By – Shreya Maheshwari

Abstract 

The four new labour codes, including the Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions Code, 2020, were introduced to ensure social security and dignity of workers while promoting industry growth. However, the regulations under the Industrial Relations Code 2020 provide an increased threshold for layoffs and promote fixed-term employment. This tilts excessively towards employers by providing them with flexibility in hiring and removing workers, thus weakening workers’ safeguards. The article argues that these new regulations, coupled with strike provisions, reduce the bargaining power and job security of the workers.

Introduction 

MSMEs support the Indian economy by contributing 30.1% of the country’s GDP, 35.4% of manufacturing output. Hence, to further strengthen this sector, the existing 29 central laws were repealed and consolidated into four new labour codes.  These codes will come into effect from November 21, 2025, and aim to ensure economic development as they simplify compliance for MSMEs, ensuring business ease. However, it also significantly affects the workers’ livelihoods as it employs over 60% of the workforce. Hence, it is important to understand whether these new codes strike a balance between employers’ flexibility and workers’ job security and bargaining power while focusing on MSME growth. The article critically analyses relevant regulations under the Industrial Relations Code, 2020, and draws comparisons with the Industrial Disputes Act, 1947, to understand how these new laws impact the workers.

Raising the Layoff Threshold and the Erosion of Worker Security

Section 77 (1) of the Industrial Relations Code, 2020, gives power to employers having up to 299 workers to retrench staff without any government approval. This measure is included to ensure business ease and flexibility for MSMEs, as it can easily lay off employees without any formal procedure after their goal is achieved. However, this provision increases the layoff threshold as compared to the previous law. Under Section 25M of the Industrial Disputes Act, 1947, employers employing more than 100 workmen were required to obtain prior permission from the appropriate government before effecting lay-offs. Even this regulation indeed created job insecurity for the employees; however, the new codes might heighten these concerns by increasing the threshold to 299 employees. This may increase workers’ vulnerability by reducing their collective bargaining power, provided that these regulations are embedded in the laws governing them. Moreover, most Indian factories employ between 50 and 300 workers. Hence, these provisions might create job insecurity for millions of workers in India, given that MSMEs employ nearly 28 crore people across 6.5 crore units.  Although the codes focus on social benefits by ensuring timely wages, healthcare, etc, their benefits will be limited due to employment uncertainty. Further, the insecurity of unemployment might prevent workers from raising their concerns, including the compromise of basic conditions like a safe working environment. This will impact a major portion of the workforce as MSMEs contribute 62% to employment in India.

Fixed-Term Employment: Security in Name, Precarity in Practice

Under Section 2(o) of the Industrial Relations Code, “fixed term employment” means the engagement of a worker based on a written contract of employment for a fixed period. Thus, under this provision, a worker will be employed only for the period mentioned in the contract. The contract can be renewed based on the mutual terms and conditions of the employer and employee. 

While this provision is beneficial for employees, it provides them with benefits equal to permanent workers, including leave, medical, and social security. However, it comes with a high cost for workers. 

Employment under these FTE does not constitute permanent employment. Further, the employers do not have an obligation to provide a notice or reason for termination under the FTE agreement. This creates a job threat for workers. This regulation favours the employers as they can easily remove an employee without any appropriate reason under the act. 

Additionally, workers in the informal sectors usually lack power. Thus, mostly the terms and conditions of the contract are based on the employer’s discretion, thereby favouring them. This will also limit the collective bargaining power of workers, as they themselves accepted the contractual terms and conditions. Hence, workers might be forced to accept low pay, harsh workplace conditions.

Moreover, since the employment is only for a fixed period, the employers will not invest in training of temporary workers, as there will be no benefits for employers, and it will incur costs for them. Thus, reducing their profits. This will impact workers’ skill development and growth. Thus, impacting their livelihood in the long-term period. 

Strike Restrictions and the Erosion of Worker Bargaining Power

According to the above analysis, workers are disadvantaged under these two regulations of the act. Under the Industrial Disputes Act, 1947, only workers involved in public utility services, including sanitation or railways, were required to give notice. However,  strike regulations under section 62 of the Industrial Relations Code require employees in any establishment to give a 60-day notice before a strike. In these sixty days, employers may have an opportunity to hire alternative workers to complete the work, which may dilute the impact of the strike. These gaps might render the strikes ineffective and may prevent workers from exercising their rights. Further, the requirement of providing advance notice to employers before going on strike may allow the employers to terminate workers ‘contracts. They might also lay off the workers without any formal procedure if the industrial establishment hires fewer than 300 workers. Hence, this framework might unilaterally favour employers by providing them with flexibility in employment. Thus, this framework raises concerns about whether the intended objective of creating a balanced environment ensures that both the growth of MSMEs along protecting the workers ‘rights will be truly achieved.

Conclusion 

These new codes were enacted to create a balance between ease of doing business and workers’ social security. However, it appears that the objective is not fully realised. Certain gaps and amended regulations in the new codes, including restrictions on strike, fixed-term employment contracts, and increasing the layoff threshold, might hinder the achievement of this dual objective. This might result in unequal employment relationships, where workers’ negotiating powers might weaken due to easy layoffs. Unless these imbalances are adequately addressed, workers’ demands and welfare will be subordinated to the growth and flexibility of MSMEs.

Author’s Bio

Shreya Maheshwari is a second-year B.COM LLB student at O.P. Jindal Global University. 

Image Source – https://www.dailyexcelsior.com/indias-new-labour-codes-reshaping-the-future-of-work-wages-and-welfare/