Article: The gig is up: Government's take on the existing labor laws

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The gig is up: Government's take on the existing labor laws

Examining the rising trend to hire non-contractual workers in India and the proposed Industrial Relations Code Bill, 2019.
The gig is up: Government's take on the existing labor laws

A recent report has brought to fore a critical employment trend in India, and an unrelated development regarding the proposed changes in the Industrial Code Relations Bill (2019) sets the tone for how workers will be hired in the future. Let’s take a closer look at the findings of the report and analyze the government’s proposal to update the existing labor laws. 

What the report says

A recent report, titled “Emerging Employment Patterns of 21st Century in India”, authored by Laveesh Bhandari of Indicus Foundation and Amaresh Dubey of Jawaharlal Nehru University, discovered some interesting trends in the hiring patterns of India Inc1. The report, commissioned by the Economic Advisory Council (EAC) to the Prime Minister, analyzed employment data from three surveys of the National Sample Survey Organization and found that since 2012, the organized sector in India has been increasingly hiring casual (or non-contractual) workers. Furthermore, the report found that the rate of employment growth (0.8 percent) has been nearly half the rate of population growth (1.7 percent) over the same period. 

The number of non-contractual workers in the organized sector rose from 2.44 crore in 2012 to 3.61 crore in 2018

Traditionally, the unorganized sector hires a higher number of casual workers as this employment is neither registered nor follows labor laws. However, as per the findings of the report, the number of non-contractual workers has been rising in the organized sector as well; their number rose from 2.44 crore in 2012 to 3.61 crore in 2018. In contrast, the number of contractual workers rose from 2.65 crores to 2.80 crores during the same period. This was one of the two studies commissioned by the EAC to dispel some confusion related to employment data. The other one was undertaken by Surjit Bhalla and provided conflicting results because it did not distinguish between the ‘organized and unorganized’ employment, Bibek Debroy, chairman of EAC, was quoted saying. 

What these trends indicate about employment in the Indian economy

Jobs in the unorganized sector in India not only pay a lower remuneration but are also devoid of any job security and benefits. Furthermore, without any formal agreement between the employer and the employee, casual workers usually do not have any legal recourse in case of injustice or injury due to lack of safe working conditions. This is partly due to the fact that the labor laws in India are rigid, unfocused, and haven’t been updated in a while. 

The fact that organizations in the organized sector are also hiring more workers without a formal contract is a cause of distress as they could be cutting down on costs that usually accompany compliance with stringent labor laws, suggests an Indian Express report2. Laveesh Bhandari says that in addition to the country’s labor laws, educated individuals might also be freelancing without signing a formal contract with their employer as well. These recent insights, coupled with NSSO PLFS data3, which says that youth unemployment between the ages 15-29 years has risen considerably, suggests that the Indian economy is not creating enough employment opportunities for its workforce, and even the ones that are being generated do not provide security or social benefits. 

What the government has done recently in this regard

Unlike the ongoing economic slowdown, the government has not specifically admitted to the challenge so far. It has defended its own figures that reflect the highest unemployment in India over the last 45 years4. Most of the programs and policies, be it the Start-up India,5 ‘Pradhan Mantri Kaushal Vikas Yojana (PMKVY)6,’ or the Mudra, initiated in the last few years have also not met their expectations. However, the government has been working over the past few years to update India’s labor code and make the workforce more competitive to their global counterparts. 

More recently, the Union Cabinet approved the Industrial Relations Code, 2019, which will allow organizations to hire workers on fixed-term contracts and provide them more flexibility while also giving contractual workers the same footing as that of permanent employees7. This is the third (of a set of four) codes that the government has envisioned to merge the existing 44 national labor laws on wages, industrial relations, social security and welfare, and occupational safety to increase the flexibility of the current laws and protect the rights of the workers. The industry has welcomed the proposed updates because they provide organizations with greater flexibility to hire and fire contractual workers and alter their contract as per seasonal demand. Labor unions, on the other hand, have welcomed the provision of fixed-term employment and the treatment of contractual workers at par with permanent employees. 

As per the proposed Industrial Relations Code Bill, 2019, the threshold for government permission for retrenchment has been left unchanged at 100 employees, but a provision of 'changing such number of employees' through a notification has been added

However, critics have raised concerns over the discretion given to organizations regarding the retrenchment of workers. As per the proposal, the threshold for government permission for retrenchment has been left unchanged at 100 employees, but a provision of “changing such number of employees” through a notification has been added. Labor economist and professor of Human Resources Management at XLRI, K R Shyam Sundar says in a news report8, “The moment you provide flexibility for the applicability, then it leaves the matter to the discretion of the appropriate government (states or Centre). Then the clause can be misused. Any discretion in law leads to uncertainty, lack of clarity, discriminatory implementation, and provides scope for unnecessary usage. The government should be clear whether to increase the threshold or retain the threshold and face the consequences. This is a kind of appeasement to both sides, which will not actually provide relief to either of them.”

The role of HR amid these changes 

The rise of contractual and casual workers and the changes to labor laws will most certainly require HR leaders and professionals to adapt quickly. In addition to having a uniform employment policy for all their employees, permanent and contractual, they must design relevant engagement policies to ensure consistent productivity and motivation. Similarly, the pressure to ensure compliance with the law will increase as the dispute-resolution process will speed up and include punitive measures as well. But most importantly, HR leaders will have to ensure a balance between organizational goals and workforce aspirations by providing innovative solutions to existing workplace challenges.

Efforts to regulate the gig economy, both in the organized and unorganized sector, will only intensify in the future. The recent passing of AB 5 in California9, alongside ongoing debates in the UK, shows that governments are waking up to the changing workforce composition and employment patterns. While labor reforms in India have been long overdue, the government must ensure that the interests of all stakeholders are balanced while laying the foundation to a critical component of the future of work in our country. 


  1. Study commissioned by PM Council: Ever since 2012, India Inc prefers to hire labour minus a contract: Indian Express
  2. Explained: Tracking employment in India: Indian Express
  3. Unemployment on the rise among urban youth, finds survey: Livemint
  4. Cat finally out of the bag: Unemployment at 45-year high, government defends data: India Today
  5. In need of a jump start! The 'Start-Up India' Program: People Matters
  6. Joblessness haunting Modi: PMKVY struggling: People Matters
  7. Cabinet approves Industrial Relations Code Bill: India Today
  8. Explained: What is the Labour Code Bill?: Indian Express
  9. Regulating the gig economy: People Matters


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Topics: Talent Acquisition, #GigEconomy

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