The Industrial Disputes and Certain Other Laws (Karnataka Amendment) Ordinance, 2020 has been in the limelight recently due to the significant changes it has implemented in the labour law sphere in Karnataka. The Government of Karnataka has adopted the ordinance route to implement these changes as the houses of the state legislature are not in session. In this special report, we have highlighted and analyzed the changes implemented by the ordinance.
The Parliamentary Affairs and Legislation Secretariat of the Government of Karnataka (the "GoK") had on 31 July, 2020 notified the Industrial Disputes and Certain Other Laws (Karnataka Amendment) Ordinance, 2020 (the "Ordinance")1. The Ordinance, which has been promulgated by the Governor of Karnataka, brings significant changes to three important labour laws - Industrial Disputes Act, 1947 (the "ID Act"), the Contract Labour (Regulation and Abolition) Act, 1970 (the "CLRA") and the Factories Act, 1948 (the "Factories Act"). The stated objective of the Ordinance is to promote ease of doing business in the State of Karnataka. In separate press statements, the Government has stated that the Ordinance will help industries affected by COVID-19 to attract investments under the New Industrial Policy for 2020-2025. The ordinance has been given immediate effect.
Labour related subjects fall within the concurrent list of the Constitution of India, and therefore the states have also been empowered to make amendments to certain central labour legislations. The flexibility has been utilized by several State Governments in the aftermath of the unprecedented COVID-19 outbreak, mainly with the objective of assisting employers and reviving the economy. The GoK had also introduced changes such as an increase in the number of working hours in factories in May, 2020, which was subsequently withdrawn.
Key changes introduced by the Ordinance
- Changes to the ID Act
The Ordinance exempts industrial establishments that employ up to 300 (three-hundred) workmen from the provisions of Chapter V-B of the ID Act, instead of 100 (one-hundred) workmen as per the erstwhile regime2. Chapter V-B of the ID Act pertains to the special provisions relating to lay-offs, retrenchment and closures in certain establishments. This has been effected by amending Section 25(K)(1)3 and Section 25(K)(1-A)4 of the ID Act which deals with the application of Chapter V-B. This implies that only those industrial establishments that employ 300 (three-hundred) or more workmen would now have to seek the Government's permission and comply with certain conditions in cases of closure5, retrenchment6 or lay-off7.
- Changes to the Factories Act
A significant amendment to the Factories Act is the increase in the exemption limit for purposes of applicability. The Ordinance exempts power-aided factories employing up to 20 (twenty) workers from the provisions of the Factories Act, as compared to the existing threshold of 10 (ten) workers. Similarly, the Ordinance exempts factories employing up to 40 (forty) workers from the provisions of the Factories Act, as compared to the existing threshold of 20 (twenty) workers in cases of factories operating without the aid of power8.
Further, the overtime limit per quarter has been increased from 75 (seventy-five) to 125 (one hundred and twenty-five) hours by effecting amendments to Section 65(3)(iv) of the Factories Act.
- Changes to the CLRA
- Impact of increase of threshold in Section 25(K) of the ID Act
Section 25(K) of the ID Act applies to an 'industrial establishment'. An 'industrial establishment' has been defined in Section 25-L(a) of the ID Act to include a factory, mine and plantation. Therefore, the changes in the Ordinance vis-à-vis the ID Act may not impact the services sector.
As a result of the Ordinance, an industrial establishment employing up to 300 (three hundred) need not have to obtain Government permissions for closure, retrenchment or lay-offs as required under provisions of Chapter V-B of the ID Act. The procedure to obtain the Government permission is long drawn and cumbersome, and compliance with such a requirement to lay-off or retrench even a single workman is extremely onerous for an employer. This move would particularly help the MSME sector to not only downsize its work force but also to implement easier closures and market exits.
- Impact of changes to the Factories Act
With the applicability threshold increase, several MSMEs may move out of the regulatory ambit of the Factories Act. This exempts employers from statutory requirements such as factory licenses, compliance filings, etc. and promotes ease of doing business.
Further, the overtime limit per quarter has been increased to 125 (one hundred and twenty-five) hours. It remains to be seen if such a change would be adequately utilized by the employers considering that overtime wages are paid at a rate which is twice the ordinary rate of wages paid to a worker11.
- Impact of increase of threshold for applicability of CLRA
Apart from fundamental stipulations such as prohibition of contract labour in notified core activities, the CLRA imposes licence and registration requirements for the principal employer and the contractor. Furthermore, principal employers often face collateral liability issues for payment of wages and social security benefits to contract workmen. The Ordinance is likely to lower compliance costs and may make engagement of contract labour easier. Coupled with the recent GoK amendment to the Industrial Employment Standing Orders Act, 1946 introducing fixed term employment12, this may prove to be an additional advantage to the MSME sector.
The GoK's measures have clearly moved the needle in favour of the employer. Though the primary beneficiary of the Ordinance would undoubtedly be the MSME sector, the ripple effect may cascade throughout the supply chain.
1. Available at (https://erajyapatra.karnataka.gov.in/(S(srakeogfhshkcoh2uq31zrde))/DepartmentWise_Search.aspx?Category=15) last visited on 06 August 2020
2. Vide Section 2 of the Ordinance
3. Section 25K - Application of Chapter V-B:
(1) The provisions of this Chapter shall apply to an industrial establishment (not being an establishment of a seasonal character or in which work is performed only intermittently) in which not less than one hundred] workmen were employed on an average per working day for the preceding twelve months.
(2) If a question arises whether an industrial establishment is of a seasonal character or whether work is performed therein only intermittently, the decision of the appropriate Government thereon shall be final.
4. Section 25K (1-A): Notwithstanding anything contained in sub-section (1) the State Government may, from time to time by notification in the official Gazette, apply the provisions of Section 25-O and Section 25-R in so far as they relate to contravention of sub-section (1) or sub-section (2) of section 25-O, also to an industrial establishment of a seasonal character or in which work is performed only intermittently in which not less than one hundred workmen were employed on an average per working day for the preceding twelve months.
5. Section 25-O of the ID Act
6. Section 25-N of the ID Act
7. Section 25-M of the ID Act
8. This has been effected vide Section 3 of the Ordinance by amending definition of a ' factory' under Section 2(m) of the Factories Act
9. Section 4 of the Ordinance
10. Section 1(4)(a) of the CLRA
11. Section 59 of the Factories Act
12. Vide Section 2 of the Karnataka Industrial Employment (Standing Orders) (Amendment) Rules, 2019
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