Labour Law Reforms in India: Impact on Workers and Employers

05 February, 2025

Share on:

Introduction

In India, labour law reforms have been an important subject of debate and discussion for the last several decades. With India's increasing stature as one of the world's largest economies, it has now become apparent that a comprehensive and modern labour law framework is required. Labour laws in India have age-old traditions; they were framed initially in the period of colonialism and hardly saw revisions until very recently. Thus, they are very outdated and cumbersome in a fast-changing economy. Recent reforms in labour law have sought to simplify these old, disunited, and more modern and useful laws for workers as well as for the employer. In this article, we will explore the labour law reforms in India and what is their impact on workers and employees.

Historical Context and the Need for Reform

Labour laws in India have their roots in the colonial era. The Indian government, when it gained independence in 1947, retained many of these laws. Periodically, over the years, a complex and fragmented system of labour regulations developed, which included a host of industrial, social security, and welfare laws. These laws were enacted to protect the rights of workers and ensure social justice, but they were often too complex and sometimes contradictory to be implemented effectively.

India's economy has evolved from an agrarian-based structure to an increasingly service and manufacturing-oriented one. A replacement for the traditional industrial workforce, which used to dominate largely in the public sectors, now includes a more diverse workforce engaged in modern industries such as Information Technology (IT), services, as well as the gig economy. This, with more foreign investments and increasing globalization, exposed the weaknesses of labour laws. Most of these laws have been deemed oppressive by employers because they restrict flexibility, investment, and growth.

Growing unemployment rates, especially among youth, and the growing informalization of the workforce made labour law reforms increasingly urgent for India. It is estimated that about 93% of the workforce in India is in the informal sector, which remains unregulated, with no social security benefits. These factors led the government to recognize the need for a new approach to labour laws that would foster a more conducive environment for business while providing adequate protection to workers.

Key Labour Law Reforms in India

Late in 2020, the Indian government undertook the significant reform of its labour law framework by consolidating 44 central labour laws into four main codes. The reform is intended to simplify the labyrinth of existing laws, making them more business-friendly, yet not losing track of workers' rights.

The Code on Wages, 2019: “An Act to amend and consolidate the laws relating to wages and bonus and matters connected therewith or incidental thereto.” This code integrated four existing laws dealing with minimum wages, payment of wages, and bonuses with the objective of achieving universal applicability across all sectors.
Code on Industrial Relations, 2020: “An Act to consolidate and amend the laws relating to Trade Unions, conditions of employment in industrial establishment or undertaking, investigation and settlement of industrial disputes and for matters connected therewith or incidental thereto.”
Code on Social Security, 2020: “An Act to amend and consolidate the laws relating to social security with the goal to extend social security to all employees and workers either in the organized or unorganized or any other sectors and for matters connected therewith or incidental thereto.”
Code on Occupational Safety, Health and Working Conditions, 2020: “An Act to consolidate and amend the laws regulating the occupational safety, health and working conditions of the persons employed in an establishment and for matters connected therewith or incidental thereto.”

Effect on Workers

The labour law reforms in India have significant implications for workers, both positive and negative. On the one hand, the reforms aim to provide better protection and welfare measures for the workforce. The inclusion of gig workers and workers in the informal sector under social security schemes is a major step forward. The Social Security Code ensures that workers in sectors like e-commerce, ride-hailing, and delivery services are entitled to benefits like accident insurance, maternity leave, and other social security provisions. The introduction of a national minimum wage ensures that workers across different regions and industries receive fair compensation for their labour.

The reforms also introduce measures to improve workplace safety, especially in high-risk industries. The Occupational Safety and Health Code seeks to create safer working environments, with more stringent regulations on issues like hazardous materials, accident reporting, and employer responsibility in ensuring worker safety.

However, concerns remain over the potential negative effects of the reforms, particularly with regard to job security and union rights. The increase in the threshold for approval before lay-offs may make it easier for employers to reduce their workforce without government intervention, raising fears that workers could face greater insecurity. Additionally, critics argue that the Industrial Relations Code’s provision on retrenchment, layoffs, and closures may reduce workers' bargaining power by diluting union influence and increasing the power of employers.

Moreover, some of the provisions in the new codes, particularly those on dispute resolution, are viewed as being more employer-friendly. The simplification of labour courts and tribunals may result in delayed justice for workers, and there are concerns about the ease with which employers can implement changes to working conditions and wages without significant worker consultation.

Effects on Employers

The labour law reforms also have far-reaching consequences for employers. One of the most significant impacts is the simplification of the regulatory landscape. Employers now have to deal with fewer laws and a more straightforward compliance process, reducing the administrative burden and enhancing business efficiency. The introduction of a national minimum wage and clear standards for working conditions ensures greater consistency and fairness, making it easier for businesses to manage their workforce across different regions.

The flexibility introduced in the Industrial Relations Code, such as the increased threshold for layoffs, is beneficial to employers, especially in industries where demand fluctuations are common. The simplified dispute resolution process aims to reduce the duration of industrial disputes, allowing businesses to resume operations more quickly. Furthermore, the move to digital platforms for certain aspects of labour law compliance can help employers reduce the cost and complexity of adhering to regulations.

However, the reforms also bring new challenges for employers. The inclusion of informal sector workers in social security schemes may lead to additional financial burdens on businesses, as employers in some sectors may need to contribute to provident funds and insurance schemes for workers previously outside these frameworks. Additionally, some employers may find it difficult to adjust to the higher minimum wage requirements, particularly in sectors where labour costs are already a significant concern.

Conclusion

India's labour law reforms are a step forward in modernizing the country's industrial relations framework. The consolidation of existing laws and new measures to meet the needs of a changing workforce aims to create a more balanced, flexible, and efficient labour market. The impact on workers and employers depends on effective implementation of these reforms, together with really good adaptation of new regulations to local conditions. Even though these reforms afford greater security for workers, especially in the informal and gig sectors, they provide greater flexibility to employers, thus facilitating a business growth and investment environment.

However, it remains challenging to strike the right balance between defending workers' rights and sustaining a business-friendly environment. It is only through time that the labour law reforms initiated by Indian authorities will tell whether they can create both a fair and prosperous future for all workers and employers across India.