AN ANALYSIS OF THE

LABOUR CODE ON WAGES,

2019

The landmark Labour Code on Wages Act (henceforth referred to as the

Wage Code), enacted in August 2019, has been celebrated for codifying
India’s four wage related laws, namely the Minimum Wages Act, 1948;
the Payment of Wages Act, 1936; the Equal Remuneration Act, 1976; and
the Payment of Bonus Act, 1965. However, a closer examination of the
Wage Code reveals that it has omitted or diluted critical provisions of
previous legislations. As India grapples with a wage crisis, which affects
the lives and livelihoods of its significant informal labour population, the
ability of the Wage Code to protect wages warrants an urgent discussion. 

Of the country’s 400 million strong workforce, 49percent are dependent on

wages for the sustenance of their households (National Sample Survey
Office (NSSO) 2010). However, both urban and rural wage growth rates
have declined dramatically in recent years, falling to single digits from a
high of 20.5percent in 2010–11 and 27.7percent in 2013–14, respectively
(Mohanty 2019). At the same time, labour share in profits has fallen, such
that the wages paid to workers have not risen in proportion to the increase
in labour productivity (ILO 2018). Furthermore, the Economic Survey
2018-19 has revealed that 1 in 3 wage workers are not protected by the
minimum wage laws due to a faulty enforcement mechanism (Department
of Economic Affairs 2019). Of these waged workers, two-thirds are casual
workers and represent the poorest and most vulnerable sections of the
country (NSSO 2010; NCEUS 2008). It is in this context that the wage
code will be analysed.
The Wage Code is backed by the central government’s claim that it will
address the wage crisis by simplifying the multiplicity of definitions and
authorities involved. This would improve compliance and expand the
coverage of previous laws to make them inclusive of the vast unorganised
sector (Mahajan 2019). Its actual provisions, however, inhibit these
ambitious goals from being met. The Wage Code has, in fact, made
definitions unclear by leaving much to the discretion of government
authorities or to the interpretation of judicial bodies. For instance, no
attempt has been made to define and outline the methodology for setting
minimum wages, leaving the procedure to be formulated by the centre as
seen fit. Additionally, it is important to note that previous legislations were
not inapplicable to the unorganised sector. The minimum wage law was
meant to cover sectors that suffered from weak collective bargaining
power, especially those with a high concentration of casual labour. Instead,
the major challenge facing the coverage of wage laws is poor regulatory
oversight and faulty implementation of laws. However, on this note, the
Wage Code dismantles existing enforcement mechanisms without
replacing it with viable alternates. This makes any attempt at improving
coverage impossible. 

It appears that far from establishing a legislative framework for the

protection of workers’ wages, the Wage Code does the very
opposite. It undoes the existing legislative framework that intends on
checking the unrestrained exploitation of workers and legitimising the
cheapening of the workforce for facilitating economic growth. This neatly
fits into the state’s agenda of improving the “ease of doing business” in
order to attract investments into the country. 

THE AMBIGUOUS MINIMUM WAGE RATE:-

Apart from restating components of minimum wage from the previous

legislation (that is, it includes a basic cost and cost of living allowance),
the Wage Code does not define or outline the methodology for fixing an
adequate minimum wage. It completely ignores the formula, which was
unanimously recommended by the Indian Labour Conference (ILC) in
1957 and reiterated in the 44 and 46 ILCs in 2012 and 2015, respectively.
The formula formed the basis of the Supreme Court ruling in the Raptakos
Brett case of 1992, where it laid down a needs-based criteria for fixing
minimum wages. This criteria takes into account expenses on adequate
levels of nutrition, clothing, fuel and lighting, education and healthcare,
old age provision, as well as social costs such as marriages, festivals and
recreation for three consumption units per worker in order to take into
account the needs of the entire household of the worker. This methodology
prioritised the needs of the workers, rather than viewing them merely as
factors of production.
  
On the contrary, the Wage Code leaves the setting of minimum wages to
the discretion of administrators, disregarding the rights of workers to
wages that are adequate for leading a dignified life (Sundar and Sapkal
2018). Moreover, there is no clarity on the particular authority designated
for setting the minimum wages, or the procedure which is to be followed.
The Wage Code merely states that a floor minimum wage may be set by
the central government either at the national level or regional levels, and
that state governments may set minimum wages at the state level. The
danger of using ambiguous language for establishing minimum wages was
revealed in the government’s recent announcement, which set the national
floor for the minimum wage under the Wage Code, at a mere Rs 178. The
amount has been referred to as the “starvation wage,” and it is only Rs 2
higher than the previous national minimum wage, which was set two years
ago (Varma 2019). While it is not clear whether this would indeed become
the national minimum wage, this instance highlights how lack of
procedural clarity could lead to minimum wage estimates that are less than
ideal.
  
Additionally, the setting of different state-level minimum wages is now in
the hands of respective state governments, so long as they do not place
their minimum wages below the floor set by the central government for
that state or region. This, though, might lead to a race to the bottom
between states that are competing with one another to lower wage rates
and bring in greater investments. The consequence of this competitive
federalism, based on labour cheapening between states, would be
repressed wages throughout the country (PUDR 2017) as well as a
violation of the spirit of the constitutional provision establishing
"labour" as a concurrent subject. For instance, this was seen in the case of
the Okhla Industrial Area in Delhi, wherein businesses shifted out from
Okhla to Haryana and Uttar Pradesh (UP) to take advantage of lower
minimum wage rates in the latter (WPC 2019).
 
The Wage Code states that the minimum wage will be determined
according to the skill of the employee, the arduousness involved in the
work performed by the employee, the geographical location of the place of
work, or other factors as the government might deem important. Taking
into account such specific factors that are difficult to measure to decide
wages strengthens the discretionary power of administrators. Such
discretion in the hands of bureaucracy can result in lobbying, and could
ultimately lead to adverse effects. This was previously experienced in the
goods and services tax council where many industries lobbied successfully
for lower tax rates. Such a case of lobbying could extend to lowering
wages as well (Puri and Manur 2017). 

The provisions for the central or state-level advisory boards, whose

functions include maintaining checks and balances, and ensuring
representation of all stakeholders, have also been disappointing. The Wage
Code has legislated that the recommendations of the advisory boards
would not be binding on state governments. The composition of the board
has been altered and the number of employees has been limited to three
members, all of whom would be nominated by the government. The
representation of women among the nominated employees has been
reduced from 50percent (as under previous legislations) to one-third. This
move has undone years of work spent strengthening the robustness of
these bodies in order to make the government accountable to stakeholders.
 
In order to extend coverage to all workers, the Wage Code removes the
schedule of employments, which documents the specific industries that
would be covered by existing minimum wage legislations. The logic of
having a Schedule of Employments was to ensure that workers in
industries where unionisation and collective bargaining strength was weak,
would still be able to access minimum wages. The industry-level minimum
wage has now been replaced by a standardised minimum wage based on
either time-based or piece work, which is applicable to all sectors. There is
no clarity on whether the minimum wages will be set at the same level for
all industries. This means that without the schedule, the minimum wage
rates set at the state-level might be based on the wages paid to the poorest
workers, thereby bringing down wages in all sectors. While the schedule
was exclusionary and there is a strong need to protect the wages of
workers in all industries, such as domestic workers, the Wage Code might
empower employers to repress wages in industries that had higher wages
due to protection through the Schedule (Newsclick 2017).

 
MANY PROVISIONS, NO ENFORCEMENT MECHANISMS:-

Rather than strengthening implementing mechanisms to realise its

provisions, the Wage Code dismantles the inspection systems present in
previous legislations, under which labour inspectors could carry out
“surprise checks” and “examine persons” (Sundar 2017). There has been a
constant vilification of labour inspectors through the narrative of the
"inspector raj," highlighting corrupt practices of inspecting officials as the
key deterrent to economic growth (Sundar 2017). However, such an
analysis is misleading.
 
Under the previous wage legislations, few inspections and prosecutions
could be carried out due to limited financial and human resources. For
example, Maharashtra’s grossly understaffed labour department would
take three years to carry out one visit per inspector of the 5,602 sites
covered by the previous non-universalised minimum wage systems
(Sundar and Sapkal 2018). In such a scenario, an overarching claim paints
inspectors with too broad a brush, hiding the inefficiencies of the system
that inhibits them from carrying out their work. 
Furthermore, inspectors have now been termed "facilitators," the term
itself making a mockery of their regulatory and enforcement authority. The
task of facilitators to “supply information and advice to employers and
workers concerning the most effective means of complying with the
provisions of the code,” takes a more benevolent approach to wage
violations by employers. At the same time, they will also be responsible
for undertaking inspection based on the directions of the state
governments. However, state inspection schemes provide for web-based
inspections through an automated centralised system. This means that
labour inspectors cannot conduct surprise checks after receiving
information about suspected violations, make inquiries about employers or
their agents, or enter workplaces as they please, other than when the time
of inspection comes every three to five years through the automated
system. 

This system allows for a web-based self-certification scheme, where

employers can certify themselves as being compliant to the provisions of
the code. Such a self-certification scheme assumes that employers are keen
to, and will naturally, comply with labour regulations. This is a
misinformed position as there are a large number of instances of non-
compliance with the existing labour laws. For instance, a study conducted
by Aajeevika Bureau (2008) revealed that 68percent of surveyed workers
in southern Rajasthan had suffered a grave labour law violation in the
previous year alone. These provisions for dismantling the inspections
system have already been in action in some states for inspecting
compliance to several labour laws, following which, violations have
allegedly increased (Sundar 2017).

Along with this, the penalties on employers for not complying with wage
laws have also been weakened, with penal inspections being replaced by
guidance inspections. For instance, under the existing Minimum Wages
Act, any payment less than the minimum wages is punishable by
imprisonment in the first instance. The Supreme Court had pointed out
in Sanjit Roy v State of Rajasthan in 1983, that non-compliance with
minimum wages amounts to forced labour, which is constitutionally
prohibited (PUDR 2017). While before, employers had criminal liability,
under the present Wage Code, they only have a civil liability. Further,
employers found to be violating the Wage Code will be given the
opportunity to comply with the provisions of the Wage Code or give
reasons for violation, and only compounded offences will lead to
penalties. 

The Wage Code also takes away the jurisdiction of courts in providing
justice to workers who have faced violations with respect to their wages.
This means that workers can no longer access courts to contest the wages
paid to them by their employers, but can only approach the quasi-judicial
body and appellate authority set up under the provisions of the Wage
Code. The government is claiming that the setting up of an appellate
authority to redress violations regarding workers’ wages will lead to
speedy, cheap and effective resolution of wage disputes. However, it gives
the appellate authority, whose membership is not defined, the sole power
to adjudicate on wage disputes, which are not subject to review by the
courts. This is in clear violation of the Civil Procedure Code, Section 9,
which mandates that every law or decision made under its authority be
subjected to review by the judiciary. A claim can only be filed by an
appropriate authority, employee or trade union. This means that
undocumented, casual and informal workers, as well as workers who do
not belong to a trade union, will find it extremely difficult to file a case,
thereby further disempowering them to assert their right to be paid the
legally mandated wages. This move is a serious blow to workers’ access to
basic rights in a country where 93percent of workers have informal
livelihoods (NCEUS 2008), more than 80percent of workers do not have
access to written contracts to prove their employee status (Sundar and
Sapkal 2017), and less than 10percent of workers are included in trade
union membership (Ratnam and Jain 2002).

PRO-EMPLOYER REGIME BASED ON LABOUR

CHEAPENING:-

While appearing to balance the interests of capital and labour, the Wage
Code performs a stealthy function. It removes critical provisions, and
deletes and/or adds words and phrases to provisions in previous labour
laws that are essential for upholding wage security of workers. 
First, it omits the liability of the principal employer to pay wages to
workers if the labour contractor has failed to do so. In India, the majority
of workers are contract or daily wage labour, and the most vulnerable,
impoverished and migrant workers are often employed in jobs that have
multiple layers of subcontracting. They are additionally prone to being
cheated out of their wages by employers who intentionally
obscure accountability and responsibility through long contracting chains.
The ability to hold the principal employer liable for paying wages when
contractors disappear or cannot be held accountable is crucial for workers
being able to access their wage payments in full. The Wage Code defines
the principal employer broadly, to include contractors or anyone who is in
charge of the worksite, making it difficult to pin the liability on the actual
employer. 

Second, the arbitrary deduction of workers’ wages by the employer has

been legitimised, permitting employers to cut wages based upon the
performance of the employee or to recover losses. As it does not mention
any due process to be followed in these instances, it opens up the
possibility of misuse, especially in a situation where the power relations
between employers and workers already favour the employer. 

While the Wage Code has set overtime rates at double the normal rate, it
makes overtime payments doubly difficult to claim. Even though it
empowers governments to set the number of normal working hours, it
excludes from its ambit employees engaged in urgent work or in any
emergency, which could not have been foreseen or prevented; employees
engaged in work that is preparatory or complementary in nature and must
necessarily be carried on outside the limits laid down for the general work
in the place concerned; employees whose employment is essentially
intermittent;  employees engaged in any work which, for technical reasons,
has to be completed before the duty is over; and employees engaged in
work, which could not be carried on except at times dependent on the
irregular action of natural forces. This signals the end of the existing
understanding of overtime work as being beyond nine hours per day and
48 hours per week, and instead allows employers to present overtime work
as compulsory normal work hours without extra payment. 

Third, the Wage Code expands the definition of new establishments that
are exempt from paying bonuses under the previous laws to include “trial
running of any factory” and “prospecting stage of any mine” (The Code of
Wages 2019). This means that existing establishments can also escape
payment of bonuses by being on trial runs or prospecting stages, as there is
no time limit specified for either of these activities. 
RECLAIMING WORKERS’ RIGHT TO WAGE SECURITY :-

There is an urgent need to revisit the original intention of labour

legislations in the country, which was to balance the interests of labour and
capital, and subsequently recognise labour as the less powerful party in the
equation (Papola et al 2008). The protection of wages was the means to
ensure that the benefits of industrial growth would lead to the economic
betterment and social regeneration of the labouring population, further
ensuring social justice (Thakur 2007). 

The Wage Code presented an important opportunity to reform wage

legislations and address the challenges facing wage security in India. One
of these is the high levels of wage inequality, based on labour
segmentation along the lines of caste, religion, region and gender (Papola
2013). However, it fails to acknowledge or address these inequalities.
Given the context of the wage crisis, the Wage Code should have focused
on legislative measures to set minimum wages at an adequate level as laid
down by the ILC and the Supreme Court with the representation of
workers and their organisations in the process. 

In addition to this, setting up an enabling environment for collective

bargaining by workers to push up wage levels over and above the
minimum wages is also necessary in order to ensure a fair labour share in
profits. Rather than dismantling the inspections system under the charge of
corruption, labour departments need to be empowered to ensure
compliance through better staffing and resourcing, while establishing
accountability mechanisms to check misuse of power by labour inspectors.
At the same time, the power of courts and workers’ organisations to ensure
grievance redressal to workers in times of violations needs to be restored.
 
Previous wage legislations have been the result of historical labour
struggles (Agarwala 2011), and have been termed both comprehensive and
progressive (Papola et al 2008). Rather than overhauling the existing
enforcement mechanism, the implementation of these legislations should
be strengthened by enhancing the regulatory authorities’ ability to
understand the informal sector. The rhetoric of inclusivity and
simplification being utilised to legitimise labour cheapening needs to be
questioned, and the concept of wages as fulfilling a socio-economic
function, rather than being a mere feature of the market, needs to re-enter
the imagination of wage legislations.