Business and human rights under India’s new labour codes

Prashant Mara
BTG Legal, Mumbai
prashant@btg-legal.com

Devina Deshpande
BTG Legal, Mumbai
devina@btg-legal.com​​​​​​​

* This article is correct as of May 2021.

Introduction

Baseline rights of workers in India have traditionally been dealt with under numerous, often overlapping, labour laws and overseen by multiple regulators. The approach has mostly been a compliance (tick the box) exercise with hardly any emphasis on businesses’ accountability to improve labour conditions for a large section of the workforce.

The Indian government is now in the process of consolidating 29 existing labour laws into four labour codes (the Codes). These codes cover the critical rights of wages, social security, industrial relations, and safety, health and working conditions of workmen. The much-needed modernisation of labour laws is an opportunity for the government and business to move away from a prescriptive top-down approach to a more consultative and sustainable effort to address the core issue of protecting human rights of workmen. Further, their enforcement comes at a time when companies are increasingly being judged on their sustainable business and human rights (BHR) policies by regulators, courts and civil society.

However, there is concern in some quarters that the government’s emphasis on increasing the ease of doing business in India will dilute these baseline rights. In addition, there are questions as to whether the ‘new’ enforcement mechanisms implemented by the same set of regulators (but with different designations) will actually lead to a change.

Against this backdrop, this article considers the treatment of key BHR components under the Codes to measure whether workers’ baseline rights have been diluted or, on the contrary, enhanced.

Please note that we have separately prepared a comprehensive analysis of the provisions of the Codes.[1] You may find it useful to read through this analysis prior to this article, as we focus exclusively on aspects relevant to the BHR discussion here.

Treatment of key BHR components under the Codes

While the Codes were to come into effect on 1 April 2021, their implementation has been deferred to give Indian states the time to formulate rules under the Codes. At the time of writing this article, no implementation date has been confirmed.

Once implemented, the Codes are likely to be relied on as setting the minimum standard in BHR for companies incorporated or operating in India. While companies can be ‘encouraged’ to do more, most businesses will likely stick with complying with the minimum standard. This makes the Codes, and their implementation, critical.

Minimum wage fixed and made uniform  

The code on wages introduces a national ‘floor wage’, setting a uniform minimum wage in India for the first time. Presently, central and state governments prescribe varying levels of minimum wages based on workers’ skill and experience. Going forward, state governments cannot set the minimum wage below the floor wage; where a higher minimum wage is currently fixed by a state government, this cannot be lowered to match the floor wage.

The code of wages is applicable to all establishments (irrespective of sector or number of/amount of wages drawn by their workers). This moves away from the current position where wage regulations apply only to a list of ‘scheduled employment’ identified by each state government. As a consequence, the benefits of a minimum wage will now be uniform and apply to a broader spectrum of workers.

Expanded social security net

The code on social security enables the government to extend social security benefits to certain (currently unrecognised) categories of workers – unorganised workers, gig workers and platform workers. The terms ‘gig workers’ (persons outside the traditional employer–employee relationship) and ‘platform workers’ (persons sourced through online platforms or marketplaces) are new concepts and cover persons engaged in work that was not previously covered by traditional social security. If implemented appropriately, this will cover a large number of previously unprotected workers and bringing them under basic social security cover.  

Improved health, safety and working conditions

The occupational safety, health and working conditions code sets out a number of new welfare mandates along with impactful revisions to existing health and safety (H&S) provisions. Uniform H&S provisions and working conditions are now applicable to all commercial establishments rather than only to the more narrowly defined ‘factories’/‘mines’ as in the present case. This significantly expands these arguably basic protections beyond their current ambit. In a first, the relevant code recognises the rights of transgender persons, requiring employers to allot them separate bathing, washroom and locker room facilities. Employers must provide free annual health check-ups and may not charge employees for H&S measures. Worker consent is mandatory, along with payment of double-time wages, for overtime work: potentially protecting against forced labour/excessive overtime, in addition to constituting fair wages for completed work. Lower thresholds have also been introduced for appointing welfare officers and providing canteen and creche facilities.

Amongst the provisions with tremendous social impact are the welfare measures prescribed for inter-state migrant workers – a class of labour that is particularly susceptible to trafficking, bonded labour and exploitation. The expanded definition now also includes workers seeking direct employment/self-employment in another state, rather than only those employed via a licensed contractor. Suitable working conditions and social security are now the responsibility of the employer/principal employer (where hired through a contractor). The employer is also obligated to pay for the workers’ return journey to their native place annually, potentially easing restrictions on movement.

In an expansion of liability, the occupational safety and health code now holds both the owner and the occupier jointly and severally liable for maintenance of factory premises (unlike the current position which places the onus solely on the owner), thus expanding avenues of recourse for accidents and defaults.

The Code also contemplates responsibility (and related liability) of certain specialists within project management/supply chain such as the architect, project engineer and designer for building and construction work, and persons installing machinery or manufacturing/importing/supplying substances for factory use.

Termination of employment made easier

The existing law makes government approval mandatory for retrenchment of workers in factories, mines and plantations employing 100-plus workers. The threshold has now been increased to 300-plus workers in a move to ostensibly balance the rights of retrenched workers with the economic efficiencies and financial health of small and medium-sized firms. The relevant Code retains existing requirements for prior notice and compensation to retrenched workers. Employers must also contribute (in addition to other statutory sums) 15 days’ wages upon retrenchment into a government re-skilling fund to train retrenched workers – thus envisaging a wider social benefit.

Contract labour hiring made easier

Businesses have increasingly relied on contract labour to free themselves of labour compliances and regulatory restrictions on hiring/firing workers. Contract workers have often suffered from lack of job security, assured wages and social security, faced precarious working conditions, and their rights have not been enforced on an equal footing with permanent employees.

The relevant Code bars engagement of contract labour in ‘core activities’ (defined as any activity for which the establishment is set up, and includes any activity which is essential or necessary to such activity). However, this restriction is subject to very broad exemptions, making it arguably easier for businesses to hire contract workers. Exemptions include:

• sanitation;
• catering;
• security;
• couriers and transport;
• construction;
• administrative duties;
• housekeeping services;
• services of an intermittent nature;
• services ordinarily rendered by contract labour in the normal functioning of the business; and
• services rendered towards any sudden increase in the volume of core activity which needs to be accomplished within a specified period.

The Code offsets this expansion to a certain extent by making the principal employer (and not the contractor, as was the case previously) responsible for providing welfare facilities (canteens, rest rooms, urinals, drinking water, first aid facilities, etc). It also penalises the principal employer for engaging contract labour through an unlicensed contractor. In this way, the Code increases the principal employer’s accountability for lapses.

Fixed-term employment as a partial solution 

To further mitigate the risks faced by contract workers, the code on industrial relations sets out a framework for engaging fixed-term employees, a concept that doesn’t exist under current law. Enterprises can now hire employees for a fixed duration under the same conditions of employment received by permanent employees. Such employees are also entitled to proportionate statutory benefits even if they do not technically qualify under statute for the benefit (based on their tenure), along with gratuity if service is contractually rendered for one year.

This would provide greater job security and welfare benefits than for contract labour (though, less than that of permanent employees) while also allowing enterprises to address production spikes without having to take on more permanent employees (a factor that previously promoted use of contract labour).

Recognition of trade unions

The limited historic success of collective bargaining may in large part be attributed to the lack of formal recognition of trade unions by establishments. There is no clarity as to which unions can formally negotiate with the management; in addition, the multiplicity of unions within an establishment often leads to infighting. Further, settlements are only binding on the union participating in the negotiation. To remedy this, the code on industrial relations now obligates establishments to recognise any trade union as a ‘negotiating union’ if it is supported by at least 51 per cent of the workers. This will be the sole union with the power to negotiate with the management on behalf of all workers.

Notwithstanding the above, the Codes have been criticised for aspects that are ambiguous or remain unremedied, such as raising the threshold for applicability of contract labour benefits (from establishments employing 20-plus workers to those employing 50-plus workers), empowering the government to change the threshold for applicability of social security schemes and exempting establishments from the applicability of the code on industrial relations, with no parameters set out for such exemption. The code on occupational health and safety covers establishments with 10-plus workers (except for hazardous industry) thereby eliminating a large number of important regulatory provisions for enterprises with smaller operations – whereas safety laws are arguably basic protections that should cover all workers.

Linking regulations to corporate behaviour and sanctions

In previous labour law iterations and amendments, there was a significant gap between senior management/board (reporting and sanctioning) and actual on-the-ground compliance. The traditional role of the board and senior management in the context of workplace safety and social security was limited to signing off on compliance handled by mid-level management. Unless there was a major safety incident or union activism, senior management would, with a few exceptions, remain distant from BHR issues.

These new versions of the Codes, while introducing significant changes conceptually, do not provide the board or key managerial personnel with new impetus to actively participate in the formulation of impactful BHR strategy beyond technical compliance.

That said, the government has made some effort to recognise the critical link between BHR and senior management/the board. In addition, there are various parallel developments and requirements that add to the pressure on businesses to accept the regulations as baseline and do more to demonstrate their willingness to engage on these issues. These include the following:

Expanded coverage under safety laws

The Codes themselves are a move to expand BHR coverage in certain areas. As discussed previously, the occupational safety and health code now applies to all establishments with 10-plus workers (and all hazardous establishments). A number of provisions expand liability (and consequently the avenues of recourse for accidents and defaults), including:

• holding the principal employer (rather than the contractor) primarily responsible for providing welfare facilities for contract labour and inter-state migrant labour;
• holding both the owner and the occupier jointly and severally liable for maintenance of factory premises (unlike the current position which places the onus solely on the owner); and
• incorporating duties and liabilities of specialists (architects, designers, machinery installers/suppliers/importers, etc.) in the project management and supply chain.

Further, there is an increased penalty (both monetary fine and term of imprisonment of company officers) for violating safety provisions resulting in an accident.

More robust disclosure

The Indian Ministry of Corporate Affairs (MCA) has released a fulsome set of guidelines on responsible business conduct and format for comprehensive business responsibility reporting, which take into consideration global developments in non-financial sustainability reporting. The reporting format requires disclosures on key BHR aspects in granular and disaggregated detail, in respect of sustainable sourcing, human rights protections, permanence of/diversity in workforce, stakeholder complaints, bribery and corruption, community development projects, environmental impact assessment of operations etc.

The top 1,000 listed companies by market capitalisation in India must make these disclosures to the securities regulator annually, commencing from FY21–22. The MCA may subsequently also require unlisted companies with an annual turnover or paid-up capital above a certain minimum threshold to mandatorily make these disclosures.

A more concise reporting format has also been released for voluntary adoption by smaller unlisted companies, with the aim of encouraging more companies to take up sustainability reporting. The government’s intention in the long term is to use the information captured through these filings to develop a ‘Business Responsibility Sustainability Index’ which will be relied on to give procurement preference to companies that demonstrate responsible business conduct.

Prosecution of senior management

Courts and enforcement authorities have also displayed readiness to step in to bring defaulters to task, relying on both sector-specific and general criminal law, and putting senior leaders at personal risk of prosecution. For instance, the CEO and senior personnel (including two foreign nationals) were arrested for negligence under the Indian Penal Code following a recent gas leak at the South Korean-owned LG Polymers plant in Vishakhapatnam, on account of poor safety protocols and the breakdown of emergency response procedures, which killed 15 people.

Pandemic-driven learnings

Covid-19 has brought BHR onto centre stage and shaken decision makers into prioritising a more socially responsible approach to investment. In addition, the pandemic has demonstrated that relief measures outside the organisation – contributions to funds, re-aligning assembly lines to produce relief material, protecting workforce etc (traditionally viewed as the cost of corporate responsibility) – have been fundamental to generating goodwill for contributing enterprises. Examples include Diageo, which pivoted to hand sanitiser production and committed targeted non-cash support to struggling food and beverage players such as hygiene kits, access to cashless systems etc, and Danone’s job security guarantee over a portion of the lockdown.

At the same time, one of the first (and highly publicised) pandemic-related public interest cases was against Jubilant Generics on account of negligence in precautionary measures jeopardising workers’ health. As such, market incentives seem to be shifting so as to render the perceived tussle between creating shareholder value and contributing to societal welfare as increasingly illusory (and, in fact, social responsibility may even provide a competitive edge).

Conclusion

Regulations, while a good starting point, are often compliance driven and reactive – prescribing remedial measures once an incident/accident occurs. The Codes make a genuine effort to move away from this practice, as is evident from the significant conceptual changes that they introduce. However, the law continues to fall short in drawing the board/senior management into actively participating or promoting the BHR agenda.

That said, regulations alone cannot bring about clear and present compliance with BHR principles. Businesses must use regulations as a starting point, building robust reporting requirements based on ethical standards and adopting a top-down compliance model to drive BHR compliance into the very fabric of their companies. Irrespective and independent of labour regulations, there are certain Indian companies that have far surpassed BHR requirements. This has helped them to build employee morale, brand recognition and, ultimately, shareholder confidence to emerge as leading employers of choice with an outstanding global reputation.