The Industrial Relations Code, 2020 that was notified by the central government on 29 September 2020 consolidates the provisions of the three major central laws in the country relating to industrial relations, namely, the Trade Unions Act, 1926; the Industrial Disputes Act 1947 and the Industrial Employment (Standing Orders) Act 1946. Many of the features of these laws continue to be retained in the Code. At the same time, the Code has introduced some significant changes in the law governing industrial relations that have important implications for workers' rights. This article discusses the key new features of the Code and the implications thereof for workers.
The coverage of labour related enactments in the country is determined by the definitions of the terms 'employer,' 'worker/workman/employee/person employed' under the legislation in question. In the case of a law governing industrial relations, in addition to the aforesaid terms, the definition of the term 'industry' would also determine the scope of its coverage. The Code contains new definitions of the terms 'industry' and 'employer.' It also defines both the terms 'employee' and 'worker.'
In line with the landmark ruling of the Supreme Court in Bangalore Water Supply and Sewerage Board v. A.Rajappa and others reported in (1978) 2 SCC 213, section 2(p) of the Code defines the term 'industry' to mean any systematic activity carried on by co-operation between an employer and workers for the production, supply or distribution of goods or services with a view to satisfy human wants or wishes irrespective of whether any capital has been invested for the purpose of carrying on the activity and regardless of whether or not the activity is carried on for any gain. Institutions owned or managed by organizations wholly or substantially engaged in any charitable, social or philanthropic service stand excluded from the scope of the definition. In addition, the provision vests the central government with the power to exclude 'any other activity' from the scope of the definition by issuing a notification.
While the wide definition of the term 'industry' could bring more activities within the scope of coverage of the Code, the exception made in the case of institutions run by organizations wholly or substantially engaged in any charitable, social or philanthropic service could deprive a number of workers in such institutions of the coverage of the Code. Furthermore, the unguided power given to the central government to exclude any activity from the scope of the term 'industry' by the issue of a notification could result in the arbitrary exclusion of workers employed in establishments engaged in such activities from the scope of the Code.
1.2 'Worker' and 'Employee'
The Code defines both the term 'worker' and 'employee." Section 2(zr) of the Code defines the term 'worker.' Like section 2(s) of the Industrial Disputes Act, the term 'worker' is defined to mean a person employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work. In addition, working journalists and sales promotion employees have been brought within the scope of the definition. Persons employed in a supervisory capacity drawing wages exceeding Rupees Eighteen Thousand per month or any other amount notified by the central government stand excluded from the scope of the definition of the term 'worker.' Persons employed in an industry mainly in a managerial or administrative capacity also stand excluded from the scope of the definition of the term 'worker.'
Section 2(l) of the Code defines the term 'employee' in a wider manner than the term 'worker.' Apart from persons performing work of a manual, unskilled, skilled, technical, operational and clerical work in an industrial establishment, those doing supervisory, administrative or managerial work are also included within the scope of the term 'employee.'
When one of the very purposes behind the enactment of the new Labour Codes is the simplification of the law, the usage of both the terms in the Code without any explanation for that only leads to confusion. There is no clarity about the rights conferred by the Code on persons who fall within the scope of the definition of the term 'employee' but are outside the scope of the definition of the term 'worker.' The following example will illustrate the confusion brought about by the usage of the two terms: The definition of 'industrial dispute' under section 2(q) refers only to the term 'worker' and not 'employee' implying that only workers will have the right to access the mechanisms for resolution of industrial disputes under the Code, However, section 91 of the Code enables an 'employee' to make a complaint to the concerned authority or forum if his or her employer prejudicially alters his or her conditions during the pendency of an industrial dispute.
Section 2(m) of the Code defines the term 'employer 'in a wider manner than section 2(g) of the Industrial Disputes Act. The definition of the term under section 2(m) of the Code includes the occupier of the factory as defined under the Factories Act or the Factory Manager and also contractors.
The inclusion of contractors within the scope of the term 'employer' could in practical terms make it difficult for workers employed through intermediary contractors to press claims against the principal employer.
The Code sanctions the engagement of workers as fixed term employees. It also enhances the threshold number of workers for the application of standing orders and for obtaining prior government approval in the case of lay off, retrenchment and closure. Such measures afford greater flexibility for employers.
2.1 Fixed term employment
The Code permits the employment of workers for a fixed term. Section 2(o) of the Code defines 'fixed term employment' as the engagement of a worker on the basis of a written contract of employment for a fixed period. The conditions on which fixed term employment is permitted have been set out in the proviso to section 2(o). As per the proviso, the hours of work, wages, allowances and other benefits of a fixed term employee should be on par with that of a permanent worker doing the same work or work of a similar nature. In addition, a fixed term employee would be eligible for all statutory benefits available to a permanent worker proportionately according to the period of service rendered by him or her. A worker on fixed term employment would also be eligible for gratuity if he or she renders service under the contract for a period of one year. However, upon termination from service at the end of the contract period, a worker engaged on a fixed term employment basis would not be entitled to the payment of any retrenchment compensation. This is because the definition of the term 'retrenchment' under section 2(zh) of the Code excludes the termination of service of a worker as a result of the completion of the tenure of fixed term employment.
The Code does not place any restriction of the length of the period for which a worker may be engaged as a fixed term employee. It also does not place any cap on the number of times a worker may be engaged as a fixed term employee. The lack of such restrictions would mean that in practice, workers could be repeatedly engaged as fixed term employees and remain in that precarious state until they reach the age of superannuation. The Code also does not impose any restriction on the kind of work for which workers can be engaged on a fixed term basis. It would mean that fixed term employees can be engaged for any kind of work in an establishment including core production work.
In practical terms, the sanction accorded by the Code for the engagement of workers on a fixed term employment basis coupled with the fact that the threshold of workers for the application of standing orders has been raised to three hundred workers would mean that most employers would have a free hand to engage as many workers as they please as fixed term employees and that they could be engaged for work of a regular nature in the place of permanent workers. This in turn could have a bearing on the exercise of freedom of association and collective bargaining rights as their precariousness would impair their ability to form and join trade unions of their choice and effectively exercise their trade union rights.
2.2 Enhancement of the threshold for the application of Standing Orders
Section 30 of the Code read in conjunction with section 28 imposes an obligation on employers of industrial establishments in which three hundred or more workers are employed to frame standing orders regulating the conditions of service of the workers in the establishment. Under the Industrial Employment (Standing Orders) Act, 1946, such an obligation was imposed on employers of industrial establishments where one hundred or more workers are employed. Furthermore, section 39 of the Code leaves it open to the central as well as state governments to exempt any industrial establishment from the provisions contained in Chapter IV of the Code relating to standing orders.
Standing orders regulate a range of issues relating to the employment of workers. These include the types of workers who may be engaged in the establishment, appointment of workers, the period of probation, attendance, leave, acts and omissions that shall be construed as misconduct, disciplinary proceedings, suspension, the penalties that may be imposed in the event of commission of a misconduct and the procedure for termination of service of a worker. Standing orders help ensure uniformity in the terms and conditions of employment of the workers employed in an establishment. In Workmen of Dewan Tea Estate and others v. Their Management reported in AIR 1964 SC 1458 and Sudhir Chandra Sarkar v. Tata Iron and steel company limited reported in AIR 1984 SC 1064 and other cases, the Supreme Court has held that the conditions of employment prescribed under the certified standing orders get incorporated in the contract of service of each worker with the employer and are akin to statutory conditions of service.
The implication of raising the threshold to three hundred workers is that it is not mandatory for employers of industrial establishments employing less than three hundred workers to ensure that the terms and conditions of employment of their workers are uniform and they would be free to regulate it by individual contracts. Moreover, the unguided power vested with the central and state governments under section 39 to exempt the employer of any industrial establishment from the obligation to frame standing orders could result in employers of industrial establishments with more than three hundred workers being arbitrarily absolved from the obligation to frame standing orders.
2.3 Enhancement of the threshold for obtaining prior government approval in the case of lay-off, retrenchment or closure
Section 77 of the Code increases the threshold number for the requirement of prior government approval in the case of lay off, retrenchment or closure of an industrial establishment from one hundred to three hundred workers. It also leaves it open to the central or state government to effect an upward revision of the threshold number.
Increasing the threshold would have the effect of reducing the protection available to workers presently in industries where between one hundred and two hundred and ninety nine workers are employed by exposing workers in such industries to the risk of arbitrary lay-offs, retrenchment and closure and consequently, the loss of livelihood. Moreover, while the government has chosen to effect a three-fold increase the threshold number for the requirement of prior government approval, it has not correspondingly increased the compensation payable to workers in the event of retrenchment or closure. The compensation payable to workers in the event of retrenchment or closure continues to be fifteen days of average pay for every completed year of service.
2.4 Lesser compensation in the event of retrenchment or closure
Clause (b) of section 70 of the Code that prescribes the conditions precedent to the retrenchment of workers provides for workers to be paid retrenchment compensation of fifteen days' average pay or 'average pay of such days as may be notified by the government,' for every completed year of service. It thus leaves it open for the central government or the state government to increase or reduce the number of days of compensation for every completed year of service. Thus, as of now, it is not certain that workers will get compensation even at the rate of fifteen days' average pay for every completed year of service when they are retrenched.
Moreover, by reason of the changed definition of wages under section 2(zq) of the Code, the compensation of fifteen days average pay for every completed year of service could be lower than what it used to be, in real terms. The definition of the term 'wages' under section 2(zq) of the Code is narrower than that under section 2 (rr) of the Industrial Disputes Act. The Code defines the term to include basic pay, dearness allowance and retaining allowance. It excludes house rent allowance, conveyance allowance and commission which are included in the definition of 'wages' under section 2(rr) of the Industrial Disputes Act. It also excludes the value of any house accommodation or of supply of light, water or any amenity which was explicitly included in the definition of wages under section 2(rr) of the Industrial Disputes Act. It has been clarified in the proviso to the definition of wages that when the amounts excluded from the scope of the definition of the term 'wages' are more than fifty percent of the remuneration paid to an employee, the quantum in excess of fifty percent of the remuneration would be considered as part of the wage. The proviso leaves it open to the central government to effect an upward or downward revision of the percentage mentioned.
The changed definition could in practice result in only half the remuneration paid to a worker being taken into consideration for the purpose of determining the compensation payable in the event of retrenchment of the worker or the closure of the establishment.
2.5 Exemption of certain industrial establishments from the provisions of the Code
Sub-section (2) of section 96 enables the government to issue a notification exempting any new industrial establishment or class of new industrial establishments from any of all the provisions of the Code for a specific period, if it is the public interest to do so. Sub-section (1) of section 96 of the Code vests the government with the power to exempt any industrial establishment or class of industrial establishments from any of the provisions of the Code by the issue of a notification if it is satisfied that the objects of the relevant provisions are fulfilled otherwise.
The power of exemption granted to the government under section 96 of the Code is much wider than that under section 36B of the Industrial Disputes Act which permits the government to exempt any industrial establishment run by the government from the application of the Act if it is satisfied that adequate provisions exist for the resolution of industrial disputes in the establishment.
Section 96 grants discretion to the government to exempt start-ups from the application as well as other classes of establishments from the provisions of the Code. Any exercise of such power of exemption would obviously deprive workers in such industrial establishments of the rights guaranteed under the Code including freedom of association and collective bargaining rights and the right of access to justice.
2.6 Exceptions to the rule of notice prior to effecting any change in the conditions of service
Section 40 of the Code requires the employer to give advance notice of at least twenty one days to the workers in the establishment before effecting any change in their conditions of service. This is similar to section 9-A of the Industrial Disputes Act. A new exception from the requirement has been made in the case of emergent situations which require a change of shift or shift working otherwise than in accordance with the applicable standing orders. In such cases, the change may be effected in consultation with the grievance redressal committee. Another new exception is provided in the case where a change is effected in accordance with the orders of the government.
The apex court observed in the judgment in B.R.Singh v. Union of India reported in (1989) 4 SCC 710 that the right to strike in an important weapon in the armoury of workers and indicated that the bargaining power of trade unions would be considerably reduced if they are not permitted to demonstrate and resort to strikes. Restrictions on the right to strike impair unions from functioning effectively to protect and defend the interests of their members. The Code makes the exercise of the right to strike difficult by extending the mandatory requirement of advance notice to all industrial workers.
3.1 Mandatory requirement of advance notice
While under the Industrial Disputes Act, only workers in any industry classified as a public utility service are required to give notice to their employer before going on a strike, under sub-section (1) of section 62 of the Code, workers in all industrial establishments are required to give notice of a minimum of fourteen days and a maximum of sixty days before going on a strike. As per sub-section (1) of section 60, conciliation proceedings are deemed to have commenced on the date when the first meeting is held by the conciliation officer after receiving notice of the strike. Section 62 prohibits workers from going on a strike during the pendency of conciliation proceedings and seven days thereafter. Section 63 declares that a strike shall be illegal if it is commenced or declared in violation of section 62.
In practice, the requirement of advance notice and the consequent triggering of conciliation proceedings would make it very difficult for workers in any industrial establishment to go on a legal strike even if they are justified in doing so. Provisions which make it overly difficult for workers to participate in a legal strike are not in conformity with the principles of freedom of association laid down by the ILO's Committee of Experts on the Application of Conventions and Recommendations.
3.2 Enhancement of fines
Under sub-sections (13), (15) and (16) of section 86, participation in an illegal strike, inciting other workers to participate in an illegal strike and financing an illegal strike are punishable with imprisonment or fine or both. The fine amount has been enhanced to a maximum of Rupees Ten Thousand for participation in an illegal strike and Rupees Fifty Thousand for instigating others to participate in a strike or financing an illegal strike.
The ILO's Committee of Experts on the Application of Conventions and Recommendations has deprecated the practice of imposition of such penalties on strikes that may be justified.
3.3 Expanded definition of the term 'strike'
Section 2(zk) of the Code defines the term 'strike' in a wider manner than section 2(q) of the Industrial Disputes Act to include concerted casual leave on a given day by fifty percent or more workers employed in an industry.
This would mean that that the penalties prescribed by the Code for participation in an illegal strike could follow even in a case where the majority of workers absent themselves on any day by availing of casual leave.
The Code is the first central law that provides for the recognition of trade unions for the purpose of collective bargaining. All along, there was a statutory vacuum at the central level on the subject and the field was covered by a non-statutory Code of Discipline as well as some state laws that addressed the issue.
According to sub-section(2) of section 14 of the Code, when only one registered trade union of workers is functioning in an industrial establishment, the employer should recognize it as the sole negotiating union of the workers subject to its fulfilling certain criteria that are yet to be prescribed. As per sub-section(3) of section 14, when more than one registered trade union of workers is functioning in an industrial establishment, the trade Union having the support of at least fifty-one per cent of the workers on the rolls of that establishment shall be accorded recognition by the employer as the sole negotiating union of the workers. If no single union enjoys such support, the employer is required to constitute a negotiating council consisting of the representatives of those registered trade unions which have the support of at least twenty per cent of the total workers on the muster roll of the establishment.
According to sub-section (6) of section 14, the recognition granted to a union as a negotiating union shall be valid for a period of three years from the date of recognition. Likewise, a negotiating council may function for a period of three years from the date of its constitution. It is however left open to the union or unions concerned and the employer to extend the period of validity of recognition upto a maximum of five years.
The Code does not prescribe the mode on the basis of which the support enjoyed by the trade unions operating in an industrial establishment is to be ascertained. The criteria for recognition of a union as the sole negotiating agent when there is only trade union in an establishment and the manner of verification of the support enjoyed by each trade union when there are two or more unions functioning in an establishment are to be prescribed under the rules to be framed by the central and state governments under section 99 of the Code. The Code does not specify that such criteria and the mode of verification should be prescribed in consultation with representative workers' and employers' organizations. It is imperative that the mode of verification be decided following detailed consultations with representative workers' organizations in order to ensure that only unions that are independent and genuinely representative of the workers are accorded recognition by the employer.
Clause (o) of sub-section (1) of section 99 empowers the central as well as state governments to frame rules regarding the matters on which the negotiating union or the negotiating council may hold negotiations with the employer of the industrial establishment.
The scope of the issues on which collective bargaining may be held will thus be circumscribed by rules that are yet to be framed. The parties to the negotiations should be free to decide the issues on which they will hold negotiations as is the case at present and it should not be determined by the rules to be framed under the Code.
Section 27 of the Code provides for the recognition of trade union federations as central trade unions by the central government and as state trade unions by the state government. However, there is no clarity on the criteria and procedure for the grant of such recognition as the Code is silent on that too.
The Code introduces certain changes both in the mechanisms and the procedure for the resolution of industrial disputes.
5.1 Grievance Redressal Committee for the resolution of disputes arising out of individual grievances
Section 4 of the Code makes it mandatory for employers of industrial establishments employing twenty or more workers to constitute one or more Grievance Redressal Committees consisting of an equal number of representatives of the employer and the workers for resolution of disputes arising out of individual grievances. While section 9-C of the Industrial Disputes Act inserted by the 2010 amendment to the Act also provides for the constitution of such committees, there are a few differences between the two provisions regarding the constitution and functioning of the Committee. Section 9-C of the Act allows the committee to have six members at the most. Section 4 of the Code raises the number to a maximum of ten. Section 4 also provides for adequate representation of women workers on the committee. Sub-section (5) of section 4 prescribes a limitation of one year from the date on which the cause of action arises for raising a dispute before the committee. Sub-section (6) of section 4 stipulates that the proceedings before the Committee should ordinarily be completed with a period of thirty days from the date of receipt of the application. The time period prescribed by the Code for completion of the proceedings of the committee is shorter than the period of forty-five days prescribed under section 9-C of the Industrial Disputes Act. Another difference between the two provisions is that while section 9-C provided for an appeal to the employer against the decision of Grievance Redressal Committee, the Code does not provide for such an appeal. As per sub-section (8) of section 4, only a worker who is aggrieved by the decision of a grievance redressal committee or whose grievance is not resolved by the committee within the thirty day period stipulated under sub-section (6) may file an application before the conciliation officer for the resolution of the dispute through the trade union of which he or she is a member.
Conciliation proceedings are expected to be completed expeditiously. In the event of non-completion of the conciliation proceedings within a period of forty five days from the date on which the application was made, sub-section (10) of section 4 allows the concerned worker to file an application before the Industrial Tribunal for the resolution of the dispute within a period of two years from the date of cessation of his or her service.
In the case of collective disputes, as per the proviso to sub-section (1) of section 53, an application may be made to the Conciliation Officer for resolution of the dispute within a period of two years from the date on which the dispute arose. Sub-section (4) of section 53 requires the Conciliation Officer to send his report on the matter within a period of forty five days from the date of commencement of the conciliation proceedings. In the case of disputes relating to strikes or lockouts, conciliation proceedings are required to be completed within a period of fourteen days. The period may however be extended on agreement by the parties to the dispute.
When no settlement is reached in the conciliation proceedings, within a period of ninety days from the date of receipt of the report of the Conciliation Officer, an application for resolution of the dispute by the Industrial Tribunal may be made as per sub-section (6) of section 53 of the Code.
5.3 No reference requirement
Unlike section 10 of the Industrial Disputes Act, there is no provision requiring reference by the government of collective industrial disputes for adjudication. However, in the case of disputes of national importance, the central government needs to refer the dispute for adjudication by the National Industrial Tribunal
5.4 Only Industrial Tribunals
The Code does away with Labour Courts and provides for adjudication of industrial disputes only by Industrial Tribunals. Section 44 of the Code provides for the appointment of both a Judicial Member and an Administrative Member to each Tribunal. The qualifications for appointment and the method of recruitment of the Members have not been spelt out in the Code. The proviso to sub-section (4) of section 44 however indicates that only a person holding the post of Joint Secretary or an equivalent rank in the central government or state government may be appointed as an Administrative Member. The Code also does not specify that only a person having prior experience of dealing with labour matters may be appointed as an Administrative Member of the Tribunal.
Sub-section (7) of section 44 provides that the Bench consisting of the Judicial Member and the Administrative Member may hear and decide cases regarding the interpretation and application of Standing Orders, discharge or dismissal of workers, retrenchment of workers, closure of an industrial establishment, legality of strikes and lockouts and inter and intra trade union disputes. Other cases may be heard either by a Judicial Member or an Administrative Member.
If it is left only to an inexperienced Administrative Member to decide cases by himself or herself, it will seriously impair the quality of the justice delivery system in labour related cases.
5.5 Transfer of Pending cases
As per section 51 of the Code, cases pending before the existing Labour Courts and Industrial Tribunals are to be transferred to the Tribunals to be constituted under the Code and either be heard de novo or from the stage at which they were pending prior to the transfer
5.6 Jurisdiction over trade union disputes
In addition to the resolution of industrial disputes defined under section 2(q) in a manner similar to that under section 2(k) of the Industrial Disputes Act, the Code also provides for the resolution of 'trade union disputes.' The term 'trade union disputes' is defined under section 2(zm) of the Code to mean 'any dispute relating to a trade union arising between two or more trade unions or between the members of a union inter-se.' According to Section 22 of the Code, the Industrial Tribunal would have jurisdiction over disputes arising between members of a trade union regarding the administration, management or election of the office bearers of the union and also over disputes arising between one trade union and another.
As a result, the civil courts will no longer have jurisdiction over such disputes once the Code comes into force and this has been explicitly stated in sub-section (2) of section 22.
5.7 Power to grant interim relief
Sub-section (2) of section 50 gives Industrial Tribunals the power to grant interim relief but it is restricted only to cases of dismissal or discharge or termination of workers.
5.8 National Industrial Tribunals
Section 46 of the Code provides for the constitution of National Industrial Tribunals to adjudicate upon disputes that involve issues of national importance or issues concerning industrial establishments in more than one state. Just like the Industrial Tribunals to be established under the Code, the National Tribunals are also to have a two member Bench consisting of a Judicial Member and an Administrative Member. Only a sitting or former Judge of a High Court is eligible to be appointed as a Judicial Member of the National industrial Tribunal. A person of the rank of Secretary in the government or an equivalent rank having adequate experience of handling labour related matters may be appointed as an Administrative Member of a National Industrial Tribunal.
5.9 Reference to the government when there is no consensus between the members of a Tribunal
Cases before the Industrial Tribunal and National Tribunal are expected to be decided by consensus between the members. When the members differ in opinion on any point, they are required to make a reference to the concerned government as per sub-section (2) of section 47. The government would then appoint a Judicial Member of another Tribunal to hear the points in dispute and the case would be decided by majority.
The Industrial Relations Code also introduces changes in respect of the penalties for the commission of certain offences and the process of imposition of the penalties.
6.1 Deletion of the penalty of imprisonment for the commission of certain offences
Sub-section (5) of section 86 renders the commission of any unfair labour practice punishable only with fine. Under section 25-U of the Industrial Disputes Act, the commission of an unfair labour practice is punishable with imprisonment or fine or both. Sub-section (6) of section 86 makes the contravention of sections 78,79 and 80 relating to the need for government approval before effecting a lay off, retrenchment or closure punishable with fine. Under sections 25-Q of the Industrial Disputes Act, contravention of similar provisions was punishable with imprisonment or fine or both. Thus, the penalty of imprisonment has been removed in respect of the commission of certain offences by employers and this reduces the deterrent value of the penalties prescribed. On the other hand, participation in an illegal strike, instigating others to participate in an illegal strike or financially aiding an illegal strike continue to be punishable under sub-sections (13). (15) and (16) of section 86 with imprisonment or fine or both.
6.2 Imposition of fines by gazetted officers
Section 85 of the Code enables the government to appoint any officer of the rank of Under Secretary to the government or an officer of higher rank for holding enquiries and imposing the penalty of fine for contravention of the provisions of the Code. These include penalties for the commission of unfair labour practices, violation of the conditions precedent to retrenchment and failure to pay the prescribed compensation in the event of lay off, retrenchment or closure.
The vesting of power with government officers to hold inquiries and impose penalties has the effect of making it easier for employers to get away with violation of the law.
6.3 Compounding of offences
Section 89 of the Code provides for the compounding of offences. As per sub-section (1) of section 89, on the application of the accused person, an offence under the Code punishable with fine may be compounded by paying fifty percent of the maximum fine prescribed to a gazetted officer notified by the government. In the case of offences punishable with imprisonment for a year and fine, the offence may be compounded by payment of seventy five percent of the fine amount.
The possibility of compounding of offences would mean that virtually in no case an employer would be prosecuted and convicted. The possibility of compounding reduces the deterrent value of the penalties prescribed under the Code for contravention of the law by employers.
On balance, it is clear that most of the changes introduced in the law governing industrial relations under the Code are employer-friendly changes and that the protection for workers' rights has been reduced under the Code. Little wonder then that the Code has been welcomed by employers and greeted with dismay by workers' organizations.
Views are personal only.
(The author is an Advocate practising in the Madras High Court)