New Labour Codes have created fresh uncertainty for employers and employees: Sanjay Ghose

India’s new labour codes have unsettled well-developed labour jurisprudence and created fresh uncertainty for employers and employees alike, Senior Advocate Sanjoy Ghose said on Friday.

Ghose said the codification exercise was a missed opportunity to consolidate decades of judicially evolved labour law principles.

“Ninety percent of labour law was judge-made,” he said, noting that courts had historically shaped the law governing industrial disputes, reinstatement and worker protections.

Ghose was speaking at a discussion hosted by the Society of Indian Law Firms and Accenture on the implementation of the new labour codes

According to Ghose, parliament, when enacting the new codes, could have clarified the principles evolved by courts.

But several long-standing issues such as the definition of 'industry' remain unresolved, he pointed out.

He highlighted that a nine-judge Bench of the Supreme Court is now hearing arguments on the scope of the definition under the old Industrial Disputes Act.

“As we are talking, nine judges of the Supreme Court are sitting and deciding what should be the definition of industry under the old Act,” he said

Ghose also highlighted the uncertainty around the Grievance Redressal Committee (GRC) mechanism under the Industrial Relations Code, which requires establishments employing more than 20 workers to constitute such committees.

He said the new law merges provisions from the Industrial Disputes Act and the Industrial Employment (Standing Orders) Act but does not clearly explain how the new system will operate in practice.

“In this mishmash there is absolute lack of clarity as to how we go about this,” Ghose remarked.

Atul Gupta, partner at Trilegal, said the labour codes were conceptually progressive but flawed in their structure and implementation.

While consolidating 29 labour laws into four codes was a major reform, the drafting does not adequately reflect modern workplace realities, he stated.

“The labour codes are great in their thinking and concept, but quite severely lacking in how they are structured and implemented,” Gupta said.

He pointed to the statutory definition of 'worker' as an example of outdated thinking. Under the current framework, a supervisor earning ₹25,000 a month may fall outside the definition of a worker, while a highly paid professional performing non-supervisory work may still be classified as one.

Senior labour law practitioner Alok Bhasin said there are several grey areas in the new labour codes, particularly in relation to contract labour regulation and wage definitions.

“One of the unique features of all the labour codes is their inherent ambiguity,” Bhasin said.

He noted that the unified definition of wages, intended to simplify the legal framework, could itself become a source of litigation because of its detailed inclusions and exclusions.

Rashmi Pradeep, partner at Cyril Amarchand Mangaldas, cautioned employers against assuming that the labour codes replace State-level employment laws.

“The codes consolidate 29 legislations at the central level. They do not touch any of the State laws,” she said.

She explained that labour regulation falls within the concurrent list of the Constitution, meaning both the Centre and States can legislate on the subject. As a result, employers must continue complying with statutes such as the Shops and Establishments Acts.

Nishant Ravindran, partner at AZB & Partners, said the new statutory definition of wages , intended to create a uniform framework across labour laws , may itself create interpretational challenges.

He said the definition draws from several earlier laws and introduces a rule as per which excluded wage components cannot be more than 50 per cent of the total pay.

“In theory this sounds simple, but when we actually get into the nitty-gritties of what is wages, that’s where all of us have tried to grapple with the issue,” Ravindran said.

He added that companies will need to carefully examine each component of remuneration to determine whether it falls within the definition of wages or within the list of statutory exclusions.

Patrick Lowe, Chief Compliance Officer at Accenture, said multinational companies value regulatory clarity when making employment and policy decisions.

“Business likes certainty as we’re making our policy decisions and making our employment decisions,” Lowe said.

Despite the uncertainty surrounding the new codes, he said India remains a key market for the company, which continues to expand its workforce in the country.

Speakers at the event broadly agreed that while the labour codes aim to modernise India’s labour framework, their full impact will become clearer only when courts begin interpreting the new statutory regime.