ASSIGNMENT 1 

DOING BUSINESS IN INDIA 

LABOUR LAWS AND LATEST REFORMS 
 

Introduction 

Slated to be the most populated country in the world by 2022 with a total workforce of 460 
million, India’s labour law system is considered to be quite byzantine with a total of 44 
federal labour acts and more than 200 ministerial and state-level labour laws. Enforcement 
of labour laws by the state and local governments are important in regulating the market, 
protecting employment and ensuring social security of workers. In this write-up, we will 
attempt to give an overview of the evolution of Indian labour laws, present some 
quantitative data from previous research carried out in this field, go over latest reforms and 
conjectures about reforms in the pipeline. 

Evolution of labor law in India across six main periods- 

Pre-1920s 

The earliest British regulations were associated with workers in the government service, 
including the military, and ‘forced labor’ for the performance of public works. However, 
issues mainly in relation to work hours and the employment of women and children started 
coming into consideration from 1880s onwards. 

Post-World War 1 and the 1920s 

Several factors had combined to alter the industrial and political landscape, including the 
emergence of a strong nationalist movement, the rapid development of trade unions, and 
the emergence of Communist influence in the labor movement following the successful 
Bolshevik revolution in Russia in 1917. At the same time, the newly created International 
Labor organization began to have an influence on labor policy in India. The emergence of a 

 
 
 
more modern approach to the regulation of Industrial relations was also seen in the period 
because of below-mentioned enactments- 

1. ​The Trade Unions Act 1926​- Provided for the registration of trade unions, gave unions a 
legal status and extended some protections against civil and criminal liability in the course 
of industrial disputes. 

2. ​ The Trade Disputes Act 1929​- To make provision for the investigation and settlement of 
Industrial Disputes. 

1930s 

In the context of world economic depression and the associated rise in unemployment, 
there was continued agitation for Indian independence in which the ​All India Trade Union 
Congress​ played a major role. Mass dismissals were accompanied by a renewed wave of 
strikes, especially as the economic depression took hold during 1928 and 1929. This 
background precipitated the establishment of the ​Royal Commission on Labor in India​. Also 
two major factors began to put some further shape on Indian labor law- 

1. Many recommendations of the Report of the Royal Commission were taken into 
consideration in the new labor legislation between 1933 and 1939. 

2. Popular expectation that more “labor”- or “union” friendly policies would emerge at the 
provincial government level followed from the Government of India Act 1935. 

World War II and the Pre-Independence period 

Regulation in the World War II period appears against the background of considerable 
industrial unrest and strike action against the conditions and effects of the war itself. These 
circumstances brought into being several pieces of legislation designed to secure labor 
cooperation in support of the war effort. These legislations included the passage in 1941 of 
s.49A of the Bombay Industrial Disputes Act​, allowing the Bombay government to refer 
industrial disputes to compulsory arbitration by an Industrial Court, and banning all strikes 
and lockouts prior to arbitration. 

  

 
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Post-Independence, 1948 Onwards 

In the immediate post-war period it was decided that the Indian central government would 
be primarily responsible for labor legislation, and fostering labor interests, reflecting a 
five-year plan of development “dealing with all phases of the worker’s life, of housing, 
welfare, work, better working conditions, and fair wages”. In the first set of legislations, 
various provisions were included like the ​Factories Act of 1947​, the ​Contract Labour Act 1970 
and various Shops and Commercial Establishments Acts were passed. There were two 
further important pieces of legislation : T​he Child Labour Act 1986​ and ​Bonded Labour System 
Act 1976​. 
Under wages and remuneration, four pieces of legislation which were passed : ​Minimum 
Wages Act 1948, Payment of Wages Act 1936, Payment of Bonus Act 1965​ and ​Equal 
Remuneration Act 1976​. 
There were three main legislations to provide security and welfare benefits : ​Employees State 
Insurance Act 1948, The Employees Provident Fund and Miscellaneous Provisions Act 1952​ and 
Employees Compensation Act 1923.​ Other schemes also introduced in this legislation were : 
Deposit Linked Insurance Scheme of 1976​ , ​Maternity Benefit Act 1961​ and ​Payment of Gratuity 
Act 1972​. 
 

The Struggle for Liberalization: Post-1990 

There is a widespread perception about the protective qualities of the Indian labor law 
system that both the extent and content of regulation in the Indian labor market has placed 
acute restrictions on the capacity of the Indian economy to develop, especially in the context 
of economic globalization. The most important and ongoing movements towards 
liberalization in labor law have taken place at the state government level which included the 
relaxation of laws against the employment of women at night, greater ease in shift working, 
and greater freedom for the use of contract labor. 

Risks and Hindrances to Business in Context of Labour 

Laws 

 
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The risks and issues plaguing the labor and employment sector in India hinder the 
competitiveness of the firms. Multiplicity of the employment laws across state and the 
centre is a big problem as each differs in compliance and applicability criterias. This in turn 
increases the burden on the firms to follow compliance for which they have to maintain 
separate records. There is also a direct correlation with labour reforms and investments in 
the form of new businesses. Archaic laws or the compulsion to go through multiple labour 
authorities to get approvals for setting up a new business affects the timeline for setting up 
a new business. Red tapism and bureaucratic setup affects the growth of the industry. 

Any new updation or change to be implemented in the working policies regarding the 
employment terms involves multiple approvals. The labour authorities seek pre-approval 
from the firms before any change can be made. 

The Industrial Disputes Act of 1947 is a set of legislation that protects the industry workers 
from exploitation in India. The firms face a lot of legal risks in cases of wrongful termination. 
Employers should ensure that the workers are apprised of their rights and responsibilities. 
Proper notice period and severance guidelines should be followed in such cases and the 
management is briefed on the proper termination procedures. 

Employers that have more than 100 workers need to get approvals from the government in 
case of closure of the business. In case the business is not able to provide satisfactory 
reasons for their exit then the closure is termed illegal. All the employees become entitled to 
all the benefits again as before the closure notice of the company. 

There are also cases where issues arise in enforcement of non-compete clause in the 
employment contracts. In India, although it is enforceable during the period of employment, 
it doesn't hold valid for post-employment period. Upon the termination of contract, it 
cannot be enforced upon the employee to not work in a competing business.  

There are inherent risks whenever contract employers are involved in a work as the onus is 
on the principal employer, not the contractor. The PE has to ensure that the wages are paid 
and all the obligations are fulfilled by the contractor as directed in the Contract Labour 
(Regulation and Abolition) Act 1970. There is a fine line when it comes to regulating these 
contract labourers by the principal employer as more engagement may start changing the 

 
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dynamics of the relationship of the employer with the contract laborer being deemed as an 
employee. 

There are always constant threats of strikes and labour unrest in cases where the terms of 
the employment are not met. It leads to decrease in productivity. 

Apart from the above risks and labour related challenges, recent happenings have 
highlighted the permanent establishment issue of foreign companies. Hiring an Indian runs 
a risk of being termed as a permanent establishment which may have tax implications. In 
cases where foreign nationals come in India to work, they face the issue of compliance in 
both the countries and extra social security costs are incurred.  

Quantitative Representation 
Deakin and Sarkar(2011) tapped into the Labour Regulation Index (LRI) of Centre for 
Business Research at the University of Cambridge which seeks to cover changes in the law of 
a number of developed and developing countries for the period 1970-2006. India is one of 
the countries in this index. The LRI consists of 40 indicators grouped into five areas of labour 
law regulation: the law governing the choice of alternative forms of the employment 
contract (dependent versus contract labour, part time work, fixed-term employment, agency 
work), working time, dismissal, employee representation and industrial action. A 0-1 scale is 
used to score each indicator, with higher scores indicating a higher level of worker 
protection. Justifications for the choice of indicators, their grouping into sub-indices, and the 
definition of the coding protocols, are set out in Deakin, Lele and Siems (2007). The full 
dataset, which contains detailed explanations for the codings and references to the primary 
legal sources on which the scores are based may be consulted online (CBR, 2007).  

 
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Figure 1 shows the broad trend in the evolution of Indian labour law over the period 1970 to 
2006 in comparison with those in the four other countries coded by Deakin et al. (2007). The 
figure indicates movement in the average totals (out of 40) for each country over the period 
of the study. It can be seen that India’s labour regulation is highly protective by international 
standards. At the outset of the period in the early 1970s, it was comparable to that in 
France, and above those of the other three countries . Over time, there was some moderate 
strengthening of worker protection in the Indian case, while that in Germany fell slightly, and 
that in France rose. 

 
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Figure 2 represents the scores for the sub-indexes on dismissal protection. Here, India 
appears as having the most protective score of all the five countries. India has a system of 
labour regulation that is pro-worker with respect to international standards. The effect is 
largely due to its laws on termination of employment. 

 
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Figure 3 makes the same point in a different way: breaking down the Indian scores with 
respect to the individual sub-indices, the subindex on dismissal protection scores more 
highly than any of the others. 

Recent Scenario and Reforms Undertaken 

Formal Labour law in India is firmly based on western values and concepts as much of it 
derived from I​ nternational Labour Organization​ standards. It has evolved from early penal 
provisions on Labour, through to the extension of protective Labour conditions of work, and 
the rights of Labour to security in a broader social sense. Indian Labour law is limited in 
application by the size of establishment, economic activity, employment relationship, 
employment position and so on. It is evident that the Indian Labour law is practically 

 
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different from the whatever is present in the law. Thinking about Labour law in India 
requires us to think not merely about the application of a set of legal or regulatory 
conventions governing labour in a particular society. It also requires us to think about what 
“Labour law” might mean in varying economic and social contexts. 

One  of  the  major  roadblocks  in  the  Indian  business  scenario  has  been  the  complexity  and 
redundancy  of  several  labor  and  industrial  laws.  But  in  the  past  few  years there has been a 
realization  of  the  increased  need  to  improve  the  ease  of  doing  business  and  make  the 
business  environment  more  dynamic.  This  has  put  the  spotlight  on  labor  laws  reforms.  In 
the  past  year,  several  employment  law  changes  took  place  -  changes  which  were  hailed  as 
progressive  and business- friendly. The key developments which took place in the domain of 
labour and employment law in 2017 are listed below: 

·  Increased  Maternity  benefits​:  The  amendment  to  the  Maternity  Benefits  Act, 1961 
came  into  force  on  1  April,2017.Under  the  new  provisions,  the  mandatory  maternity  leave 
was  increased  from  12  weeks  to  26  weeks  for  women  employees  with  less  than  two 
surviving  children.  Any  employer  with  more  than  50  employees  is  also  required  to  provide 
crèche  facilities  to  the  employees  returning  from  maternity  leave.  The  amendment  also 
provided for adoption and surrogacy leave for up to 12 weeks. 

·  Introduction  of  a  common  platform  for  complaints  of  sexual  harassment​:  The 
Government  has  launched  an  online platform called SHE-box (Sexual Harassment Electronic 
Box)  for  women  employees  to  lodge  complaints  of  workplace  sexual  harassment.  This 
initiative  seeks  to  give  women  employees  a  common  platform  to  raise complaints of sexual 
harassment. 

·  Introduction  of a new law on persons with disabilities​: The Rights of Persons with 
Disabilities  Act,  2016  was  brought  into  effect  on  June  15,  2017  to  replace  the  erstwhile 
disabilities  law.  The  meaning  and  scope  of  disability  has  been  expanded  significantly  to 
include  27  different  types  of  disabilities  as  opposed  to  the  previous  law  which covered only 
7  types  of  disabilities.  This  Act  is  applicable  to  all  private  establishments  and  prohibits 
discrimination  with  respect  to  recruitment,  employment  and  promotion  on  the  basis  of  a 
person’s disability. 

 
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·  Increased  coverage  for  mandatory  employee  insurance​:  The  Employees’  State 

Insurance  Act,  1948,  which  provides  statutory  insurance  to  employees,  was  amended  to 
increase the wage limit for coverage from INR 15000 to INR 21000. 

·  Increased  trade  union  activity  in  the  IT  sector:  ​Trade  Unions  are  usually 
prevalent  in  the  manufacturing  sector  but  the  year  2017  saw  organized  trade  unions  gain 
recognition  in  the  IT  sector.  Karnataka  became  the  first  state  to  have  an  information 
technology-specific  trade  union  registered  under  the Trade Unions ACT, 1926-the Karnataka 
State  IT/ITES  Employees  Union.  Maharashtra  has  also  followed  suit  and  Forum  for  IT 
Employees (FITE) has become a registered union in the state. 

​·  Simplification  of  Employment  Law  Compliances:  ​To  reduce  the  cumbersome 
compliances  of  various  overlapping  legislations,  the  Government  in  February  2017, 
introduced  the  Ease  of  Compliance  to  Maintain  Registers  under  Various  Labor  Laws, 
2017.The  purpose  behind  this was to allow employers to maintain consolidated registers for 
9  central  employment  laws,  some  of  which  are  the  Payment  of  Wages  Act,  1963,  the 
Contract Labour (Regulation and Abolition) Act, 1970, Minimum Wages, 1948. 

​There are also several key reforms lined up for implementation in the year 2018: 

·  Consolidation  of  Labour  Laws​:  In  its  election  manifesto  in  the  2014  general 
elections,  the  Government  had  pitched the consolidation of 44 employment legislations into 
4 labour codes: 

1.  Labour  Code  on  Industrial  Relations:  This  code  would include the Industrial Disputes 

Act,  1947,  the  Industrial  Employment  (Standing  Orders)  Act,1946  and  the  Trade  Unions 
Act,1926. 

2.  Labour  Code  on  social  security  and  welfare:  This  code  would  consolidate  social 
security  laws  such  as  the  Employees  Provident  Funds  and  Miscellaneous  Provisions 
Act,1952, the Employees’ State Insurance Act,1948, Maternity Benefits Act,1961 etc. 

3.  Labour Code on Occupational Safety, Health and Working Conditions. 

4.  Code  on  Wages:  ​This  code  would  cover  the  Minimum  Wages  Act,  1949,  the Payment 
of Wages Act, 1936, Payment of Bonus Act, 1965 and Equal remuneration Act, 1976. 

 
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The  rationale  behind  proposing  this  was  to  reduce  the  multiplicity  of  employment 
legislations and keep them in sync with the requirements of the evolving labour market. 

·  Enhancement  of  the  gratuity  ceiling​:  The  Payment  of  Gratuity  (Amendment)  Bill, 
2017  was  introduced  in  Lok  Sabha  on  December 18,2017 as an amendment to the Payment 
of  Gratuity  Act  ,1972  which  entitles  employees  who  have  been  in  continuous  employment 
for  a  period  of  5  years  to  gratuity  at  the  rate  of  15  days  wages  for every year of continuous 
service,  capped  at  INR  10,00,000.  The  Bill  if  passed  will allow the Government the discretion 
to  prescribe  the  gratuity  ceiling  and  the  period  of  maternity  leave  that would be deemed to 
constitute continuous service. 

·  Union Budget proposals for Provident Fund Contributions: T

​ he Union Budget for 
2018-19 has provisions for the Government to make provident fund contributions of 12% of 
wages for new employees for a period of three years and to reduce the mandatory 
contribution limit from 12% to 8% for women employees for the first 3 years of 
employment. 

​·  Changes to the Law on Contract Labor: T

​ he Government has released a draft bill 
for the amendment of the Contract Labour(Regulation and Abolition Act),1970.The bill 
intends to exclude workers who are regularly employed in the establishment of the 
contractor from the purview of “contract labour” for the purposes of CLRA. 

·  Changes in laws governing Factories​: Amendments to the Factories Act are being 
planned for the past few years. These are aimed at allowing the state governments to 
increase the number of overtime hours that employees can work and to prescribe rules in 
relation to exemptions that could be given to various employees. 

These reforms in the labour laws are a welcome change as some of the labour laws dated 
back almost half a century and were becoming obsolete, thus becoming a hindrance for 
businesses trying to stay competitive in today’s dynamic scenario. But there is still a vacuum 
in this domain as the laws are failing to keep pace with the new trends of increased 
automation and creative forms of workforce engagement such as gig/on call working. So in 
conjunction with the above mentioned reforms, there is a need for new legislations that 
accommodates these key trends of innovation and entrepreneurship. 

 
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REFERENCES 
1. Sarkar, Prabirjit, and Simon F. Deakin. “Indian Labour Law and Its Impact on 
Unemployment, 1970-2006: A Leximetric Study.” ​SSRN Electronic Journal​, 2011, 
doi:10.2139/ssrn.1913609. 
2. Indian employment law reforms: The lineup for 2018 , Article by People Matters, 19th 
March 2018. 
3. Mitchell, Richard, Petra Mahy, and Peter G. Gahan. 2013. "The Evolution Of Labour 
Law In India: An Overview And Commentary On Regulatory Objectives And 
Development". SSRN Electronic Journal. doi:10.2139/ssrn.2297160. 
4. Labor & Employment Law Strategic Global Topics - EY, Fall 2017 edition. 

Arshdeep Kaur 41137 

Monika Kumari 41201 

Rajasee Chatterjee 41232 

Anuj 41129 

Amneet Kaur 41124 

Anushka Srivastava 41131 

 
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