India’s New Industrial Relations Code and its Impact on Labor Law
The Industrial Relations Code (IR Code) was passed last year and received the President’s assent on September 28. However, the effective date of commencement is still pending as the government is working to finalize implementing rules for the Code and there needs to be agreement among the states.
Labor is a concurrent subject under the Indian constitution, meaning it can be legislated on by both federal and state governments.
On September 29, the government amalgamated the following existing legislative Acts under the IR Code:
- The Industrial Disputes Act (ID Act), 1947
- The Industrial Employment (Standing Orders) Act, 1946
- The Trade Unions Act, 1926
The IR Code is one of four new labor codes introduced for the purpose of simplifying and consolidating the country’s matrix of labor laws, which in turn will make it easier to comply with for foreign investors and the private sector.
Altogether, the four codes look at introducing uniformity in rules and regulations relating to wages, industrial relations, social security, and occupational safety and health to be in line with international best practices.
Rationale behind the Industrial Relations Code
The main purpose of the IR Code is to benefit, both, employers and employees by:
- Streamlining the dispute resolution mechanism.
- Protecting fixed-term employees, that is, those employees who have been contracted to work for a specific period of time.
- Ensuring implementation of standing orders by large industrial establishments.
- Initiating a re-skill fund for retrenched employees.
- Enforcing strict penalties to avoid non-compliance.
- Enabling a business-friendly environment as the Code provides for a single negotiating body and greater flexibility to employers to make operational decisions. This may prevent industrial disputes, for example, from being mediated by multiple stakeholders and intervened into by vested interests.
Reforming India’s labor law has long been felt necessary by multiple stakeholders – to be updated to the current needs of the labor market and support a friendly business environment.
In recent years, as India has aggressively pitched its economy to foreign investors to set up here, many have pointed to the country’s labor and employment laws as limiting – erecting several compliance and regulatory barriers.
Amending old definitions
Under the IR Code, definitions of the terms – industry, worker, employer, industrial dispute, and fixed-term employment have been updated.
An industry refers to any systemic activity between employers and workers for the purpose of production, supply, or distribution of goods and services, regardless of whether or not this activity is pursued with the motive of profit or capital investment. Hospitals, educational, and scientific institutions now come under industry as per the new definition.
Specifically, an industry is not:
- An institution owned or managed by those organizations that are wholly or substantially engaged in any charitable, social, or philanthropic services
- An activity carried out by certain departments of the federal government dealing in defense, atomic energy, and space research
- Any domestic activity at home
- Any other activity that is not approved by the federal government to be under the ambit of an industry
The following are now included within the new definition of worker:
- Working journalists as defined under the Working Journalists and other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955
- Sales promotion employees as defined under the Sales Promotion Employees (Conditions of Service) Act, 1976
- Supervisory employees earning less than INR 18,000 (US$246) a month
The following are now included within the new definition of employer:
- Legal representatives of deceased employers
- Manager of a factory, so named as per the definition given by the Factories Act, 1948
- Manager or managing director of any establishment who is in full control of it and is entrusted with it
This definition is expanded to include any dispute or difference arising between an individual worker and employer that relates to discharge, dismissal, retrenchment, or termination of such worker within the ambit of the Code.
The provisions of a fixed-term worker have been extended to include the following:
- Work hours, wages, and other benefits will not be less than those given to permanent employees for doing the same or similar work.
- Eligibility for gratuity will be granted if services have been provided for a period of one year.
- Eligibility for statutory benefits will be granted in proportion to the services provided, regardless of whether the period of employment extends to the qualifying period of employment needed to attain statutory benefits.
Appointing a grievance redressal committee
The IR Code stipulates that for each establishment that employs more than 20 employees, a grievance redressal committee of maximum 10 members must be set up, that will be responsible for overseeing and resolving disputes. There should be equality in the number of members representing the employers, employees, as well as women employees. Representation of women workers in the committee should not be less than the proportion of women workers to the total workers in an establishment. Establishments that do not comply with the setting up of a GRC can be fined up to INR 100,000 (US$1,371).
The committee has been permitted one year to hear a party’s grievances. However, if there is any grievance that remains unresolved or if the committee declares an employee as aggrieved, the matter will no longer be limited to the jurisdiction of that establishment, and the employee has the right to seek conciliation proceedings.
Appointing a negotiating council
All establishments with a registered trade union must set up a single negotiating union or council that will be responsible for handling all matters as prescribed by the IR Code.
Establishments that have only one functioning registered trade union will recognize that trade union to be the sole negotiating union of its employees, and this union will be subjected to certain criteria as prescribed by the Code.
For those establishments that have more than one functioning registered trade union, the union that is made up of 51 percent or more employees will be recognized as the sole negotiation union of its employees.
In establishments with multiple functioning registered trade unions – where none constitute 51 percent or more employees – the negotiation council that is set up should be made up of not less than 20 percent of the total number of employees who are employed in such an establishment.
Controlling arbitrary strikes and lock-outs
A strike refers a concerted or mass causal leave by 50 percent or more employees of an establishment, on any working day.
The IR Code prescribes that only public utility (supply of water, electricity, gas) workers may go on a strike on the 14th day of their in-advance 42-day notice of strike.
All other workers belonging to any industrial establishment – may not go on a strike either:
- Before 60 days from the notice of strike; or
- Before14 days from giving this notice of strike; or
- Before the end of the date of strike specified in the notice; or
- During any pending conciliation proceedings; or
- Seven days after the end of the conciliation proceedings; or
- During any pending arbitrary proceedings; or
- Sixty days after the end of the arbitrary proceedings; or
- During any period of time wherein awards or settlements are underway with regards to such matters.
If the above conditions are met, no employer will be allowed to lock-out (be allowed to deny employment to) any of their employees.
By expanding the definition of a strike and imposing clear conditions of being able to strike, the IR Code intends to stop employees from going on strike arbitrarily and seeks to protect the interests of all parties affected.
Creating an industrial tribunal
The IR Code has pushed for the setting up of the National Industrial Tribunal and the constitution of either one or more industrial tribunals to begin handling industrial disputes. These tribunals will replace the existing labor courts, the court of inquiry, and the board of conciliation that had been set up under the jurisdiction of the existing Industrial Disputes Act.
Each tribunal will consist of:
- Two members appointed by the federal government
- Two members appointed by a government body appropriate for this task, namely, one judicial member and one administrative member
The federal government may also notify the constitution of another or more National Industrial Tribunals as the adjudication of industrial disputes is a matter of national importance. Industrial establishments located in one or more states may need to approach the national-level tribunal to seek resolution to disputes.
Raising wage ceiling for supervisory employees
A supervisory employee refers to an employee who has the power to hire, promote, award, transfer, recall, lay-off, suspend, and discipline other employees.
Under the IR Code, all supervisory employees who earn from between INR 10,000-18,000 (US$137-US$246) qualify as working employees, and employers can fulfil the same retrenchment requirements to terminate their services as they would any other of their employees.
Increasing threshold for lay-off and retrenchment in fixed industrial establishments
Under the Industrial Disputes Act, industrial establishments of over 100 employees were required to seek permission from the appropriate government body to lay-off or retrench their employees when it came to closing industrial undertakings.
Under the Industrial Relations Code, this requirement has been waived off for industrial establishments, such as mines, factories, and plantations that require permission from the government to retrench their employees – if they hired not less than 300 employees on an average working day in the previous year.
The raising of the threshold (that is, the number of employees) will bring uniformity across all the states. It also provides employers with operational independence and encourages them to hire more employees.
In case of power shortage or natural calamities and during fires, flooding, explosions, or excessive inflammable gas in mines – employers do not require government approval. However, in case the government does not properly communicate to an employer the order of permission within a period of 60 days since the filing of the application, then it is deemed that permission has been granted for these 60 days and the application is disposed of.
Increasing the threshold for standing orders
The IR Code allows only those industrial establishments that have been defined by The Industrial Employment (Standing Orders) Act, 1946 and have 100 or more employees to formulate standing orders and have them certified (CSO).
Currently, some states have allowed their establishments to have as few as 50 employees while others have raised the applicability for CSO to 300 or more employees.
Thus, by removing the CSO requirement for new/ smaller industrial establishments, the IR Code establishes regulatory uniformity – making compliance easier for establishments with operations in multiple state jurisdictions.
Existing industrial establishments that already have CSO will continue to be governed by the same – if the provisions are consistent with the IR Code.
Unless specific or conditional exemption is granted under the IR Code, information technology (IT) and information technology-enabled services (ITeS) units will need to have CSO.
Further, commercial establishments, such as offices, that previously did not come within the purview of ‘industrial establishment’ under The Industrial Employment (Standing Orders) Act may get covered by the wider definition of industrial establishment under the IR Code, and need to have certified standing orders in place.
Establishments having 300 employees must prepare standing orders on the following matters:
- Classification of employees – temporary, permanent, fixed-term etc.
- Assignment of work hours, holidays and wage rates.
- Shift work, that is, providing customer services over 24 hours of the clock each day of a week.
- Attendance and consequences of late arrival.
- Process of deciding the conditions and procedure of applying for leave and the authority that will grant it.
- Requirement to enter premises by certain gates, and liability to search.
- Process of reporting on, initiating temporary stoppage of work and closing certain sections of an establishment and deciding the rights and liabilities of the employers and employees.
- Termination of employment and by when a notice should be given by the employers and the employees.
- Dismissal and/or suspension of employees for misconduct and deciding which acts qualify as misconduct.
- Compensation for employees who have been treated unfairly by their employers.
- Any other matter which the appropriate government body deems necessary.
The federal government is required to make model standing orders relating to conditions of service and other related matters. Where an employer adopts a model standing order of the federal government with respect to matters relevant to the employer’s industrial establishment or undertaking, then such model standing order shall be deemed to have been certified; the employer can forward this information to the concerned certifying officer as prescribed by the law / state authority.
Fixed-term workers to enjoy the benefits of permanent employees
Under the IR Code, fixed-term workers of those commercial establishments that need CSO are eligible to obtain the benefits of permanent employees, including gratuity, if they provide their services for a period of one year.
Organizing an employee re-skill fund
An employee re-skill fund will provide laid-off employees with opportunities to learn new skills and be able to secure new employment for themselves. This fund will be made use of by crediting the bank accounts of laid-off employees with wages worth 15 days of work within 45 days of their retrenchment.
According to the IR Code, the fund shall consist of the following:
- The contribution of the employer of an industrial establishment will be of an amount equal to 15-days wages last drawn by the worker immediately before the retrenchment, or such other number of days as notified by the federal government, for every retrenched worker in the case of retrenchment only.
- The contribution from other sources as prescribed by the appropriate government.
Setting a time limit to investigate any misconduct by employees
The IR Code has set a limit of 90 days to investigate the misconduct of any employee suspended by their employers. This feature has been added under the IR Code to protect the interests of all employees and to ensure that they are treated fairly.
For specialist advice regarding doing business in India and/or training to ensure your organization is compliant under the upcoming labor codes, please feel free to contact our professional service advisors at email@example.com.
India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to firstname.lastname@example.org for business support in India.
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