Under the Constitution of India, labour is a subject in the concurrent list where both the Central and State Governments are competent to enact legislation. As a result, a number of labour laws have been enacted in India catering to different aspects of labour, including industrial relations, wages, social security, health and safety, welfare and working conditions. In order to encourage compliance and to make it easier to do business, there have been various suggestions in the past to separate the large number of labour statutes into different aspects of labour law.

As one such initiative, the Ministry of Labour and Employment has recently introduced the draft ‘Labour Code on Industrial Relations Bill 2015’ (Draft Code) which proposes to amalgamate three important central labour laws dealing with industrial relations:

  • The Trade Unions Act 1926 (TU Act) which seeks to provide for the registration of trade unions and to define the law relating to registered trade unions
  • The Industrial Employment (Standing Orders) Act 1946 which was enacted to require employers in industrial establishments to formally define conditions of employment under them
  • The Industrial Disputes Act 1947 (ID Act) which provides for the investigation and settlement of industrial disputes and regulates matters relating to redundancies (known as (“retrenchment” in India), lay-offs, site closure, transfers of undertakings and changes in service conditions

The present form of the Draft Code contains 107 sections and 3 schedules, dealing with various industrial relations issues, including registering trade unions, standing orders, notice of change of terms of employment, strikes, lockouts, lay-offs, redundancy and site closures.

The Draft Code also contains some changes to the current law. Some of the significant changes being proposed are:

  • Industrial establishments employing more than 50 but fewer than 300 workers would not have to obtain government permission for lay-offs, redundancies or site closures. Currently, under the ID Act, the government’s approval is required for industrial establishments employing at least 100 workers. Separate legislation is expected to be introduced setting out the procedure for closure or lay-offs for small factories employing up to 50 workers
  • The TU Act provides that seven or more union members may apply to register a trade union. The Draft Code proposes to restrict the freedom of workers to constitute trade unions, providing that, in most cases, a minimum of 10% of the workers employed in an establishment would be required to make an application for registering a trade union. However, the 10% minimum does not apply to:
    • Large employers, where 10% of the workforce represents at least 100 workers - in which case it is sufficient if the application is made by 100 workers
    • Small employers, where 10% of the workforce represents fewer that 7 workers - in which case a minimum of 7 workers shall be required to make an application for registration
  • Currently, at the time of a worker’s redundancy, if they have at least one year’s continuous service, the ID Act requires the employer to pay compensation equivalent to 15 days’ average pay for each completed year of service, or any part year in excess of six months. The Draft Code proposes to increase redundancy compensation to 45 days’ average pay for each completed year of continuous service, or any part year in excess of six months

The Ministry of Labour and Employment has invited suggestions/comments on the Draft Code from concerned stakeholders. The Draft Code is then expected to be forwarded for approval by the Union Cabinet.

Vineet Aneja, Partner and Vikram Bhargava, Associate Partner in Clyde & Co Clasis India office report on the proposals in the draft Labour Code.