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India – Labour Law Reforms.

26 February, 2015

 

On 16 October 2014, Indian Prime Minister Narendra Modi announced the latest in a series of proposed reforms to the country’s labour laws. In this article, we provide an overview of the various reforms, only two of which have officially become law despite initial optimism that most of the proposals would pass the Indian Parliament during the Winter Session which concluded on 23 December 2014. The remaining proposals continue to be vigorously debated in India and we will keep you informed of any further developments.

 

The Case For Labour Law Reform In India

 

Labour law reform has been a major area of focus for the newly elected Modi Government which is running a “Make in India” campaign, aiming to encourage foreign companies to locate their factories in India.

 

The reforms are a response to criticisms that India’s labour laws are currently a significant barrier to foreign investment and employment growth. Indeed, the OECD recently recommended that India should simplify labour laws to boost manufacturing jobs and capitalise on its growth potential. The reforms are largely aimed at bringing procedural efficiency and administrative transparency.

 

Labour Law (Exemption From Furnishing Returns And Maintaining Registers By Certain Establishments) Bill (Labour Law Bill)

 

Presently, only “small establishments” (employers with between ten and 19 employees) are exempt from the requirement to file returns and maintain employment records. The Labour Law Bill proposes to extend the exemption by amending the definition of “small establishments” to employers of between ten and 40 employees.

 

The Labour Law Bill has passed the Rajya Sabha (upper house of Indian Parliament) and received the assent of the Indian President on 9 December 2014.

 

Apprentices (Amendment) Bill

 

The Apprentices (Amendment) Bill proposes a number of amendments to the apprenticeship system in India, including:

 

  • increased flexibility for employers to select the number and type of apprentices they engage;
  • the option for apprentices to engage in trades other than those prescribed by the Government;
  • increased wages for apprentices; and
  • the removal of separate regulations for the conditions and entitlements of apprentices, with these now being determined by the employer’s policy.

 

The Apprentices (Amendment) Bill has also passed the Rajya Sabha and received Presidential Assent on 5 December 2014.

 

Factories Amendment Bill

 

In light of changes in manufacturing practices and technologies, India’s ratification of various ILO conventions and stakeholder recommendations, the Factories Amendment Bill proposes:

 

  • allowing women to work night shifts and perform certain tasks they are currently prohibited from (such as working on heavy machinery);
  • where workplace accidents occur, clarifying apportionment of liability among owners and operators of factory premises;
  • reducing the minimum service period for paid annual leave eligibility from 240 days to 90 days;
  • increasing the permissible limits on overtime work from 50 hours to 100 hours per quarter (in normal circumstances) and up to 125 hours where required “in the public interest”;
  • broadening the definition of protective equipment beyond protective eyewear; and
  • reducing employee number thresholds for the provision of canteens, restrooms, shelters and cool drinking water in hot weather (presently this last requirement only applies to factories with at least 250 workers).

 

The Factories Amendment Bill was introduced into the Lok Sabha (lower house of the Indian Parliament) and referred to one of the Standing Committees, which only published its report on 22 December 2014. The Labour Minister is presently holding consultations on the amendments with trade unions.

 

Small Factories (Regulation of Employment and Conditions of Services) Bill (Small Factories Bill)

 

The Small Factories Bill will establish a single labour law to govern factories employing fewer than 40 workers (small factories). The Bill consolidates the 14 Acts that are presently applicable to all factories, and then exempts small factories from the operation of those consolidated Acts so that only the provisions of the Small Factories Bill applies to small factories.

 

Additionally, the Small Factories Bill introduces an online system for employers to register (or deregister, as the case may be) a factory. In an attempt to encourage use of financial institutions in India, the Bill also requires employers to deposit wages of Rps 1,000 or more into an employee’s bank account and, if an employee does not have a bank account, the employer must ensure one is opened.

 

The Ministry of Labour called for comments on the Small Factories Bill by 10 November 2014 but the Bill is yet to be introduced into Parliament and has met strong opposition from trade unions.

 

16 October 2014 Reforms

 

On 16 October 2014, Prime Minister Modi announced a number of further reform schemes, including amendments to business inspections with the aim of making the process more transparent, less burdensome, and less susceptible to bribery and corruption. These reforms include the following:

 

  • An employer will now submit a single online form.
  • The employers to be inspected, and the corresponding inspectors, will be chosen randomly (to address corruption concerns involving individual inspectors targeting specific businesses).
  • The inspector will now be required to upload his or her report within 72 hours of the inspection taking place.
  • The discretionary powers of inspectors will be removed and any decision on inspection reports will only be taken after a proposed central analysis and intelligence unit scrutinises the compliance reports submitted by employers.

 

Another key proposal will provide subscribers to the Employee Provident Fund Organisation (EPFO) with a Universal Account Number (UAN), which will allow them to transfer provident funds to anywhere in the country, when switching jobs. This simplifies the current transfer process and aims to unlock an estimated US$4.3m lying idle in provident funds across the country.

 

What next?

 

Most of these reforms have not yet become law. Prime Minister Modi is facing considerable resistance from opposition parties and the union movement with respect to his more significant and controversial amendments to the regulation of factories. Further, while the Government has a majority in the Lok Sabha, it does not have a majority in the Rajya Sabha. These two factors might force amendments and delay any future progress of the Factories Amendment Bill and Small Factories Bill.

 

We will continue to monitor developments and provide updates.

 

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For further information, please contact:

 

George Cooper, Partner, Ashurst

george.cooper@ashurst.com

 

Sumin Ahn, Ashurst

sumin.ahn@ashurst.com

 

Jennifer Goedhuys, Ashurst

jennifer.goedhuys@ashurst.com

 
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