The devil in the new labour codes

On 21 November, exactly five years after their passage in Parliament, the four new labour codes finally came into force. These codes — covering Wages, Industrial Relations, Social Security, and Occupational Safety, Health and Working Conditions — merge 29 sprawling and often overlapping Central laws into a single, unified framework.

Supporters describe the overhaul as a long-awaited step toward streamlining regulation, energising the economy and aligning India’s labour ecosystem with global benchmarks. But critics point out that while trying to become a manufacturing power like China, India has instead borrowed American labour law templates, completely overlooking Indian socio-economic realities.

Dissent from those directly impacted has been loud and persistent. Ten major trade unions, including those linked to Opposition parties and Left organisations, have condemned the new codes as a ‘fraud’ perpetrated on the working class and have demanded their immediate repeal.

Even the RSS-affiliated Bharatiya Mazdoor Sangh (BMS) has distanced itself from several provisions. After initially welcoming the reforms, the BMS issued a sharp statement opposing what it called anti-worker clauses in both the Industrial Relations Code and the Occupational Safety, Health and Working Conditions Code.

Although the codes offer some potentially positive changes — such as portable social security benefits and standardised wage structures — the broader implications do not bode well. Easier dismissals, longer working hours and half-baked safeguards may well widen inequality in a country already battling unemployment and stagnant wages. Critics also question the premise that labour laws were responsible for stagnation in the manufacturing sector, and doubt that the new codes will help boost manufacturing.

At first glance, the code on wages appears progressive: it introduces a national floor wage intended to reduce disparities across states and promises timely wage payments for all workers. But the floor wage — set at an extremely modest Rs 178 per day — is far below the living wage estimates of Rs 375 to Rs 700 depending on the region.

Curiously, there is no explanation available on how this floor wage was determined and why. It has been pointed out that the prevailing minimum wages for even unskilled work is higher than the floor wage set by the new code. Critics warn that such a low benchmark encourages a “race to the bottom”, allowing states to keep wages depressed in their pursuit of investment.

Several labour groups had argued that the minimum monthly wage should be at least Rs 26,000 (Rs 867 per day), a demand the code is nowhere near fulfilling.

Compounding the problem is the code’s limited scope: many categories of workers are excluded by definition. Gig and platform workers — delivery riders for companies like Zomato or Blinkit, among many others — remain outside the traditional definition of ‘employees’, depriving them of minimum wage protections, overtime pay and other basic rights.

There are others who have been left out. Wages paid under MGNREGA or to ASHA and Anganwadi workers are not covered by the code. Commercial outlets covered under the Shops and Establishment Act are also not covered; neither are domestic help and agricultural workers.

A further complication arises from the way the code shifts responsibility: contractors are now treated as the primary employers for wage payments. This absolves principal companies of direct liability, making underpayment and wage delays more likely, especially when contractors lack financial stability. Workers are left with few avenues for redress.

Recent analyses have also shown how employers might restructure salary components to accommodate increased contributions to provident funds and gratuity, potentially reducing take-home pay by 10–15 per cent for large sections of the workforce.

The most controversial of the four laws is undoubtedly the Industrial Relations Code, which unions argue dismantles key protections against arbitrary job loss.

The threshold for requiring government permission to conduct layoffs, retrenchments or factory closures has been raised from 100 to 300 workers. As a result, companies employing up to 299 workers — that’s a substantial chunk of India’s organised sector — can now dismiss staff overnight, without oversight. Unions say this will normalise uncertainty and harden an already lopsided employer–employee power dynamic.

The experience of the Covid pandemic, when ‘pink slips’ flooded the IT and services sectors, serves as a grim reminder of what unfettered managerial discretion can look like. The new code risks institutionalising that volatility.

The expanded use of fixed-term contracts adds to this unease. Employers can hire workers for short durations and repeatedly renew contracts without ever granting them permanent status. Although these contracts guarantee pro-rata benefits, they offer no long-term security and push the workforce towards a gig-style model.

In the IT sector, longstanding ambiguities continue to create confusion and exploitation. IT employees are still not clearly classified as ‘workers’, which automatically excludes them from formal dispute-resolution mechanisms. This loophole has enabled large-scale layoffs in recent years, with many employees handed opaque severance packages that fall far short of what traditional labour laws would guarantee. By failing to clarify this classification, the new code leaves even high-skilled professionals vulnerable.

The codes also tighten restrictions on the right to strike. Workers must now provide 14 days’ advance notice, a requirement that unions say gives management enough time to dilute the impact — by hiring temporary replacements or negotiating from a position of strength. Labour leaders argue this condition neuters collective bargaining, particularly in industries where strikes have historically been central to winning fair conditions. A union leader remarked, “It’s a denial of the right to unionise.”

The code on social security aspires to expand coverage — pensions, health insurance, maternity benefits — to gig workers and the unorganised sector, a vital yet long-neglected part of India’s workforce.

The architecture of the law, however, leaves significant gaps. Coverage remains threshold-based: only establishments with 10 or more employees automatically qualify, effectively excluding micro-units, home-based workers and a huge chunk of rural and informal employment.

Although the code introduces separate definitions for gig and platform workers, the benefits remain largely discretionary — the government may provide them, but is not required to. Platform companies are expected to contribute 1–2 per cent of their turnover to a welfare fund, but caps limiting contributions to 5 per cent of total payouts may severely restrict the fund’s actual capacity.

Past experience — with schemes like the National Social Security Fund, underfunded and poorly administered — casts further doubt on effective implementation.

The new labour codes, despite their rhetoric of ‘global competitiveness’, mark a clear shift: from a republic that once pledged to narrow the distance between capital and labour to one that risks widening it in the name of ’ease of doing business’.

Meaningful reform in a ‘labour code’ would think of labour not just as cogs in the industrial wheel but as people in search of a secure job, a better life, and the means to pay for it. Labour protections are not necessarily inimical to the needs of industry. For ease of doing business, think speedier clearances for startups, a stable policy regime, quick and responsive dispute resolution. Don’t erode labour protections. An enlightened labour code is not one that makes it easiest to discard workers at will.