Law Firm in India

New Labour Laws in India

An overview of how the three new labour reform bills passed by the Government will help mobilize the labour force while increasing the investment opportunities through the ease in conducting business.

Recently the Parliament has gone ahead to approve three of the most important labour law reform bills with the idea of bringing about more ease in the conduct of business in India and to remove the hurdles faced in the past by investors wanting to invest in Indian organizations. Broadly speaking, these reform bills primarily remove all the issues faced by companies at the time of their winding-up process and along with this, the reform bills have also permitted the firing of staff without the need to acquire the government’s permission in firms comprising of 300 workers as opposed to a 100 workers as was the case before.

The government has mandated these bills with the strong viewpoint that employment generation was at an all-time low due to the threshold remaining at a meagre 100 since this results in discouraging the employers from recruiting more workers keeping their staff at a deliberately lesser strength than is required. In totality, this increase in the threshold number of the workers is done to increase jobs in the market and to encourage the employers to hire more staff and acquire greater strength in number for industrial activities.

With the new Industrial Relations Code, 2020, introducing new rules for hiring and firing of labour in mid-sized and large industries, the process of retrenchment has been made much simpler, thereby being an attractive proposition for new and foreign investors. It has also been analyzed that this new reform is based on the American hire-and-fire model with the main goal of increasing business worth and adding more jobs within the industry.

The new changes implemented vs the old regimen

  1. The impact on the labour force: -

  • The three reforms so implemented have been made with the vision of making the hiring and firing and retrenchment process easier within industries. This means that there will be lesser chances for industrial strikes by trade unions which used to be a huge impediment within the Indian industrial sector. The new reform bills are also a promise on the expansion of social security for formal as well as informal workers since this creates more opportunities for job and expansion. Overall, these reforms are a welcome change for the labour industry and will facilitate growth within the sector at a much higher rate
  1. The impact on companies: -

  • The new industrial relations code, 2020 has brought about welcome changes for companies looking to expand and increase investment opportunities in India. The government has now allowed companies with up to 300 workers to be able to fire workers and shut plants without the long drawn-out process of acquiring the government’s permission before doing so. This provides greater freedom within the sector and fastens up the pace of work encouraging employers to hire at a greater strength than before. Before this reform, prior approval by the government was a necessity.
  • However, it is to be noted that even now, approval does need to be applied for with the government, however, in case of any lack of response from the authorities over the same, the process of retrenchment shall be deemed to have been approved.
  • This is in stark contrast to the previous regimen wherein the labour laws prescribed a minimum period of 30 to 90 days of notice period before the retrenchment of any of the members of the labour force. Furthermore, in the case of manufacturing units and mines etc., with more than 100 workers, the layoffs necessarily required the approval and assent of the government without which the plant could not proceed with the same, giving little independence and imposing greater restrictions and mobility of work therein.
  1. The changes in the worker’s right to strike and trade unions: -

  • Under the new Industrial Relation Code, 2020 the right of the workers to go on a strike is very much in practice, however, the unions are now necessarily required to provide a 60 days’ notice regarding such a strike beforehand.
  • Moreover, another important change to be taken note of is that in case there are any proceedings still pending before any labour tribunal or even the National Industrial Tribunal, no worker shall be permitted to go on a strike for 60 days after the conclusion of these proceedings. The new reforms regarding this apply to every industry.
  • This contrasts with the previous regimen wherein workers were free to go on a strike by providing a notice between two to six weeks only. Furthermore, flash strikes have now been banned.
  1. The new workplace safety rules: -

  • Under the new Occupational Safety, Health, and Working Conditions Code, 2020, the laws regulating occupational safety, health and working conditions of employees has been majorly amended. This new code enables the state governments to exempt any new factories from the provisions of the Code to enhance the economic activity and create more jobs, thereby eliminating unemployment by a large margin.
  • Moreover, this new Code also affixes the maximum daily work limit at eight hours a day wherein women shall possess the right to be employed within all kinds of establishments barring any prejudicial laws. Women shall now be allowed to work every kind of job and in case any woman is required to work a job that includes dangerous and hazardous processes then it is the duty of the government to ensure adequate safety measures for such a woman.
  • This is again in contrast to the previous regimen wherein women were not allowed to work in establishments and work jobs wherein dangerous activities were conducted, mainly due to lack of adequate safety measures.
  1. The social safety net: -

  • It is for the very first time that the new Code on Social Security, 2020 has promised universal social security for both sectors, namely, the organized and the informal sectors which includes all workers as well along with the gig and platform workers.
  • The government has stated that the Code shall formulate ad notify from time to time, well-suited welfare schemes which would include schemes which relate to provident funds, employment injury benefits, housing, education for children, upgradation of skills for workers, funeral assistance as well as the provision of old age home facilities.
  • The Code has enabled the government to even access the corporate social responsibility funds, as provided within the definitions of the Companies Act, 2013, or any other such source as may be specified in the scheme. This social security code establishes the setting up of a National Social Security Board to assist the government to incorporate newer and suitable schemes for the unorganized sector workers.

Opportunities for New Investments   The new changes within the labour laws with the Industrial Relations Code has been long-awaited by finance and economic specialists to boost investments within the industrial sector in India. With the stringent and cumbersome policies of the previous regime, investors were highly contemplative of whether to invest in the sector in India or not. Marked by the long approval process and lack of job mobility amongst workers, investments remained stagnant. It was to remove this impediment that the new law proposed changes for the enhancement of the economy via the following investment opportunities: -

  • With the removal of the orthodox hiring and firing policies in firms with only over 100 employees, the long drawn-out process of laying off workers has now been eradicated which has proven an incentive for the small firms which can now escape these rules and hire and fire at will and a much faster pace, creating more jobs and thus higher chances for newer investments and much more competent labour.
  • Furthermore, Companies now have greater freedom to hire more workers as opposed to earlier wherein they kept the number stagnant at not more than 100 to prevent the hurdles of government approvals to be acquired for hiring and firing. This has enabled industries to grow and increase their quality of production. It has also led to better output due to lesser strain on the workers as new workers have now been employed within industries.
  • The new code has brought with it the opportunity for more jobs; therefore, investors are now keen on investing within these sectors due to higher flexibility with workers and more ease of doing business.
  • Furthermore, the very stringent rules regarding the ability of trade unions to go on a strike easily and with barely any notice period, had earlier prevented investors from considering India as a noteworthy investment opportunity However, with more regulations amongst the laws and a mandatory notice period of 60 days for going into any strike, the investors are more than keen to invest their share in such industries.


The new reform bills have sought to create greater security within the industrial sector in India for both the labour force as well as Companies who are now attracting greater investments and newer labour force. The bill has managed to safeguard the interest of workers and provide universal social security to workers through the expansion of the scope of the Employees' Provident Fund Organisation and Employees' State Corporation of India as well. It has been noted that the social security fund shall cover nearly 40 crore unorganized sectors now, a move which has never been accomplished before this for this sector. Furthermore, with greater measures for the health and security of the workers and the provision of more freedom to women within industries, the reform bills have proven to be revolutionary in embarking upon bringing an industrial revolution amid the pandemic and opposition faced by the government. The passage of these three remaining labour law codes has proven the efforts of the government towards reforming the labour force in the country.

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