financing such strike or inciting other workers to participate in it is punishable with fine or imprisonment or both. Imposition of such penalties is also against the Recommendations of ILO’s expert Committee. Expanded definition of the term “strike” implies that such penalties can be imposed even if the majority of workers avail a casual leave on some day and absent themselves, irrespective. A conjoint reading of these provisions point towards a stringent mechanism with respect to strikes under the Code.
2. Rights of workers in charitable institutions: The code widely defines “industry” to be any systematic activity arising out of cooperation between employer and employee for distributing supply of goods or services, regardless of existence of any capital investment or motive to gain profit behind such activity.
Critical Comment: Though this widened definition of ‘industry’ could rope in several activities within the Code’s coverage, there exists a repugnancy in the definition. When the definition of industry has been modified to include activities regardless of whether they are undertaken with or without profit motive, the exclusion of institutions engaged in charitable works which is essentially an activity without profit motive seems to be illogical and repugnant. This exclusion could negatively impact the rights of workers working for charitable institutions.
3. Power of Exemption: The Code vests powers in the government to exempt a new/class of new industrial establishments from the provisions of the Code for specific period. It also provides that government can exempt any government run industrial establishment from the Code’s application provided that there exist adequate industrial dispute resolution provisions in such establishment.
Critical Comment: These wide unguided powers can be discretionarily exercised by the government. This will have a negative bearing on the workers’ rights as they will be completely deprived of not only the rights enshrined in the Code but also of their right to access of justice, collective bargaining and freedom of association for the duration of exemption.
4. Undefined Rights of Employees who are not Workers: The Code stipulates specific definitions for “Worker” and “Employee”. The definition of “worker” has been broadened to include sales promotion workers and working journalists in addition to individuals employed in the industry to undertake skilled, unskilled, manual, operational, technical, supervisory or clerical work. “Employee” is defined to include persons undertaking managerial, supervisory or administrative works in addition to person included under the ambit of “worker”.
Critical Comment: The Code was enacted to simplify the existing law, however, it can be observed that it does not provide any justification for simultaneous usage of both the terms. Moreover, there is ambiguity with respect to the rights of the people who fit within the definition of employee but are not workers. While at one hand, the Code provides only workers the right to access dispute resolution mechanisms as a direct implication of the use of term “workers” instead of employee while definition “industrial disputes” under the Code. On the other hand, employee can file a complaint with the concerned forum or authority under the Code if its employer prejudicially modifies its employment conditions while an industrial dispute is pending. These two provisions shed light on the need for clarity of practical rights of employees that are not workers.
4. Workers employed through intermediary Contractors: The Code provides for a widened definition of Employer to include occupiers of factory and factory managers.
Critical Comment: Practically, inclusion of contractors in the ambit of “employers” births difficulties for workers in pressing claims against the principal employers in cases where such workers have been employed by intermediary contractors.
Provisions Furthering Employer’s Interests
1. Enhanced Requirement for Application of Standing Order: The threshold for formulation of standing orders by industrial establishments has been increased from 100 to 300 under the Code. Standing orders standardize several aspects relating to employment of workers such as appointment, attendance, termination procedures, etc and bring uniformity.
Critical Comment: Increased thresholds imply that it is not mandatory for industrial establishments having less than 300 workers to ensure uniformity in conditions and terms of employments of different workers and such establishments shall be free to govern the same by individual contracts. This runs counter to the workers rights who are usually desperate for work, especially in light situations like the Covid-19 pandemic. The employer may use such desperation and enter into arbitrary individual contracts with workers as most small and medium industries have less than 300 workers.
2. Fixed Term Employment: The Code provides for the engagement of a worker for a fixed period on written contract basis, provided that such worker is extended all the benefits of a permanent employee.
Critical Comment: The Code does not stipulate any restrictions on the number of fixed term workers that can be employed or the length of duration of their employment. This implies employers are free to engage fixed term workers instead of permanent workers even in the core production work because while the pay and other benefits attributable to fixed term workers will be similar to permanent workers, the employment of fixed term worker is uncertain. It is subject to extension by the employer after expiry of the fixed period. This uncertainty is aggravated by the fact that the employer is free to hire other fixed term workers without any restriction and is completely free to terminate the employment once the fixed term decided in the contract ends. This may cause such obsequious workers refrain from associating with trade union to please their employer, in order to get rehired. This will negatively impact their right to Freedom of Association enshrined in part III of the Constitution. Moreover, fixed term employers are also not entitled to retrenchment compensation upon termination of their services.
3. Enhanced thresholds for prior government approval: The threshold under the Code has been increased from 100 to 300 workers for obtaining prior government approval by industrial establishments in case of retrenchment, lay-offs or closure of the establishment and it is open for the government to further raise this threshold.
Critical Comment: Such increased threshold, in effect, results in reduction in protection of the workers employed in industries having less than 300 workers and leave them exposed to arbitrary-closure, layoffs and retrenchment, depriving them of their means of livelihood. While the threshold has increased by three times, there is no corresponding increase in the retrenchment or closure compensation payable to workers and such compensation remains to be 15 days average pay for every completed year of service. In fact, with the narrowed definition of the term wages in the Code which now excludes conveyance allowance, house rent allowance and commissions among other exclusions, the compensation of 15 days average pay could be considerably lower than what it used to be under Industrial Disputes Act, 1947.
4. Softened Penalties: Under the Code, unfair labour practices are punishable with fine. Even the act of not obtaining prior government approval in case of lay-offs, retrenchments and closure is punishable merely with fines.
Critical Comment: Both the aforesaid acts were punishable with fine or/and imprisonment under the earlier law. The Code has completely erased the penalty of imprisonment with respect to these offences, reducing the deterrent values of prescribes penalties. Practically, these lacunae can easily be exploited by employers, especially since the power to hold inquires and impose penalties vest with the government, to effect arbitrarily lay-offs, retrenchments and closure, and get out of legal trouble (if any) by payment of fines.
RECOMMENDATIONS AND SUGGESTIONS
Some recommendations to avoid issues which might arise on the implementational front under this Code in the future are as follows:
Different Chapters of the Code should be supplemented with additional rules to structure the implementation of the Code. Comprehensive transition guidelines must also be provided so as to facilitate smoother transition to the new mechanisms introduced under the Code.
Softened penalties under the Code in event of Employer’s default under Section 86(5) and 25-U must be replaced with an alternative liability for imprisonment. This will act as a deterrent for employers and prevent them from misusing provisions under the Code.
Specific guidelines must be introduced to guide the power of the Government to exempt industrial establishments from application of any or all provisions of the Code which specify reasons for which exemption can be granted, kinds of establishments to which exemption may be granted etc.
Reduction in threshold for application of standing orders or alternatively, framing of guidelines to dictate basic terms of individual contracts so as to afford protection to workers employed in industries with less than 300 workers and prevent exploitation of illiterate workers.
Certain Exceptions must be provided to the provision mandating a 60 days-notice for legal strikes, especially in case of industrial establishments not providing public utility services, so as to provide a degree of protection to workers in genuine cases of strikes.
Charitable and philanthropic institutions must be brought within the ambit of industrial establishments to extend the benefits and rights offered to workers under the code to them.
The Industrial relations Code, 2020 is a great initiative towards simplification of labour law regime by consolidation of fragmented laws relating to industrial relations. However, in light of the foregoing points, it is safe to say that the new Code has tilted the scales of stakeholder interest in favour of employers. There is increased flexibility being offered to employers while the interests of the workers have been compromised to a considerable extent. The whole purpose behind the Code is to harmonize relations between the employers and employees.
The Code has introduced employer-friendly changes at the cost of reduced protection to workers’ rights as analysed in part II of section C. In effect, this will raise feeling of resentment among employees, thus failing the very object behind the legislation. Therefore, it is clear that this Code has substantial lacunae that need to be addressed by legislative action or judicial intervention, failing which the employers may exploit such provisions to their advantage. Further, there is a call for clarity on several provisions from implementational perspective. Restoration of the balance of interests is a must for practical success of this Code and the recommendations made in this Note can be followed to achieve that end.
The Industrial Relations Code, 2020, § 2, No. 35, Acts of Parliament, 1949 (India).
The Industrial Relations Code, 2020, § 86, No. 35, Acts of Parliament, 1949 (India).
The Industrial Relations Code, 2020, § 85, No. 35, Acts of Parliament, 1949 (India).
The Industrial Relations Code, 2020, § 25-U, No. 35, Acts of Parliament, 1949 (India).
The Industrial Relations Code, 2020, § 70, No. 35, Acts of Parliament, 1949 (India).
The Industrial Relations Code, 2020, § 91, No. 35, Acts of Parliament, 1949 (India).
The Industrial Relations Code, 2020, § 63, No. 35, Acts of Parliament, 1949 (India).
The Industrial Relations Code, 2020, § 62, No. 35, Acts of Parliament, 1949 (India).
Internet Resources and Blogs
Arya Tripathi and Rishi Sehgal, Industrial relations Code, 2020: An overview, PSA LEGAL (Oct. 7, 2021), https://www.psalegal.com/industrial-relations-code-2020-an-overview/.
Ramapriya Gopalakrishnan, Industrial Relations Code, 2020: Implications on Worker’s Rights, LIVE LAW, (Oct. 8, 2021), https://www.livelaw.in/columns/the-industrial-relations- code-2020-implications-for-workers-rights-164921.
Harsha Totuka and Aastha Kothari, Demystifying Industrial Relations Code, 2020, LEXOLOGY, (Oct. 7, 2021), https://www.lexology.com/library/detail.aspx?g=2a3e8700- c619-4e25-a26e-ee2c6656aacf.
Prasanna Mohanty, Industrial Relations Code 2019: Balance Tilts in Favour of Industry; Makes Trade Unions Jittery, BUSINESS TODAY, (Oct. 7, 2021), https://www.mondaq.com/india/insolvencybankruptcy/1102956/group-insolvency- regime-in-india.
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Meru Dwivedi and Shreya Chowdhury, Implications of the Industrial Relations Code, JSA LAW, (Oct. 8, 2021), https://www.jsalaw.com/articles-publications/implications-of-the- industrial-relations-code-2020/.
Animay Singh, Impact of Worker Definition on Industrial Relations, SIMPLIANCE, (Oct. 8, 2021), https://www.simpliance.in/blog/impact-of-worker-definition-on-industrial- relations/.