New Labor Codes Aimed at Increasing Investment Opportunities in India

October 23, 2020

The Indian Parliament has enacted new labor codes in continuation of a major labor reform effort—a key part of Prime Minister Narendra Modi’s move to liberalize conditions to encourage investment in India.

The changes to the labor codes were generally welcomed by industry over strident opposition by trade unions.  For companies operating in India, the changes could have a significant impact on operations and HR strategies.  A summary of the major changes in the Labor Relations Code Bill and the implications is provided below:

  • Definition of worker is more inclusive: The new labor codes will now include all workers whose monthly income is less than Rs 18,000 (U.S. $243.81), who migrate to another state, and regardless of whether they are directly employed or self-employed.

  • Fixed term employment agreements now possible:  Companies can now hire employees for fixed terms based on a written contract, providing significantly more flexibility.  Fixed term employees should be treated on par with permanent workers in terms of working hours, wages, allowances, and other benefits, including statutory benefits such as gratuity.

  • Expanded powers of local governments to help companies:  Local Centres or the State governments in India now have the power to exempt, with or without conditions, any industrial establishment or class of industrial establishments from any or all the provisions of the Code, if it adequately satisfies existing provisions to fulfill its objectives.

  • Added clarity in multiple union scenarios:  Where there is more than one trade union in an establishment, sole negotiating union status will be given to the one that has 51% of the employees as its members.  This has been brought down from the 75% requirement in the 2019 version.  Where no union qualifies under this criterion, the employer must constitute a ‘negotiating council’ consisting of representatives drawn from the various unions, with only those with at least 20% of employees as its members.

  • Updates to layoffs and closures procedures:  Only employers with more than 300 workers on average per day during the preceding 12 months are required to submit a governmental request to conduct lay-offs, retrenchments and closures.  Previously this rule applied to employers with more than 100 workers.  The change is likely to provide more flexibility to employers for hiring and firing workers without government permission.

  • 60-Day notice required for strikes, lockouts:  The new Code prohibits employee strikes and company lockouts of employees in all industrial establishments without at least 60 days' notice.  Previously, the notice period of 60 days was only applicable to public utility services. 

For more information on India and other international markets, join our upcoming online Global sessions, HR Policy Global – International Developments for CHROs, on October 27 and 29.