New Labour Codes: No Protection Against ‘Hire and Fire’ Regime

In Part-II of their analysis of the Industrial Relations Code, 2020, recently passed by Parliament, SANJAY SINGHVI and JANE COX look at how the new law renders workers virtually defenceless against arbitrary retrenchment and lay-offs.
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THAT trade unions saw red when the Lok Sabha and Rajya Sabha passed by voice vote the Industrial Relations Code, 2020, the Occupational Safety, Health and Working Conditions Code, 2020, and the Code on Social Security, 2020 is understandable. The passage of these crucial bills, welcomed by corporate India, but severely impacting workers, was preceded by only three hours of discussion. At the end of it, 350 pages of legislation loaded in favour of business and seen as anti-labour was given the nod by both Houses on a day when the Opposition had boycotted Parliament to protest the Farm Bills.

Among the three legislations, the Industrial Relations Code, 2020 needs to be subjected to closer analysis since it changes the existing equations vis-à-vis workers as well as the establishment they work for.

The new Code redefines the Industrial Employment (Standing Orders) Act, 1946, which has been one of the most important legislations for employees and is applicable to industrial establishments that employ 100 or more workers. Apart from defining the tenure of workers, this Act laid down the basic Rules and Regulations of employment such as misconduct, permissible punishments, right to be defended by a trade unionist or co-worker, the right to and rate of subsistence allowance.

However, the Code considerably reduces the scope of protection against arbitrary retrenchment, closure, and lay-off. The employer needs to seek government permission only when employing more than 300 workers, unlike the earlier benchmark of 100 workers. This means that over 90 per cent of workers of this country will be defenceless, further advancing the interests of the hire and fire regime.

To add to this, the employer is now permitted to issue standing orders even on matters other than those in the schedule prescribed. Also, prior to the enactment of the Code it was required of managements to display standing orders in a language understood by majority of workers. That condition is no longer applicable.

Section 25H of the Industrial Disputes Act requires the employer to first give an opportunity to a retrenched worker to be re-employed before employing another person to replace him/her. Now the employer need only offer the retrenched worker re-employment if a new worker is recruited within one year of the retrenchment. This is utterly unfair and will allow employers to rid themselves of workers and has immediate significance in the light of the COVID-19 downsizing.

Definition of "industry"

The exclusion of certain activities from the definition of "industry" in the Code is crucial. Only those activities/undertakings which are included will now come under the provisions of the Industrial Disputes Act, 1947 and almost all other labour legislation, including the three new labour Codes.

The definition of "industry" has time and again come under the scrutiny of the Supreme Court as reflected by the judgements in the case of Safdarjung Hospital (1971 SCR (1) 177), Madras Gymkhana Club (AIR 1968 SC 554) etc. leading finally to the judgement of a seven judge bench in the case of Bangalore Water-Supply & Sewerage Board vs. R. Rajappa & Others (1978 SCR (3) 207. This judgement included hospitals and philanthropic, charitable and religious institutions within the definition of "industry" so long as they passed the other criteria laid down.

The new Code simply excludes all institutions owned or managed by organisations substantially engaged in any "charitable, social or philanthropic service", or any activity which is merely "spiritual or religious in nature", as well as any sovereign functions of the Government (State or Central).

Not only is a large section earlier covered by industrial law now removed from its ambit, but the vagueness of the term "social activity" will lead to all sorts of institutions claiming exemption from labour laws.

As far as "sovereign function" goes, the Indian Constitution is unique in so far it specifically allows the state to make laws to carry on any trade, business, industry or service under Article 19 (6) (ii). As such, when the State is specifically allowed to carry on an industry, it would not be fair to deprive the employees of that industry the protection of labour laws.

Definition of "Employer", "Employee" and "Worker"

The changes in the definition of "employer", "employee" and "worker" in the three Codes taken together are confusing, self-contradictory and untenable. Although "employer" includes "contractor", "contractor" is not clearly defined. If we proceed on the basis that "contractor" is the same as defined in the Code on Social Security, then the consequences are even more dangerous. The definition of "contractor" there has been changed from what is accepted today to mean "a person who supplies contract labour for any work of an establishment as mere human resource."

The new definitions seek to legitimise all forms of contract labour and sham and bogus contracts. The concept of "employer" will be divorced from the concept of "master and servant" which is the basis of much of labour jurisprudence. Again, this change contradicts the basis of labour law, which is to protect workers. It allows these contractors to front as employers, while the workers actually work for another concern/employer.

As a consequence of changes in the definitions of "employee", "employer" and "worker", the contract worker becomes the worker of both the principal employer and the contractor. Hence who is the "employer" is ill-defined. It will not be possible for such workers to pinpoint the responsibility of "employer" on any one person. Even the definition of "employer" is internally self-contradictory. The employer may be the person who employs or the person who has ultimate control of the affairs — which may not be the same juristic person.

Thus, the person employing may be a body corporate such as a company whereas the occupier of the factory may be a particular manager. This will lead to confusion as to who is to be responsible for implementation of the provisions of the Code, and what if someone acts in opposition? For instance, what if the body corporate wants to retrench but the occupier does not follow the procedure? It is unclear as to who is to be held to account.

Two positive points at first blush are the inclusion within the meaning of "workers" of working journalists as defined in clause (f) of Section 2 of the Working Journalists and Other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955 and sales promotion employees as defined in Clause (d) of Section 2 of the Sales Promotion Employees (Conditions of Service) Act, 1976. However, both these Acts stand repealed by the Occupational Safety, Health & Working Conditions Code,2020. The earlier Acts had specific provisions for these employees – including a Wage Board for journalists and newspaper employees. Now that has been scrapped.

Definition of "Wage"

The change in the definition of "wage" excludes a large proportion of the emoluments paid to a workman under the old definition under Section 2(rr) of the Industrial Disputes Act, 1947.

Not included in wages now are the following:

1. house rent allowance
2. the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government
3. any conveyance allowance or the value of any travelling concession
4. any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment
5. remuneration payable under any award or settlement between the parties or order of a court or Tribunal
6. any overtime allowance and
7. any commission payable to the employee.

The Code which is a difficult document to comprehend has included this condition: "Provided that if any such payments (listed above) exceed one half or such other percent as may be notified by the Central Government, of the total remuneration treated as "wages", then the amount which exceeds such one-half, or the percent so notified, shall be calculated as "wages".

It goes on to add that if the employee is paid part of the wage in kind, then only 15 per cent of such wage is to be reckoned as paid in kind. There is no justification for this and is untenable. It is not clear as to 15 per cent of what amount is to be calculated.

All the changes in the redefining of wages will have the effect of reducing such rights as retrenchment compensation, subsistence allowance and wage arrears as well as retiral benefits of workers on a winding up of the company.

Exceptions to Notice of Change

An important right under the Industrial Disputes Act, 1947, is in Section 9A which requires an employer to give 21 days prior notice of any proposed change in service conditions listed in the Schedule. Though this has been reproduced in the Code, an exception is now given if such change is affected "in accordance with the orders of the appropriate Government". This will have particular significance for PSUs. For example, Air India and its subsidiaries recently slashed the overall take-home pay of its employees – by up to 50 per cent of allowances, and have taken the defence that they have been directed to do so by the Ministry of Civil Aviation.

An earlier 25 per cent cut by Air India was ruled illegal by the Bombay High Court in 2014 which rejected the contention that this had been done under the direction of the Ministry and held that such directions can never prevail over statutory provisions. (Air India Employees Union v/s. Air India Ltd. 2014 I CLR 856).

A new exception now introduced is the need for a notice of change "in case of the emergent situation which requires a change of shift or shifts working, otherwise than in accordance with standing orders, in consultation with Grievance Redressal Committee". This is rather unclear. Unless it is in accordance with the decision of the Grievance Redressal Committee, "consultation" is reduced to a mere show.

It is thus clear that the Industrial Relations Code has turned the very basis and premise of Indian industrial jurisprudence and legislation on its head. It is heralding a return to laissez faire and the classic law of contract and undone the rights of workers and trade unions won over the last half a century or more.

Click here to read Part I

(Jane Cox and Sanjay Singhvi are Advocates at Bombay High Court. Views are personal.)