Industrial Relations Code — Not an Improvement
By: Sushan Mhatre
Tags: Legislation, Legal, Indian Politics, Industry, Labour Law

The country is dealing with a global pandemic which has led to economic strife and turmoil. The Central Government, in its infinite wisdom, decided to introduce four new codes to replace and consolidate all industrial and labour legislations, namely the Code on Wages, 2019 (Act No. 29 of 2019), the Industrial Relations Code, 2020 (Act No. 35 of 2020), the Code of Social Security, 2020 (Act No. 36 of 2020) and the Occupational Safety, Health and Working Conditions Code, 2020 (Act No. 37 of 2020). The Code on Wages, though enacted, has not been implemented yet as the Central Government has postponed its implementation. The ramifications of the Code of Wages are far-reaching and possibly more damaging for both the employer and employee.

Industrial relations are a significant factor in a country’s economic growth. The legislature amended industrial and labour laws several times over the years. Yet, these changes did not alleviate the difficulties faced by both the employer and the workmen. As the amendments were not satisfactory, the Government set up the National Commission on Labour (NCL). The report submitted by the 2nd NCL, that is, the Verma Commission Report, 2002, observed that the additions to the labour laws were made in a piecemeal manner, which resulted in those laws being ‘ad-hoc, complicated, mutually inconsistent with varying definitions, and containing outdated clauses’. The Commission emphasised the need to simplify and consolidate labour laws for transparency and uniformity in intention and approach. The Commission believed that since various labour laws apply to different workmen and employees across various thresholds, their consolidation would also allow for better coverage of the labour in the country. The Government, irrespective of the party in power, required almost 20 years to pay heed to the observations of the 2nd NCL and realise that the suggestions made by the Commission would aid industrial relations between employers and employees, which would, in turn, lead to increased productivity and economic growth.

The Industrial Relations Code, 2020, one of the four new codes, consolidates and amends the laws relating to Trade Unions, the conditions of employment in industrial establishments or undertakings, investigation and settlement of industrial disputes and other connected matters. This Code subsumes the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946 and the Industrial Disputes Act, 1947. However, the amalgamation and consolidation of these Acts is haphazard. Plus, the legislature has not dealt with the underlying issues afflicting the earlier legislations.

The Industrial Relations Code was initially introduced as Bill No. 364 of 2019 in the Lok Sabha on 28th November 2019. The 2019 Code received severe criticism from every corner of Parliament. As seen from the Standing Committee Report dated 23rd April 2020, the Committee did not accept the Bill as it stood and had some serious misgivings. Some distinguished committee members openly dissented. The Committee made several recommendations. There was a trenchant evaluation of the proposed legislation by many writers and commentators, trade union leaders and political parties. Perhaps, this led the Government to withdraw the Bill on 19th September 2020. However, the Central Government introduced the current 2020 Code as a Bill on the same day in the Lok Sabha. The Bill was passed on 22nd September 2020 by the lower house, after that by the Rajya Sabha on 23rd September 2020. The President gave his assent on 28th September 2020. Surprisingly, both houses passed the 2020 Code without any deliberation or debate.

Interestingly the monsoon session of both houses in 2020 was held during the trying times of the global COVID-19 pandemic. The Speaker of the Lok Sabha decided that the question-answer session, where the opposition could question the bill, was unnecessary. There is no reason given for the 2020 Bill’s urgent introduction without considering the dissenters' view and the recommendations of the Standing Committee on the earlier Bill. If the Code in its present ‘avatar’ had been enacted after considering the recommendations of the Standing Committee, maybe the present problems in the Code would not have presented themselves.

Interestingly, the language of the new Code of 2020 is identical to its predecessors, i.e., the Acts which it replaces and the 2019 Code, which was withdrawn, with a few exceptions. The Code has introduced new definitions which did not exist in the repealed Acts. These new definitions favour the employer, which could lead to avoidable complications and disputes. The Indian working class, since before independence, has fought for its rights while revolting against the yoke of foreign rule. It is necessary to note that industrial and labour jurisprudence evolved with mainly employee-driven disputes adjudicated upon by the Indian Judiciary. The proclaimed aim of the new legislation is to maintain harmony between employers and employees so that peaceful working conditions lead to a new chapter in industrial relations. Yet, it seems that the legislature has not considered the interest of the working class. Nor has it tried to improve upon the existing legislations which it has repealed while enacting the Code.

One such example is Chapter X of the Code which deals with special provisions relating to Lay-off, Retrenchment and Closure in certain establishments. In 1947 when the Industrial Disputes Act was enacted, there was no restriction on the employer for closing down an industrial establishment. In the seventies, industrial establishments were being closed down regularly, perhaps due to industrial strife. The Government of the day was alarmed because of the loss of productivity and growing unemployment due to the closure of industrial establishments. Consequently, it introduced the Amending Act No. 32 of 1976, and inserted Chapter V-B, in the Industrial Disputes Act. The legislature stipulated that under section 25-O, which was contained in this Chapter, the appropriate Government’s permission was necessary for closing an industrial establishment employing 300 or more workmen. This section was unconstitutional by the Hon’ble Supreme Court [Excel Wear v. Union of India reported in 1978 2 LLJ 527] and was struck down. To overcome the hurdle presented by this judgement, a new amendment was introduced to the Industrial Disputes Act by the legislature in 1982. Chapter V B was made applicable to establishments employing 100 workmen or more. The number of workmen was reduced from 300 in the 1976 Amending Act to 100 by the Amending Act No. 46 of 1982. The other deficiencies found by the Supreme Court, in 25-O were also sought to be corrected. The new section 25-O, substituting the earlier one on the statute book in 1982, was rechallenged. The Hon’ble Supreme Court was of the opinion that it was constitutionally valid [Orissa Textile & Steel Ltd v. State of Orissa reported in 2002 2 SCC 578]. This was because while substituting the section the legislature had addressed the deficiencies pointed out in Excel Wear. While bringing into force the new amendment to Chapter VB it was made applicable to establishments with more than 100 workmen since most industrial establishments still relied on a large human workforce at that point of time. They had not switched over to automation of several departments.

Chapter X in the new Code applies only to those industrial establishments where the number of workers is more than 300, excluding seasonal workers. The Standing Committee, appointed to discuss the 2019 Bill, did not discuss the necessity for reintroducing the magic figure of 300 workers. However, it considered the example of the State of Rajasthan which first experimented by increasing the threshold to 300 workers. The Government of Rajasthan claimed that the State amendment to the Industrial Disputes Act, increasing the threshold from 100 to 300 workmen had encouraged employment. The employment rate increased to 9%. It also claimed that there were no retrenchments or reduction of the workforce after the amendment.

With technological advancement and automation of industrial establishments, there would be less requirement for human resources. An establishment with less than 300 workers may well indulge in indiscriminate acts of ‘hire and fire’, especially as it would now be armed with the weapon of ‘fixed term employment’ of workers. Chapter X of the Code will impede the workers’ right to stable employment in smaller establishments by removing the checks and balances under Chapter V-B of the ID Act. Therefore, increasing the threshold to 300 workers would be counterproductive for a country with our population.

Judicial opinion throughout the country was divided on the vires of the substituted Section 25-O after it was brought into effect in 1982. A single judge of the Karnataka High Court, while concluding that the substituted Section 25-O was ultra vires the Constitution, observed that the impugned provision ought to have enumerated the specific grounds, which if made out, the appropriate government was obliged to grant permission, while giving reasons for the same. The Constitution Bench of the Supreme Court, in Orissa Textiles, held that Section 25-O was valid and did not contravene the provisions of Article 19 (1) (g) of the Constitution of India. Though Section 25-O was held to be valid, the Standing Committee, while dealing with the provisions of Chapter X of the Code of 2019, more specifically Section 80, ought to have recommended that a more precise provision of law should be enacted.

The granting of permission for closure under Section 25-O was based solely on the subjective satisfaction of the appropriate government. This infirmity continues in section 80 of the Code. The legislature had the opportunity to specify, illustratively if not exhaustively, the grounds on which permission for closure could be sought and granted. The section would then be more objective. If the employer can make out a case for closure within the parameters stipulated in the section, the appropriate government would have to grant permission, after hearing the workers and having regard to the general public. The workmen could oppose the permission for closure more effectively by indicating that the grounds for which closure is sought are not in consonance with those enumerated in the section. Consequently, the possibility of permission for closure being granted or denied at the whim or caprice of the appropriate government could have been eliminated. The subjective element in such orders could have been reduced to a great extent. The compensation payable to the workers on account of closure should have been increased. This could have aided in reducing industrial strife and needless litigation.

The legislature has done a shoddy job and pushed the bill through during this pandemic without considering the impact the new Code would have on industrial harmony. In its zest to ensure that huge investments are attracted to give a fillip to the economy, the legislature has cared little about the workers’ rights like that of industrial bargaining. The subsuming of the previous labour legislations into the Industrial Relations Code, 2020 has done nothing but create further problems. It is pertinent that the Central Government has not implemented the four new Codes though they have the assent of the President of India. Industrial strife will only increase with the implementation of the Industrial Relations Code. Perhaps, the Central Government has realised its folly and has not issued the notification for implementing the Code which was brought onto the statute book with indecent haste. Does the Central Government see the problem, or does it need reminding that it is necessary to secure the future of our nation and its workforce?