Changes to Labour Laws by State Governments Will Lead to Anarchy in the Labour Market

The suspension of labour laws will intensify informality in the Indian workforce in several ways. Multiple labour market securities in the formal sector like employment, health and safety, skills, and income will either be weakened or destroyed. In these difficult times, the collectivisation of workers is essential to restore stability and solidarity in the workforce to mitigate economic hardships in the post-lockdown period.


On 20 March, the Ministry of Labour and Employment (MoLE) issued an advisory to employers to not terminate their employees’ contracts and to pay them full wages—an inconsequential move that had no binding effect on employers (MoLE 2020). Numerous media reports have shown the plight of workers—job losses, layoffs, non-payment of or cuts in wages, among others. Under the Pradhan Mantri Garib Kalyan Yojana, the centre has offered employees' provident fund (EPF) subventions to a minority (16%) of EPF subscribers and has done little to protect and ensure the welfare of the unorganised sector (Jha 2020a). The costs of economic distress have historically been shifted onto workers, and the COVID-19 crisis is no different. However, the most worrying actions have been the state governments’ sweeping changes to labour laws to deny workers their rights. We review these changes in this article.  

Labour Laws, Investment, and Employment

The call for labour market reforms in India received a boost with research work by Besley and Burgess (2004). Their labour regulation index was based only on the Industrial Disputes Act (IDA), 1947, and has been used either as is or with revisions in response to powerful criticisms levelled against them by Bhattacherjea (2006), though the methodology employed is still defective. The "priors-based" research method used almost always argued that labour market reforms would promote industrial progress, generate employment, and even lead to poverty alleviation.[1] However, critical papers by Bhattacharjea (2019), Storm (2019), and Sapkal (2016) have exposed considerable conceptual weaknesses and empirical shortcomings. On the other hand, micro-level studies—such as Deshpande et al (2004)—have shown that the employers enjoy flexibility in employment and wage determination in the organised manufacturing sector despite the continued existence of a “restrictive” legal regime. Labour laws are tough on paper but their enforcement has been lax due to ineffective inspection and prosecution (See Sundar 2008; Sundar and Sapkal 2019). Using a leximetric data set on Indian labour laws between 1970–2006, Sarkar and Deakin (2011) found that the presence of labour legislation led to low unemployment. Upadhyaya and Kumar (2017) did not find evidence that previous labour law reforms in Rajasthan and other states had succeeded in attracting investment and boosting investment. 

According to the “Ease of Doing Business” study published by the World Bank in 2014, only a little over one-tenth of the respondent firms in India perceived labour regulations as a major constraint (World Bank Group 2014). Research by Kucera (2002) did not find support for the argument that capital chases lower labour standards. He further argued that core labour standards of the ILO produce better human capital (that is, the elimination of child and bonded workers), greater efficiency through the labour cost-productivity nexus, and more social and political stability via freedom of association and collective bargaining. Freeman and Medoff (1991) have argued that trade unions contribute to the productive efficiency of a firm through voice channels and also contribute to equitable outcomes in them.

Dynamics of Regional Reforms

Labour law and governance reform (LLR) has proved to be cumbersome at the national level due to the strident protests by a somewhat coordinated working-class movement. During  1991–2020, 19 nationwide strikes occurred in India (Sundar 2019). Thus, the centre has permitted the state governments to go ahead with labour reforms since labour falls under the Concurrent List in the Constitution. Moreover, LLRs are easier at the regional level due to a fragmented working-class movement and the absence of any social dialogue[2] at the state level (Shyam Sundar and Sapkal 2019). 

The state governments' introduction of LLRs during the COVID-19 pandemic is based on the following grounds. One, due to return migration and stranded migrant workers’ hesitancy to undertake new work, employers have repeatedly complained of "labour shortages."  Two, India needs to offer labour flexibility to firms quitting China in order to capture the vacated produce market space (Mathew 2020). Three, the suspension of labour laws for the next three years will help the industry overcome the present crisis (Press Information Bureau 2020). Four, labour laws need to be changed in favour of labour flexibility to allow employers to generate employment to protect existing jobs as well as to create new jobs for the returning migrants (Jha 2020a and 2020b).

The foremost economic logic, however, is political. Due to the lockdown and the ensuing restrictions on public gatherings, regional- and national-level labour protests are virtually impossible. Anticipating a lower growth rate for the economy, employers have seized this moment to insist upon their long-pending demand for labour flexibility. The next sections look at some of the demands put forth by major employers’ organisations during interactions with the union labour minister.

Working Hours

Alongside Madhya Pradesh (MP) and Uttar Pradesh (UP), several state governments[3]—Rajasthan, Gujarat, Punjab, Himachal Pradesh, and Odisha—have amended the Factories Act, 1948 during the lockdown to increase the maximum number of working hours per day from eight to 12 and maximum working hours per week from 48 to 72.  While the MP government leaves the determination of working hours to employers, the UP government has capped it at 11 hours (see Tables 1 and 2). Sundar (2020) has extensively criticised these amendments. These state-level amendments and the employers' organisations demands for "nationalising" a 72-hour workweek violates the cardinal principle of a 48-hour workweek, as is mentioned in ILO Conventions C001 and C1919.  Limiting working hours to eight per day and to 48 hours per week was acquired after decades of struggles from 1881 to 1948. Now under the guise of the pandemic, work hours have been officially extended, although with statutory overtime pay (except in Gujarat). Moreover, a 12-hour workday means workers will spend more than half of their day away from home, without including time spent in transit. This will reduce female workforce participation and will impose a "gender penalty." In fact, the ILO calls for a transition to a '"decent working time" to ensure health and safety, work–life balance, promote gender equality, enhance productivity, and facilitate worker choice and influence over working hours (Lee et al 2007).

Table 1: Details of Changes in Madhya Pradesh

Serial No Act Reform

Factories Act, 1948


a) Exemption of non-hazardous factories employing up to 50 workers from inspection subject to the submission of certification by Third Party Certification Agency.

b) Even in the case of serious/fatal accidents, inspection can be done only with the prior permission of the labour commissioner.


Industrial Disputes Act, 1947


Exemption of all new registered factories for next 1,000 days from all the provisions of the Act except Chapter V-A and Sections 25-N (conditions precedent to retrench workers), 25-O (procedure for closure of establishment), 25-Q (penalty for lay-off and retrenchment without prior permission from appropriate government), 25-R (penalty for closure).



Madhya Pradesh Industrial Relations Act, 1960 



The provisions of the law will not apply to 11 industries but this will not affect the cases pending before the Labour Court, Industrial Court, etc.



Factories Act, 1948



Exempts all registered factories (not clear about new factories) for 1,000 days from all provisions except from the following sections:

Section 6: Approval, licensing, and registration of factories.

Section 7: Notice by occupier (unclear whether Section 7A—duties of occupier and Section 7B—general duties of manufacturers, etc, as regards articles and substances for use in factories) are included under this.

Section 8—Inspectors.

Sections 21 to 41—Safety.

Sections 41A to 41G—Provisions relating to hazardous factories.

Section 59—Extra wages for overtime.

Section 79—Annual leave with wages.

Section 88—Notice of certain accidents.


Madhya Pradesh Shops and Establishments Act, 1958


Shops and commercial establishments can be open from 6 am to 12 pm.


Source: Livelaw (2020).

Table 2: Details of Changes in Uttar Pradesh

Serial No Chapter Provisions

Chapter II
Temporary Exemption


All factories and establishments engaged in manufacturing processes shall be exempted from the operation of all labour laws save those mentioned in subject to the following conditions:


1) All workers must be paid the minimum wage.

2) Maximum hours of work shall be 11 and the spread-over hours not more than 12 in a day.

3) Provisions in various labour laws relating to the employment of children and women shall be applicable.


1) The provisions relating to safety and security of workers in the Factories Act and Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act shall remain applicable.

2) For any death or disability due to accident arising out of and in the course of employment conditions shall be paid according to the Employees’ Compensation Act, 1923.

3) Violations of the conditions mentioned in Rows 2 and 3 will be penalised according to the provisions of existing relevant laws.

Source: The Uttar Pradesh Exemption from Certain Labour Laws Ordinance, 2020.

Changes in Labour Laws

There is nothing positive in the LLRs to consider them “reforms.” The Gujarat government has also announced a slew of changes, stating that new industrial units will be provided with relief from all related acts, except minimum wages, industrial safety, and employees' compensation (Nanda 2020).

The International Trade Union Confederation's (ITUC) Global Rights Index 2016–19 gave India a rating of 5 on a scale of 1-5+, where 5 signifies "no guarantee of rights."[4] Till date, India has ratified 39 ILO conventions (after accounting for denounced and abrogated conventions) but is yet to ratify the conventions on freedom of association and collective bargaining—C87 and C98—which the ILO has declared to be "fundamental conventions."[5] The non-ratification of these and other important conventions concerning occupational safety and health are a serious cause for concern. Furthermore, it appears that the state governments consulted neither trade unions nor the various employers' bodies before announcing these changes. This violates India's commitment to social dialogue, as was ratified in C144, the Tripartite Consultation (International Labour Standards) Convention, 1976.  Moreover, issuing these changes via ordinances and not as laws enacted by the respective state assemblies negates the historical struggle for labour rights. We discuss the implications of these measures below.

Legal Issues

A law must be conceived as and interpreted as an organic whole because health and safety and labour welfare are connected. In MP, the amendment to the Factories Act includes provisions relating to safety and hazardous processes (Sections 21 to 41G) and overtime pay (Section 59), among others. The UP ordinance, however, only briefly mentions that the provisions relating to the safety and security of workers under the Factories Act and the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 will remain applicable without any change—it omits Chapter III of the act which regulates the conditions of work, such as disposal of waste and effluents, temperature, dust and fumes, artificial humidification, and lighting, all of which could affect the productivity and health and safety of workers. The extension of work hours by the state governments will also have consequences on the health and safety of workers.

While MP has included provisions relating to employment security in Chapters V-A and V-B (see Table 1), it has omitted provisions in Chapter VB regarding the "applicability" of employment security (Section 25K) and also the definition of industrial establishments currently covered by these securities (Section 25L). The purview of Chapter V-B, therefore, remains to be seen. It is currently applicable to industrial establishments employing 100 or more workers, where industrial establishments are defined to include registered factories, plantations, and mines.  Further,  since the provision relating to laying off workers (Section 25M) has also been omitted, employers in MP—irrespective of the size of the industrial establishments—can lay off workers without prior permission from the government, although they may have to compensate workers accordingly.  

These changes will significantly impact labour rights in MP and UP, namely the legal entitlements of trade unions, union recognition (only in MP), collective bargaining, raising of industrial disputes, access to state and third-party intervention in industrial disputes (conciliation, voluntary arbitration, and compulsory adjudication by labour courts and industrial tribunals), decent working hours, basic working conditions, labour welfare, employment security, and the legal right to strike. Additionally, the following rights will be denied to workers in UP: protection against the arbitrary and unfair dismissal of workers (under the Standing Orders Act, 1946, and Sections 2 and 11-A of the IDA) and illegal deductions (Payment of Wages Act, 1936), gratuity (Payment of Gratuity Act, 1971), employment security for workers in shops and commercial establishments, and all the protective provisions that are contained in the 34 labour laws operative in UP.  Some of these rights will also be denied to employers.

Some Issues and Answers

In MP, the relaxations provided for under the IDA are for new factories registered in the state during the next 1,000 days. However, what implications does this have on creating a level playing field between firms? What happens to employers who have designed production and other operations including personpower planning after the stipulated 1,000 days? Moreover, if the suspended labour laws/provisions are re-implemented—even though this is doubtful—business and industrial relations policies and practices will have to be considerably redefined.  

Proponents argue that since labour laws and their provisions have been so poorly implemented, their suspension should not make much of a difference. Such thinking, however, is facile. Notwithstanding their non-implementation, labour laws contain a body of rights that workers and trade unions can exercise to secure denied entitlements either through negotiations, strikes, or through litigation in the available judicial bodies. Furthermore, labour laws not only provide labour entitlements but also create a disciplined workforce (say by curbing potential/actual labour indiscipline). If workers and labour unions were to behave in an unruly manner, then employers would need support from the aforementioned laws to maintain order.

The suspension of labour laws will informalise the formal sector by weakening multiple labour market securities like employment, health and safety, skills, and income. Flexi-workers with limited skills will either be pushed out of the organised sector or they may be hired only for the disposable nature of their labour. Both scenarios will intensify informality. Workers ousted from the organised sector will crowd into the unorganised sector, thus increasing the supply of labour. In the absence of adequate laws, wages will be driven down.

The Fallout of ‘Reforms’

The near-complete suspension of labour laws in UP and the selective but crucial denials of labour rights in MP will lead to anarchy in the labour market. These changes will be terrifying for workers, who have fought for labour rights through numerous working-class struggles since the passage of the Factories Act in 188.  The "UP model" may even be replicated at the national level as employers are reported to have demanded suspension of labour laws for the next two to three years (Economic Times 2020).  The CEO of the government think tank, NITI Aayog, has also endorsed these changes that make the future of workers’ welfare in India seem ominous (Kant 2020).


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