EMPLOYMENT UPDATE
21 April, 2025
Issue No. 03/25-26
STATE-DRIVEN LABOUR REFORMS: IMPLICATIONS FOR EMPLOYERS
INRODUCTION:
As the Centre’s four labour codes remain in limbo, 19 states and UTs have seized the initiative, amending key labour laws to attract investment and ease compliance. Even though these states have released draft rules in line with the four Codes, the Centre is yet to officially notify them. For employers, understanding these changes is critical to navigating compliance risks and leveraging operational advantages.
STATE’S LABOUR REFORMS:
- Retrenchment Threshold: The most significant reform is the increase in the retrenchment threshold from 100 to 300 workers in 19 states/UTs, allowing employers to restructure workforces without government approval. While this streamlines operational flexibility, employers must ensure strict compliance with severance pay obligations under Section 25F of the Industrial Disputes Act, 1947 including 15 days’ wages per year of service and prior notice.
- Factories Act and Contract Labour Act: Reduced Compliance Burden: Concurrently, states have doubled thresholds for the Factories Act, 1948 and Contract Labour Act, 1970, reducing compliance burdens for smaller units. Establishments with fewer than 20 workers (power-operated) or 40 workers (non-powered) are now exempt from Factories Act obligations, while the Contract Labour Act, 1970 applies only to units employing more than 50 workers.
- Women in Night Shifts: In a progressive move, 31 states/UTs now permit women to work night shifts, mandating safety measures such as secure transport and employer consent. Employers must align with state-specific protocols, such as Maharashtra’s Shop and Establishment Act 2017 and its amendments, to avoid penalties.
- Fixed-Term Employment: Fixed-term employment (“FTE”) has been introduced in 25 states, enabling seasonal hiring while requiring parity in wages and benefits with permanent workers. States like Madhya Pradesh have added safeguards against arbitrary non-renewal of FTE contracts, emphasizing the need for explicit contractual clauses to mitigate disputes.
- Strike Notices and Compounding: Additionally, 25 states allow compounding of labour violations, enabling resolution through fines rather than litigation. Meanwhile, nearly two dozen states/UTs are considering mandatory prior notice for strikes and lockouts across all industries, a provision currently limited to the public sector. These changes align with the Industrial Relations Code 2020, suggesting a future harmonization of state and central laws.
CONCLUSION:
For employers, compliance requires auditing workforce size against revised thresholds, documenting retrenchment rationales, and implementing safety protocols for night shifts. Fixed-term contracts must include clear non-renewal terms, and compounding mechanisms should be explored to resolve disputes efficiently. With states like Maharashtra yet to notify amendments, close monitoring of local gazettes is vital. Proactive adherence to evolving norms will be key to minimizing litigation risks while capitalizing on operational ease in a competitive industrial landscape.
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