Impact of Legislative Action – Labour Laws Abeyance Due to Covid 19

Impact of Legislative Action – Labour Laws Abeyance Due to Covid 19

Executive Summary

• Recently, Uttar Pradesh government has passed an ordinance by virtue of which businesses and both existing and new industrial units have been exempted from the purview of most labour law provisions for the next three years.
• The state cabinet cleared the labour law ordinance suspending more than 30 kind of labour laws in the state.
• Similarly, State Government of Madhya Pradesh has exempted employers from some obligations under various labour laws, like Madhya Pradesh Industrial Relations Act and Industrial Disputes Act, as well as Contract Labour Act for 1,000 days, allowing employers to hire and fire workers “at their convenience”.

Introduction

The coronavirus pandemic has severely affected the Indian economy causing economic distress to companies and individuals. As the country struggles with the lockdown and thousands of firms and workers stare at an uncertain future, some state governments have in the last couple of days made significant labour laws reforms. Vide these reforms, incentives have been provided in order to boost economic activities in the states and attract more investment.

Purpose of Legislative Intervention

• Nationwide lockdown has severely affected and slowed down businesses and economic activities. The much-awaited labour law reforms by states may make it easier for factories and businesses to run efficiently amid the coronavirus-led economic crisis.
• To revive and bring on track economic activity, new investment opportunities would need to be created along with fastening the businesses processes and productivity.
• Employers’ associations have demanded suspension of labour laws barring some key provisions across the country for next two-three years to help the industry come out of the crisis induced by the lockdown to combat COVID-19 pandemic.
• To encourage industries to freely employ the large number of migrant workers who have returned back to the State.

State Legal Provisions Granting Exemptions

The most significant changes have been announced by Uttar Pradesh and Madhya Pradesh but several other states, such as Gujarat, Rajasthan, Punjab and Odisha, too have made some changes, although smaller in scope.

Uttar Pradesh

Uttar Pradesh, the most populous state has made the boldest changes as it has decided to suspend 35 of the 38 labour laws in the state for 3 years. The only labour laws now applicable in the state are:

The Building and Other Construction Workers Act 1996
The Workmen Compensation Act 1923
The Bonded Labour System (Abolition) Act 1976
Section 5 of the Payment of Wages Act, 1936 which provides for wages.
• Labour laws relating to settling industrial disputes, health and working conditions of workers and trade unions, contract workers and migrant workers will be frozen for 3 years. Key central laws like Minimum Wages Act, Payment of Wages Act and Payment of Bonus Act will not apply to Uttar Pradesh.
• Since labour is on the concurrent list, both the Centre and the states can make laws under this subject. But a state government cannot completely suspend Central laws. For this, the ordinance ‘Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020’ has been sent to the Central government for its approval.

Madhya Pradesh

• Madhya Pradesh government has promulgated the Madhya Pradesh Labour Laws (Amendment) Ordinance, 2020 by which following State laws have been amended
The Madhya Pradesh Industrial Employment (Standing Orders) Act, 1961. The Ordinance has increased threshold to 100 or more workers, thus it will no longer apply to establishments with between 50 and 100 workers that were previously regulated.
The Madhya Pradesh Shram Kalyan Nidhi Adhiniyam, 1982.
• All new factories are exempted from certain provisions of the Industrial Disputes Act, 1947, however, provisions related to lay-off and retrenchment of workers will still apply. This exemption will remain in place for the next 1,000 days (33 months).
• MP has streamlined regulations under the Contract Labour (Regulation and Abolition) (Madhya Pradesh) Rules, 1973 whereby agencies who supply labour to industries, shall not be required to apply or seek modification of their license each time new labour joins or leaves, but will be valid for a fixed term, irrespective of people joining or leaving.

Impact of Suspension on Economic Growth and Employment

The lockdown has no doubt resulted in massive economic disruption. For an economy that was already in the grip of a slowdown, the near-closure of almost all activity has meant an increase in unemployment. Suspension of labour reforms in such a situation will bring forth a mixed bag of reactions and effects in the country’s current situation.

• Create Job Opportunities: With the government focusing on restarting manufacturing and small businesses, the current situation of rampant unemployment among Migrant workmen who have been forced to return to their natives due to Covid will be tackled.
• More Attractive Investment Destination: These labour law relaxations are being brought about to incentivise economic activity in the respective states and it is expected that this will help in wooing national and international investors and FDI’s would probably step in thereby boosting economic activity.
• Fixed Term Employment: Introduction of fixed-term employment to help companies sidestep the contractor system.
• Inspections: A sizeable part of the reforms involves doing away with inspections by labour commissioners. Labour inspectors will now be replaced with a third-party certification. Such a situation creates a regulatory black hole where employers can get away by hiring cheap child labour.
• Inflation: With the government focusing on restarting manufacturing and small businesses, there may be a forceful shift of the workforce from agriculture to manufacturing. This may deplete the hands available in rural areas during the harvest season. This change may push up the prices of agri-produce due to loss of crops or disruption in supply chains.
• Reduced wage rate: If all labour laws are removed, most employment will effectively turn informal and bring down the wage rate sharply.

Would these Changes Boost Employment and Economic Growth in long run?

• Theoretically, it is possible to generate more employment in a market with fewer labour regulations. However, as the experience of states that have relaxed labour laws in the past suggests, dismantling worker protection laws have failed to attract investments and increase employment, while not causing any increase in worker exploitation or deterioration of working conditions.
• Incremental long term reforms are needed to restart the economy, but snatching the rights of workers in crisis will only result in high unemployment but also there will be no growth.

Conclusion:

India urgently needs labour law reforms – especially with the havoc on our economy due to Covid-19-a balance between opposing interests needs to be maintained. The long-awaited labour law reforms by states may make it easier for factories and businesses to run efficiently amid the coronavirus-led economic crisis, but the relaxation in rules may also put at stake the interest of laborers and workers, with businesses getting a free hand. Changes in the manner in which labour laws operate in a State may require the Centre’s assent. One hopes the Centre may strike a balance which would provide for Greater contractual freedom (except for the most marginalized of workers based on wage scales) with limited government interference, backed by a robust dispute resolution mechanism which would be the ideal way forward.

Regards,

Legal Team

Proind Business Solutions Private Limited
306, Tower B, I-thum, Plot No A-40, Sector 62, Noida, UP, India- 201301
No.: +91 120 4224203
Email: info@proindmail.in, website: www.proind.in

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