Labour Reforms – Merging Mistakes into Blunder

Parliament recently passed much-lauded reform in labour laws as part of the government's initiative to combine over three dozen different central legislations into four codes. These codes will be on wages; industrial relations; social security; and on safety, health and working conditions. While appreciating the government for taking initiative on the issue, one must have a close look at the proposed code to truly asses the reforms.

The Code seeks to repeal and subsume the following laws:

  1. The Payment of Wages Act, 1936
  2. The Minimum Wages Act, 1948
  3. The Payment of Bonus Act, 1965
  4. The Equal Remuneration Act, 1976

The Code tries to solve multiple issues at once, including simplification of minimum wages, consolidation of about a dozen different definitions of wages into one, increasing period of limitation to three years, simplification of inspection regime, etc. While the intention of the government looks good on the surface, the Code is unlikely to achieve any of the stated objectives except perhaps consolidating 12 different definitions of wages into one.

False consolidation

The Code fails to consolidate central government laws on wages. For example, legislations from the planning era such as Working Journalist (Fixation of Rates of Wages) Act, 1958 still remain on books separately. Multiple other laws, while not directly relating to wages, have numerous provisions dealing with them. If the government aims to consolidate all laws related to wages in one code, these laws must be subsumed in the code or repealed. At the same time, one must question if it is wise to have laws on fixing wages for specific industries such as journalism.

Maximisation of the number of minimum wages

The proposed law is utterly ineffective in resolving the problem of having 1915 different minimum wages across the country. According to the Economic Survey of India 2018-19 the minimum wages range from ₹115 in Nagaland to ₹538 in Delhi. The Code extends the applicability of minimum wages to employees of all sectors, government or private, against the current mechanism of having minimum wages for only certain sectors which are scheduled by the state governments.

The number of scheduled employment ranges from three in Mizoram to 102 in Assam. The Code will set up a national minimum wage and leave it to state governments to adopt different minimum wages for all sectors of employment based on skill, experience, and industry. Under this new mechanism, the states will again end up setting hundreds of minimum wages for all industries, in effect increasing them beyond 1915 as 100 percent employees would be covered by minimum wages against 40 percent today. The law is also likely to become a political tool in the hands of state governments. They would be able to force any industry or company to shut down or move out of the state by setting up an unreasonably high minimum wage for that particular industry or company.

Additionally, the Code solves the problem of prevailing inspector raj only partially. A mechanism is established to do random inspections for violations as opposed to regular inspections which are practiced today. This is merely moving from guaranteed annual harassment to randomised harassment by government inspectors. There is no need for inspection for violations under the Code as for any violation an employee is free to approach the labour courts.

In light of the issues highlighted above, the Code will meet none of its stated objectives. The central government should ideally move away from the idea of telling states how to set up minimum wages. Also, a complete consolidation and a new strategy on inspections in needed. A system of inspection only when a complaint has been made against a firm could be established in the Code, it is already being practiced in various states. Lastly, more than the Code, we need reforms that ensure access to timely justice for all classes of workers.