The India of Amrit Kaal that PM Narendra Modi has envisioned and the work on which is underway honours its ‘wealth creators’ and works tirelessly for its ‘Shram Yogis’ because the welfare and prosperity of the two are intrinsically linked. And together their welfare lays the foundation of a New India.
The PM’s 2021 Independence Day speech made lowering regulatory cholesterol a policy priority. He said, “We want such an India where the government doesn’t interfere with the lives of citizens. Every rule, every process that has stood before the people of the country as a hindrance, as a burden, we have to remove it.”
The new labour laws are thus designed in a way to ensure that interests of both businesses and people who work for the businesses are protected. The new laws are in tune with the changing labour market trends and at the same time accommodate the minimum wage requirement and welfare needs of the unorganised sector workers, including the self-employed and migrant workers.
Labour reforms have been completed by subsuming multiple laws into four Labour Codes which have addressed existing central labour laws, encompassing a plethora of authorities, burdensome compliances, registrations, inspections, licenses and registers/forms. The reforms will strengthen workers’ social security in both the organised and unorganised sectors. Transformative and game-changing aspects of the Labour Codes include freeing India’s entrepreneurs from the burden of unnecessary and excessive compliances and imprisonment provisions under old labour laws.
Consider some of the clauses in the old regulatory laws:
- Imprisonment between 3 months and 1 year for not maintaining records of colour washing, varnishing/painting of canteens under Factories Act and related rules
- Imprisonment between 1 and 3 years for not furnishing annual return of holidays to Inspector, under Factories Act and related Rules
- Imprisonment between 3 months and 1 year for not-displaying Notice showing date of payment of wages under the Payment of Wages Act, 1936 and similarly for several other minor omissions which emanate from various laws framed in the past 100 years.
Considering the old laws to be a hindrance in India’s growth story, Parliament passed the four Codes in 2020 viz, the Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; the Occupational Safety, Health and Working Conditions Code, 2020. In doing so, the government addressed the issue of excessive criminal provisions in labour laws. The root cause of such excessive regulatory cholesterol of criminalising minor offences stems from a particular section in almost all Acts and referred to as ‘General Penalty for Offences’. For instance, the Factories Act provides in section 92, under General Penalty for Offences: “if in, or in respect of, any factory there is any contravention of any of the provision of this Act or any rules made thereunder or of any order in writing giving thereunder, the occupier and the manager of the factory shall each be guilty of an offence and punishable with imprisonment for a term which may extend up to 2 years or with fine which may extend to 1 lakh rupee or with both….” Similar ‘General Penalty’ clauses exist in most Acts in the country including Environment Protection Act, 1986 and Inter-State Migrant Workmen Act.
Imprisonment provisions under such General Penalty Clauses have been removed under the new the new Labour Codes. At the same time, to ensure that an employer has a functioning and well-oiled internal organisational and operational mechanism to check non-compliance, monetary fines have been increased multifold. The reason why this has been done is that imprisonment is too severe a consequence for economic offences that do not involve mala fide intent. These reforms will significantly contribute to India’s ease of doing business index.
On the other hand, there were concerns that the Labour Codes would not adequately provide for the prosecution of employers, and it may be lenient towards employers committing offences. However, appropriate safeguards have been incorporated in all the Labour Codes to ensure that there is no leniency in dealing with the malafide intent of employers where ever it exists. It is relevant to note that prosecution for certain offences such as insurance and provident fund contributions which have been deducted by the employer but not paid are construed as intentional and willful default and have been strictly dealt with under the law. The Codes do not allow employers’ grave and intentional contraventions to go unpunished. The grounds for prosecutions have however been restructured to ensure that an unintentionally errant employer or a one-time offence committed by an employer does not lead to unnecessary and undue harsh consequences.
A statutory provision has also been introduced in the Labour Codes which states that an inspector may give an “Improvement Notice” to an establishment or to a delinquent employer to amend mistakes and make good the losses suffered by the worker or improve the situation/default which the inspector/assessing officer has noticed. Such an approach not only promotes principles of natural justice but also strengthens the relationship between an employer and the worker as the aim and objective of the improvement notice is to redress the grievance of the workers, be it non-payment of wages or not providing certain information to the Government, rather than invoking the prosecution procedure. It also unburdens courts from the pressure of handling minor issues.
For the first time, compounding of offences, except for offences grievous in nature,has also been introduced in all Labour Codes. If punishable with imprisonment of up to one year, crimes committed for the first time can be compounded by an authorised officer. Compounding of repeat offences is also possible after a 3-5 years gap. Procedures for compounding the crimes have been made simple. Money collected from the composition of violations shall be credited to the social security fund maintained by State Governments and Central governments. Such funds can be utilised for the welfare of the unorganised workers.
Labour being on the Concurrent List, decriminalisation of offences in Central labour laws will automatically apply to the areas falling within the jurisdiction of the State Governments and Central governments.
The four Labour Codes have reduced the number of sections from 1,228 to 480, a 61% cut. On the initial assessment of imprisonment, there will be only 22 Sections in Labour Codes which will contain imprisonment as a penalty for a first-time offence. The Government has demonstrated its seriousness in reducing criminalisation for non-serious offences and allowed it to focus on universalising various benefits such as minimum wages and social security for all the country’s workers.
Criminal penalties, especially the risk of imprisonment for minor and often unintentional offences, are a significant deterrent for today’s young entrepreneurs. The decriminalisation of certain unintentional corporate crimes is desirable as far as possible because they deter both domestic and international investors. It is expected that decriminalisation of labour laws to will remove the fear of criminal prosecution from the minds of entrepreneurs, which would unleash the entrepreneurial spirits of our youth and will encourage them to set up more businesses; paving the way for a generation of employment which is the top-most priority of the Government. A trust-based approach towards employers will encourage them to align their business practices with Labour Codes and incentivise companies to ensure better compliance with our laws while promoting better human resource practices.
Once in force, the Labour Codes will ensure that India moves confidently towards Atmanibharta as envisioned by PM Modi, by removing all obstacles from its way.
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