Update on India’s Labour and Employment Regulatory Landscape


Update on India’s Labour and Employment Regulatory Landscape

Labour laws and their impact on large organisations engaging with contract labour in India

Labour laws in India are considered critical and highly litigious and have undergone gone a recent overhaul

Labour laws in India are generally considered critical and very strict due to the numerous compliances required from establishments specifically for those that employ a large number of workmen category employees. Labour courts in India are mostly labour welfare centric while dealing with employment disputes.

Multinational companies with manufacturing facilities in India must be fully compliant with all labour laws and should have adequate monitoring and control mechanisms to ensure that all compliances relating to employees including making payments, filing returns, etc. are being carried out.

Ensuring compliance through monitoring has never been more important due to major penal risks along with reputational risks.

Recent updates to the regulations:

  • Amid the ongoing COVID-19 pandemic, several state governments have announced exemptions from compliance with certain labour laws. Suspension of such laws may hurt low-income workers as these changes will allow companies to hire and fire workers at will, extend working hours up to 72 hours a week and deny workers a guaranteed minimum wage.
  • The Ministry of Labour and Employment has also introduced four Bills on labour codes to consolidate and overhaul 29 central laws, which are as follows:
  • Code on Wages, 2019 (Wage Code)
  • Occupational Safety, Health and Working Conditions Code, 2020 (Safety Code)
  • Code on Social Security, 2020 (SS Code)
  • Industrial Relations Code, 2020 (IR Code)

Understanding the risk around contracting large number of contract labour in India

Labour Companies with manufacturing facilities in India generally have to employ a large number of contract labourers, which draws certain compliances and risks

  • Companies employing more contract workers than the number for whom the permission was taken – Registrations required for employing contract labourers in India specify how many labourers can be hired.
  • Companies not maintaining the attendance register of the contract labour employed – Companies are mandated to maintain attendance registers for all contract labourers.
  • Companies violating the working hours of workers at the factory – The Indian labour laws are strict on allowed working hours for all contract labours. If not adhered to, these can lead to large penalties.
  • Arbitrary reduction of wages – Companies are known to make arbitrary reduction of wages of in order to cut costs.
  • Delay in payment of wages – Delay in payment of wages is common in India.
  • Non compliances under Factories Act – Indian Factories Act provides for strict rules and regulations which must be followed. These include regular filings and certifications.

Large multinationals with manufacturing facilities in India, typically face challenges in complying with labour and employment law compliances in India due to multiple factors such as:

  • Complexity of archaic Indian labour laws and the significant number of labour law compliances to be done by large corporations in India;
  • Implementation of periodic labour law compliances to be done regularly both at the central level and the state level in India;
  • Managing and handling labour disputes with employees/workers/unions and also those arising out of allegations of non-compliances by the labour law authorities in India;
  • Handling negotiations with trade unions and labour associations;
  • Liability for offences committed by contractors/sub-contractors; and
  • Managing inspections carried out by labour authorities

Adverse impacts of non-compliance

  • Reputational impact
  • Accountability of contract manufacturer to comply with best industrial practices
  • Impact on products/services being provided in foreign jurisdiction
  • Penalties imposed on the principal employer for contract labour for non-compliance which includes fines, interest and also imprisonment under various labour laws; and
  • Reinstating of employees/workers whose employment has been illegally terminated and payment of back wages to such employees/workers

Lifecycle of companies establishing Manufacturing facilities and how we can help

1 – Pre-Establishment Stage

Legal advisory on employment laws

Review and preparation of template contracts and organisational policies which ensure best industry practices and address potential legal gaps

Support in identification of applicable labour related license/consent/registration requirements for the manufacturing facility

02 – Establishment and Post-Establishment Stage

Providing implementation support for obtaining licences and registrations for establishment of manufacturing facility

Support in drafting and adoption of standing orders, collective bargaining/settlement agreements

Support on development, adoption and dissemination of organisational policies

Legal advisory on employment laws

Advising on strategies dealing with employment related disputes and representation support

Legal advisory on workforce restructuring, including issues relating to severance/retrenchment

Legal due diligence in employment and HR sphere, including, undertaking diagnostic health check and providing compliance support in order to remedy/mitigate impact of identified non-compliances, if any.