Where do state labour law changes stand on legal front?

May 23, 2020 3:58 PM

While the legality of some of the labour law changes may ultimately be subject to judicial scrutiny, COVID-19 has woken up state governments to take a serious look at the labyrinthine labour laws in India.

labour laws, labour in india, govt makes changes in labour lawsSince labour welfare falls within the concurrent list of the Constitution, both Central and State Governments can make laws on the subject.

Damini Bhalla & Udyan Arya Shrivastava

Several States have recently made significant changes in labour laws in order to deal with the economic challenges posed by COVID-19. While most states have only increased working hours for factory workers, states such as Madhya Pradesh and Uttar Pradesh have undertaken wider changes aiming at attracting investment, easing compliance and speeding up the process of granting approvals and licences. Since labour welfare falls within the concurrent list of the Constitution, both Central and State Governments can make laws on the subject. Any amendment to a Central statute by a State also requires the assent of the President, unless a change is made by a State exercising its existing powers within the statute itself.

Most states have followed the latter approach by introducing temporary relaxations under key labour statutes. Uttar Pradesh, however, from a press release issued by the State Government, appears to have passed an ordinance providing a carte blanche exemption to all factories and commercial establishments from the application of almost all labour laws for a period of 3 years, barring provisions relating to the protection of women and children. While it will be important to look at the text of the Uttar Pradesh ordinance once available in the public domain, any such ordinance amending Central legislations like the Factories Act, Industrial Disputes Act, Contract Labour Act, etc. would require the assent of the President. The Chief Ministers of Gujarat and Karnataka have also announced plans to bring similar changes by way of an ordinance.

Change in working hours and overtime

One demand raised by several industry bodies to the Ministry of Labour and Employment was to extend working hours for factory workers from existing 8 hours to 12 hours a day, which some States have addressed by issuing orders under the Factories Act. States like Gujarat and Himachal Pradesh have issued such orders under Section 5 of the Factories Act, which allows States to exempt all provisions of the Act in case of a ‘public emergency’. The orders also provide that workers will only be entitled to the ordinary rate of wages for such additional hours and will not be entitled to overtime pay.

Under Section 5 of the Factories Act, the State Government can exempt factories from compliance of any or all provisions of the Factories Act a period not exceeding three months at a time on account of a public emergency. “Public emergency” is defined, in very limited terms, to mean a grave emergency whereby the security of India or of any part of the territory thereof is threatened, whether by war or external aggression or internal disturbance. While the Uttar Pradesh had also issued a similar order under Section 5, which had also been challenged in the Allahabad High Court, it has since been withdrawn.

On the other hand, Punjab has issued the order amending working hours under Section 65 of the Factories Act, which only allows States to extend working hours to deal with an ‘exceptional press of work’, but does not allow exempting overtime pay.

Whether or not COVID-19 amounts to an “internal disturbance” or satisfies the test of “exceptional press of work” may, of course, become a question of debate and may need to be judicially tested. The State of Rajasthan, meanwhile, has issued the order without referring to any provision of law. However, workers in Rajasthan would be entitled to overtime wages for such additional 4 hours worked.

The notifications do not seem to have taken into account the overall limit of 60 hours a week prescribed in the Factories Act (including overtime) and whether workers working additional hours would be entitled to compensatory holidays, as in the case of overtime work. The changes also deviate from the ILO Convention, ratified by India, which prescribes an 8-hour workday.

Other changes in Madhya Pradesh

In more wide-ranging changes, Madhya Pradesh has exempted all factories from most provisions of the Factories Act for a period of 3 months. While substantive provisions of the Act related to workplace safety and overtime pay continue to apply, provisions in the State rules regarding occupational health and welfare of workers and filing of numerous returns will be exempted. The inspection regime of the Act has also been amended significantly and non-hazardous factories employing up to 50 workers will now be exempt from statutory inspections, provided they conduct third party inspections (by agencies recognised by the labour department) once a year and submit a report to the Labour Commissioner. Any inspection in such factories can only be carried in case of a serious accident or on a compliant received, and with prior permission of the Labour Commissioner.

While the Madhya Pradesh Government intends to continue the exemptions for 1000 days, the notification granting the exemptions is limited to only three months as this is also issued under Section 5 of Factories Act. These changes, along with the notifications extending working hours issued by some states have been challenged before the Supreme Court on the ground that powers under section 5 have been wrongly used. Further, any extension of these relaxations beyond three months (in a post-COVID scenario) would be a new challenge in itself.

Madhya Pradesh has also exempted new factories from several provisions of the Industrial Disputes Act for a period of 1000 days. However, it should be noted the notification has been issued under Section 36-B of the Industrial Disputes Act, under which the State Government has the power to exempt any industrial establishments or undertaking or any class of industrial establishment or undertakings carried on by a department of the Government. While the section uses the word “or”, the Karnataka High Court in 1997 has interpreted this to mean that only State-run establishments and undertakings can be exempted under the Section. From the press release issued by the Madhya Pradesh Government, the intention appears to be to exempt all new factories. Thus, there is ambiguity on whether the exemption will apply to private establishments.

The exemption is also subject to adequate provision being made for investigation and settlement of industrial disputes in the establishment and it is not clear how the Government will monitor the fulfilment of this condition. These changes may put new industries at an advantage compared to existing industries, as they will no longer have to comply with requirements like providing notice to workers before effecting any change in conditions of service (including wages). New industries will also be exempt from the procedure of settlement of industrial disputes and filing of numerous returns under the Act for a period of 1000 days. However, the provisions relating to compensation and notice before retrenchment, lay-off and closure, along with requirement of taking permission from the authority before retrenchment and closure (where applicable), will continue to apply.

In another significant change, Madhya Pradesh has also made a legal commitment to reduce the turnaround time in relation to 18 essential labour registrations and licences to one working day of an application being made. The MP Government has also increased the validity period of license granted to contractors for engaging contract labour from one year to the entire period of the contract for which the application is made and increased the threshold for formulating standing orders (which regulate the conditions of service of workers) from establishments with 50 workers to 100. Certain specified industries have also been exempted from the applicability of the MP Industrial Relations Act, while pending disputes will continue. Shops and establishments have also been allowed to remain open from 6 AM to 12 AM (although the notification erroneously mentions 12 PM).

To sum up…

While the legality of some of these changes may ultimately be subject to judicial scrutiny, COVID-19 has certainly woken up State Governments to take a serious look at the labyrinthine labour laws in India and ease the burden of compliance on businesses. However, most of the changes brought so far seem to be a temporary fix and, in their present form, may not continue beyond 3 months.

The Government should look at bringing meaningful reforms to address the concerns of the industry while also safeguarding workers’ rights by simplifying laws, easing compliance, expediting approvals, and ensuring consistency across States in the interpretation and application of labour laws and procedure. It is perhaps also time to look at the long-awaited labour law codes, which consolidate 44 labour legislations, with heightened urgency come up with a more permanent and comprehensive solution, rather than tweaking existing laws in a piecemeal manner without addressing the larger concerns raised by the industry.

Damini Bhalla is a Partner and Udyan Arya Shrivastava is an Associate at L&L Partners. Views expressed are the authors’ personal. 

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