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Restructuring India’s Labor Law Framework

The COVID-19 pandemic has resulted in leaving millions of laborers in India unemployed. This demonstrates the failures of the Indian labor law framework and the weak implementation of the laws. Even with an extensive network of legislation to protect labor rights, there is no hope for social security or economic benefits in times of uncertainty. There has been a closure of factories, workplaces, and industries for the past few months to contain the spread of COVID-19.

There has been a clear order by government advisories requesting the retention of contractual workers, allowing sick leaves, and payment of full wages. Despite all these requests employers have proceeded with salary cutback orders which has resulted in one in four Indians being unemployed.

The constitution of India is the cornerstone of individuals' rights and liberties, it provides a basic framework with which all the laws should operate, including the laws related to labor and employment.

Given the changing economic requirements in recent times, the Indian government has been slowly and steadily working on the restructuring of labor laws to improve the ease of doing business in India. There are several high-end reforms in the channel, which we hope will see the light of ray in the next few years.

5 main key-points in Indian labor laws:

  • Labour and employment laws are listed under the concurrent list in the Indian constitution, which means the Union Government and State Governments have co-equal power to enact laws relating to all labor and employment matters in India.

  • Indian labor law distinguishes between employees who are defined as ‘workmen’ and ‘non-workmen’.

  • India does not generally recognize employment-at-will.

  • Trade unions are restricted to more traditional forms of businesses such as the manufacturing sector but in recent times we can see some unionization in the Information Technology (IT) sector as well.

  • The Equal Remuneration ACT, 1976 mandates the payment of equal remuneration to male and female workers who undertake similar work.

Even though Labour and employment laws are listed under the concurrent list, there are hundreds of legislations relating to labor and employment out of which around 50 are enacted by the Union government. Most of them are concerned with blue-collar employees or workmen giving more emphasis on improving working conditions for these employees.

While, on the other hand, not much emphasis is given to the legal structure relating to non-workmen and most of the laws are evolved mainly through judicial pronouncements not by parliament. The Equal Remuneration Act has gradually helped in reducing the gender wage differentials but we can see that the gender wage differentials are high at the higher end and low at the lower end.

COVID-19 lockdown has forced several State governments to suspend the labor laws for a few years. This is one of the moves in hope of attracting capital investments and reducing the widespread unemployment and socio-economic unrest.

According to economists and analysts, removing labor laws hasn’t seen any progress in attracting long-term capital, and reducing unemployment, however, its constitutional soundness and economic efficacy are still a question. Moreover, before suspending the existing labor law framework, state governments should think if the new flexible labor regime would incentivize additional capital investment and will it help in creating more employment.

Empirically, it has been established that flexibility in labor laws does not correlate with capital investments which can help create jobs. Similarly eliminating workers' rights does not guarantee improving unemployment rates.

On the contrary, well-established and well-protected labor laws help in producing productive workers which trigger capital inflows in new industries. Indian labor protection framework is focused on government enforced-rights rather than empowering labor collectives. The main focus has always been on an agreement framework, which has suffered from a lack of implementation.

The main focus should be on changing the stringent employer agreements in a workplace environment to empowering labor collectives and giving them powers to negotiate for their wages and working conditions in a just, flexible and transparent manner.

It will help both employers and workers to engage and regulate their terms of work in line with existing economic conditions that are best suited for both employers and workers. Better working conditions, job security, and a guarantee of wages would incentivize Indian workers to return to core manufacturing regions to begin their work again provided the necessary long-term safety net.


  • State Governments should be given equal rights when it comes to legislation related to law and employment. Similarly, the state government should be involved in every law-making process.

  • The government should focus equally on workmen and non-workmen; more emphasis should be given to non-workmen in the situation of crisis.

  • The Equal Remuneration ACT should be implemented in all the workplaces irrespective of working conditions. Women and men both should be paid equally for the same work.

  • All the laws must be followed and checked upon by the government and strict legislation should come into the practice to punish those who are violating the rights of the workers at their workplaces.

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