Why New Labour Codes are not Employee Friendly
We focus specifically on the demerits of the New Labour Codes rather than their stated benefits. While the Codes have been introduced with the objective of simplification and economic efficiency, it is equally important to examine the shortcomings that arise from their structure and implementation. Analysing only the advantages gives an incomplete picture; understanding the weaknesses helps in evaluating whether the laws truly serve the interests of workers and society at large.
Therefore, the following discussion critically highlights the major demerits of the New Labour Codes in a clear and logical manner. The aim is to explain how certain provisions reduce job security, weaken worker protections, increase employer dominance, and make labour rights uncertain. By examining these drawbacks with simple explanations and practical examples, this analysis seeks to show why many experts believe that the Codes, in their present form, need serious reconsideration and reform to restore fairness and justice in labour law.
THE TEN MAJOR DEMERITS OF THE NEW LABOUR CODES
DEMERIT 1: RETRENCHMENT THRESHOLD INCREASED FROM 100 TO 300 WORKERS
Earlier, under the Industrial Disputes Act, 1947 (Section 25-K), if a factory or company employed 100 or more workers, the employer had to take prior permission from the government before laying off, retrenching, or closing the establishment. This rule acted as a protective wall for workers. It ensured that workers were not removed suddenly or unfairly.
The Industrial Relations Code, 2020, has increased this threshold from 100 to 300 workers. This means that if an establishment has 299 or fewer workers, the employer can now retrench workers without any government permission.
The logic problem here is very serious. Job security now depends on the size of the factory, not on the right of the worker. In India, most factories and companies fall under the MSME category, where the number of workers is usually below 300. This means most workers have lost statutory protection.
Example:
A factory with 280 workers can now remove 100 workers overnight. Earlier, the government could stop this if it was unfair. Now, no such safeguard exists.
This directly affects Article 21 of the Constitution (Right to Life and Livelihood) and Article 14 (Equality before Law). A worker’s livelihood should not depend on whether his employer hires the 299th or the 301st worker.
DEMERIT 2: FIXED-TERM EMPLOYMENT MADE LEGAL IN ALL SECTORS
The Industrial Relations Code, 2020 allows fixed-term employment (FTE) in every sector. Fixed-term employment means hiring a worker for a limited period such as 3 months, 6 months, or 1 year, after which the job automatically ends.
Earlier, courts followed a clear principle:
If the work is permanent in nature, and the worker is repeatedly hired on contracts, then the worker must be treated as permanent. This principle protected workers from being misused.
The new Code removes this protection. There is no restriction on how many times an employer can renew short-term contracts.
This creates a fear-based work culture. Workers hesitate to complain, unionise, or demand rights because they know their contract may not be renewed.
Example:
An IT support worker is hired for 6 months, then replaced by another worker, then another. The job is permanent, but the worker is always temporary.
This weakens industrial stability, violates the spirit of Article 21, and shifts India towards a hire-and-fire system, which is dangerous in a country without strong unemployment support.
DEMERIT 3: 50% WAGE RULE REDUCES TAKE-HOME SALARY
The Code on Wages, 2019 (Section 2(y)) says that wages must be at least 50% of total salary, and allowances (HRA, bonus, etc.) cannot exceed 50%.
On paper, this looks good because:
- Provident Fund (PF)
- Gratuity
will increase.
But in reality, monthly take-home salary reduces.
Example:
Earlier:
- Basic salary: ₹20,000
- Allowances: ₹40,000
- PF calculated on ₹20,000
Now:
- Basic salary: ₹30,000
- Allowances: ₹30,000
- PF calculated on ₹30,000
Result:
More PF deduction → Less money in hand every month.
Most workers have:
- EMIs
- Rent
- School fees
They need money today, not after retirement. The law ignores this reality.
This creates a conflict with Article 21, which protects present livelihood, not only future benefits.
DEMERIT 4: NO LEGAL GUARANTEE OF LIVING WAGE
The Wage Code introduces a “floor wage”, which is to be fixed by the Central Government. But the law does not define:
- How the floor wage will be calculated
- When it will be revised
- What expenses will be considered
A floor wage is not the same as a living wage. A living wage ensures food, housing, health, education, and dignity. The Constitution (Article 43) clearly talks about living wage, not survival wage.
Example:
If the government fixes floor wage at ₹350 per day, a worker with a family of four still cannot live with dignity.
There is no court remedy if the floor wage is too low. This makes the provision weak and symbolic.
DEMERIT 5: GIG AND PLATFORM WORKERS HAVE RECOGNITION BUT NO REAL RIGHTS
The Social Security Code, 2020 (Sections 113–114) recognises gig workers and platform workers for the first time. This looks progressive, but the protection is scheme-based, not right-based.
Benefits depend on:
- Government notification
- Budget availability
- Policy decisions
Workers cannot demand benefits as a legal right.
Example:
A delivery partner meets with an accident. If no scheme is active, he gets nothing.
This violates Article 21 and Article 41 (Right to Public Assistance). Social security becomes charity, not entitlement.
DEMERIT 6: TOO MUCH POWER GIVEN TO GOVERNMENT (EXCESSIVE DISCRETION)
Across all four Labour Codes, the “appropriate government” can:
- Grant exemptions
- Change rules
- Relax compliance
- Modify thresholds
This means important worker protections are not in the law itself, but in rules that can change anytime.
Example:
One state gives exemption to an industry; another does not. Workers doing the same job get different protection.
This violates Article 14 (Equality) and the principle of rule of law. Laws should be stable, not uncertain.
DEMERIT 7: COMPLEX RULES HARM MSMEs AND ENCOURAGE INFORMALITY
The Codes claim simplification, but in reality:
- Definitions are technical
- Compliance is threshold-based
- Penalties are heavy
Small businesses try to:
- Stay below thresholds
- Split companies
- Outsource work
Example:
An employer keeps workforce at 290 to avoid labour law obligations at 300.
This keeps workers unprotected and discourages formal employment.
DEMERIT 8: TRADE UNIONS AND STRIKE RIGHTS ARE WEAKENED
The Industrial Relations Code (Section 62) requires:
- Advance notice for strikes
- Cooling-off periods
- No strikes during proceedings
Earlier, this applied mainly to public utility services. Now, it applies to all industries.
This makes strikes legally risky and weakens collective bargaining, which is protected under Article 19(1)(c).
DEMERIT 9: WORKERS CAN ALSO BE PUNISHED
Earlier, penalties were mainly for employers. Now, workers can also be penalised for:
- Illegal strikes
- Misconduct
When workers already lack security, punishment increases fear and silence.
This shifts economic risk entirely onto workers, while employers enjoy flexibility.
DEMERIT 10: WEAK SAFETY ENFORCEMENT UNDER OSH CODE
The Occupational Safety and Health Code introduces:
- Inspector-cum-facilitator model
- Self-certification
- Compoundable offences
This reduces surprise inspections and strict punishment.
Example:
A factory violating safety rules can settle the matter by paying a fine.
In a country with frequent industrial accidents, this endangers worker lives and weakens Article 21 (Right to Life).
Conclusion
The New Labour Codes appear modern on the surface because they combine many old labour laws into a few simple codes, use easy language, and promise faster compliance for businesses. From a business point of view, they seem practical because they reduce paperwork, allow flexible hiring, and give employers more freedom to manage their workforce. This approach is often presented as necessary for economic growth, investment, and ease of doing business. For someone reading the law quickly, it looks like a progressive reform that brings India’s labour system in line with a changing economy.
However, when we look deeper, the real impact is very different for workers. These laws reduce job security by making hiring and firing easier, expand temporary and contract jobs, weaken trade unions, and place many worker protections at the mercy of government rules and schemes instead of clear legal rights. Workers may fear losing their jobs if they speak up, because protection now depends on company size, contracts, and government discretion. In simple words, the laws have been made easier for employers to follow, but harder for workers to rely on. They simplify the structure of labour law, but in doing so, they weaken the idea of justice, security, and dignity that labour laws were originally meant to protect.
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