India's new labour codes: Reforms may not prevent layoffs, experts warn

Experts warn that India's new labour codes, hailed as "revolutionary" and "timely", may not guarantee job security. Storyboard18 spoke to industry specialists who caution that the reforms do not necessarily protect employees from layoffs. The experts said that the reforms could drive up companies' operational costs, which in turn may affect overall employment levels.

"For small and mid-sized enterprises, higher workforce costs could increase the threat of downsizing. With margins under pressure, any rise in employee-related expenses may worsen the situation rather than stabilize it," said Kamal Karanth, Co-Founder, Xpheno.

Gerald Manoharan, Partner, JSA Advocates & Solicitors, described the new labour codes as a "double-edged sword" regarding job security.

"While gratuity relaxation makes it easier to retain employees for at least 1 year, there's nothing incentivizing them to stay until the fifth year, as was the case before," he explained.

Lohit Bhatia, President - India & Global Operations at Quess Corp, observed that while the four labour codes aim to enhance the quality of employment, raising the permissible number of exits from 100 to 300 workers could prompt downsizing during periods of slowdown or product discontinuation.

Rishi Agrawal, CEO and Co-Founder of Teamlease Regtech, argued that raising the threshold for retrenchment, layoffs, and closures, requiring government approval to 300, is not entirely new.

"Nineteen states had already independently raised this threshold because the previous limit of 100 workers kept businesses deliberately small, resulting in fewer formal jobs, limited social security, and minimal career growth for employees," he said.

Agrawal added that measures like mandatory appointment letters, formal documentation of workers, and 15 days’ wages for retrenched employees will shift focus from job protection to employability protection.

India's four Labour Codes - the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020- rationalize 29 existing labour laws.

The government has stated that the reform aims to ensure better wages, enhanced safety, social security, and overall welfare for India's workforce.

However, Karanth said, "While the reforms aim to improve worker protections, they are unlikely to prevent layoffs in the current challenging market".