How the Code on Wages is tackling the epidemic of exclusion

Three years back, when we were working for the Legal Aid Clinic at our law school, we came across an interesting case of minimum wage violation. Four security guards who were working in a residential complex in Delhi were paid much below the prevailing notification of Minimum Wages Act, 1948.

On hearing the ordeal of the guards, we filed a representation with the labor commissioner of the area, who then took the initiative to look into the matter.

Subsequently, the owner of the security agency was summoned and questioned. It turned out that the Residential Welfare Association (RWA) officials had decided to give the contract for security only to such agency which gives a “commission” to them. Unsurprisingly, the small-scale security agency had to underpay the security guards.

However, the RWA, which was complicit in paying below the minimum wages, remained untouched. We were told that the liability for non-payment of rightful wages could not be imposed on the RWA as it cannot be considered a “principal employer”. In order to have a case against the RWA, it had to fall under the ambit of another legislation i.e. Contract Labor (Regulations and Abolition) Act,1970 (CLRA). The Act required a minimum of 20 workers to work in an establishment for it to be applicable and to make the RWA fall under the definition of principal employer.

In our case, there were only four security guards, making the RWA fall outside the applicability of CLRA. This meant that RWA was covered neither by the Minimum Wages Act, nor the CLRA.

Anyhow, the liability fell solely on the owner of the security agency, who did not have any funds.

This case was a classic example of how India’s labour laws (some of them now repealed) excluded a significant part of the Indian workforce, leaving the majority of those who need these rights outside the legislative ambit. For those who received protection under the legislative ambit, there existed minimal social protection.

More recently though, the Indian Parliament passed the Code on Wages, 2019, replacing four obsolete legislations: the Minimum Wages Act, 1948; the Payment of Wages Act, 1936; the Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976.

With the COVID-19 pandemic looming large on the Indian economy, workers' rights once again shape a part of the public discourse.

Problems with the old legislations: The epidemic of exclusion

According to some reports, around 90 per cent of the workforce falls in the “informal” sector i.e. the sector that is unregulated by the prevailing laws.

Let us take for example the case of Minimum Wages Act, 1948, which is now repealed and replaced by the Code on Wages, 2019. Section 2 (e) provided for the definition of the word “employer” – a person against whom certain obligations were to be imposed to pay minimum wages. Similarly, Section 2 (i) provided for the definition of the word “employee” – a person for whom a catena of rights were laid down in the Minimum Wages Act.

In order to make these definitions applicable for either the employer or the employee, there was a small catch – one had to fall under a specific list of industries provided in the schedule.

A bare perusal of Delhi’s schedule of employment shows that there were 29 scheduled employments. More importantly, no form of private/domestic helpers such as drivers, private security guards, or employees doing household chores were included in the scheduled employment thereby, excluding them from the ambit of Minimum Wages Act, 1948.

Another legislation which suffered from this epidemic of exclusion was the Payment of Wages Act, 1936. Like the Minimum Wages Act, the Payment of Wages Act also excluded workers in the informal sector, specifically those involved in domestic household chores.

The Code on Wages, 2019: The policy of inclusivity

The Code on Wages, 2019 seems to be more progressive that the Acts it replaces. The new Code does not have “scheduled employment”. In fact, in its definition section, it provides for a wide definition of an “employee”.

The Code goes a step ahead and defines the term "establishment" which was never defined in the Minimum Wages Act. The broad definitions provided under the Code will result in inclusion of domestic helpers and giving them legal protection which was previously not present. Recent reports suggest that around 50 crore workers would benefit from this legislation.

The new legislation comes at a critical time and it can be a saviour for the poor. Experts have suggested that the aftermath of the COVID-19 pandemic will have a massive effect on the economy, where around 40 crore workers may lose jobs. With an increase in the unemployment rate, there will be a large supply of labour against a small demand. This imbalance may lead to reduction in the market wages.

In an event where the market wages fall below the minimum wages, the informal sector, which accounts for 50 crore people, will now be safeguarded because of the wider ambit of the Code on Wages. The same safeguard would not have existed in the repealed Minimum Wages Act, 1948.

In covering domestic workers also in its ambit, the Code on Wages also extends to them the right to receive wages on time. In times of a pandemic, these inclusions could go a long way in ensuring they are not exploited.

For instance, Section 17(2)(ii) of the Code creates a legal right for the employees to be paid their rightful wages within a duration of two days of becoming unemployed. With the inclusion of domestic workers and daily wage laborers who were previously excluded under the ambit of Payment of Wages Act, a strong proportion of the unorganized sector will have a legal claim to their unpaid amount.

Although the Code on Wages is a progressive step from the previous legislations, it merely replaces four legislations in the sea of labour laws. Most of the existing labour law legislations still exclude the workers in the unorganized and informal sector. This arbitrary exclusion of the informal sector will continue to have extreme class ramifications in the long run.

In essence, the downtrodden are being denied safeguards, whereas those who are financially sound are provided with more rights. In the long run, the pandemic itself will highlight the fissures in these archaic labor laws.

Shivkrit Rai is a law researcher currently working in the Delhi High Court. Nipun Arora is an advocate practising at the Delhi High Court and trial courts. Opinions are personal.