Changes to Definitions: Code on Social Security

The Code on Social Security was introduced in the Lok Sabha on 11th December 2019 and referred to the Parliamentary Standing Committee on Labour on 23rd December 2019. Following an extension of three months from the original date of presentation, the report was adopted on 29th July 2020.

This series of blogs by Simpliance covers the important concerns, recommendations and suggestions made by the Parliamentary Committee as well as examine some of the justifications provided by the Ministry of Labour and Employment. The aim of this series is to promote awareness about the policy considerations surrounding India’s social security scheme. With India set to become the most populous country in the world, the scheme has to cover a significant number of beneficiaries with diverse requirements and socio-economic backgrounds. Thus, it becomes increasingly pertinent for all stakeholders to understand the policies being proposed and their impact.

The second blog in this series examines concerns expressed by the Committee over the definition of key terms as proposed by the Code and the Committee’s recommendations.

Analysis of Definitions

The definition clause under the draft Code on Social Security, 2019 can be found in Section-2 under Chapter-I. The first major definition that was analyzed by the Committee was that of ‘appropriate government’ under sub-clause (3) of Section-2. The Committee found that various stakeholders had called for the Central Government to be the appropriate government in establishments where it has fifty percent or more share. It drew a parallel with the definition of the term under the Occupational Safety, Health & Working Conditions Code, referring to its suggestions under the report. The Committee urged the Ministry to include the stipulation suggested by the stakeholders with regards to the Central Government’s paid up share capital but recommended a threshold of not less than 51%. It also asked the Ministry to include controlled industry under the definition to ensure that there is uniformity with regards to the definition of the term across the four Codes.

‘Contractor’ and ‘contract labour’ were scrutinized as well with stakeholders proposing that the former should have a proviso that stipulates inclusion of agencies engaged by any establishment in the name of concessionaire/licensee as ‘contractor’. This was proposed with reference to practices prevailing in airports, malls, and the infrastructure industry to give a few examples. The Ministry submitted that the definition of the term contractor had been taken from the one from the Code on Wages, 2019 which in turn had borrowed the same from the Contract Labour (Regulation & Abolition) Act, 1970. The definition has proved to be effective through the course of operation of the act and thus the author believes that this change is not required. The inclusion of concessionaire/licensee would create confusion as their responsibilities would be conflated with the party who is receiving the concession. For example, in an airport or mall which has a revenue-sharing arrangement, the cost of compliance and responsibilities get mixed up. Most concessionaires and licensees do not hire directly, thus the question arises as to why they should bear full responsibility. 

With regards to ‘Contract labour’ the Committee found certain phrases like ‘regularly employed’, ‘employment governed by mutually accepted standards of conditions of employment’, ‘engagement on a permanent basis’; ‘periodical increment’ and ‘other welfare benefits’  ambiguously worded and open to interpretation thus becoming a source of litigation. The author believes the removal of the same would lead to even more confusion as there are several individuals who work on a contract basis but are not regularly employed in one place. The current definition is in consonance with the realities in the market and keeps the focus on the workers who are genuinely employed on a contract basis.

The Committee recommended that the definition of the term ‘contribution’ should be altered to make it inclusive of the other types of contribution such as funds disbursed by the State Government, Central Government, as well as CSR funds. The author believes that the same can be achieved under various schemes when they are notified and established, however inclusion of the same under the definition clause will facilitate clarity and ease of interpretation.

The next and perhaps the most important definition analysed by the Committee is that of ‘employee’. Some stakeholders recommended that categories of workers such as home-based workers, domestic workers, anganwadi and ASHA workers, part-time workers, any worker employed on ‘retainer-ship fee’ basis, a fixed term worker, commission or piece rate worker, informal worker etc. be included as they were in earlier drafts of the Code. Similarly, some experts and stakeholders suggested that the wage ceiling for EPF and ESIC be abolished to promote a more inclusive and universal scheme of social security. Further suggestions included establishing an automatic process of wage indexation with the Consumer Price Index (CPI) at periodic intervals of three to five years so that dependence on notifications can be done away with. The Committee recommended all the above to the Ministry as changes, however the author believes that there are certain points that need to be understood.

While it is commendable that the Ministry seeks to universalize the scheme of social security in the country the same must be done keeping in mind the availability of funds and resources. Thus, the question arises as to whether the government possesses the machinery to cater to all these individuals satisfactorily. The author believes that the Government must establish a scheme to provide anganwadi and ASHA workers with social security. With regards to removal of wage ceilings, the author believes that it must be replaced by a scheme of income slabs with corresponding rates of contribution, industry specific factors must also be taken into consideration while doing the same because daily wage earners and individuals who are in low-income jobs require funds for day-to-day expenses. Imposing high rates of contribution would be counterproductive as it would deprive these individuals of funds required for regular expenses as well as act as a disincentive for formalization. Similarly, with regards to universal coverage of ESI, questions arise with regards to the availability of facilities to cater to so many individuals. With most companies offering group insurance through a private service provider that can effectively cater to the needs of individuals, would such a scheme be feasible?

The next definition analysed by the Committee is that of ‘employment injury’ as provided in the ESI Act and includes only the types of accidents and occupational diseases as defined for the purposes of Chapter-IV on ESIC. The Committee recommends that the definition be made inclusive and standardized so that the unorganised sector is also given due coverage for availing benefits due to ‘employment injury’. Status quo would mean only those in insurable employment for the purpose of Chapter-IV would receive insurance, and this is a reasonable proposal in the opinion of the author.

Another pertinent definition scrutinized by the Committee is that of ‘establishment’, it was recommended that the same should be altered to include exchange of services with a provision of less than ten workers. The Ministry clarified that the definition of the term does not include agricultural holdings and households. The author believes that defining ‘establishment’ as per the physical notion of an enterprise already creates a lot of grey areas in the law. Ideally, a definition should consider the setting of modern work where one entity has multiple branches as well as individuals working from home. Section-2A of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 offers guidance with regards to the same as it stipulates that “where an establishment consists of different departments or has branches, whether situate in the same place or in different places, all such departments or branches shall be treated as parts of the same establishment.”

With regards to the definition of the term ‘fixed term employment’ the Committee recommends that the Ministry incorporate provisions that explicitly mention the conditions under which/the sectors where employers can secure fixed term employment from a designated authority based on an objective situation. The author believes that the same is impractical and creation of a parallel authority would lead to excessive regulation in an area of labour law that has just been deregulated.

The next set of terms being examined by the Standing Committee are ‘gig workers’, ‘platform work’ and ‘platform workers’. The committee desires that the Ministry provide more clarity on the status of gig and platform workers with regards to formal or informal sector participation. They also recommended that the definition of gig workers be made more specific and unambiguous. With respect to platform work the committee believes that the definition needs to be expanded to include work, employment, service, and other activities. However, it is the author’s opinion that the major objective of providing broad definitions to the above terms is to ensure that the various groups of workers engaged in unconventional work arrangements get coverage under code on social security. Thus, instead of distinguishing between workers based on their formal/informal status it would be more feasible to divide them into workers receiving code on social security benefits and workers who are not.

The Committee recommended that the definition of ‘social security’ should cover all essential elements of social security such as access to healthcare, income security in case of old age, coverage during inability to work due to injury, unemployment schemes, maternity, or loss of a breadwinner. However, the author believes that these components are dealt with by various other schemes of the Government relating to retirement, unemployment due to injury, retrenchment, etc. Therefore, their inclusion under social security is not an issue that requires redressal at this moment in time.

The final definition under examination that requires analysis is that of ‘unorganised sector’. The Committee noted that the term enterprise is used under the definition but is not defined anywhere else in the Act, that other forms of ownership such as cooperatives were excluded by the enterprise-based definition and that home-based, piece rate, commission basis workers might get excluded due to the same. The Committee recommended a more specific definition of the above as well as ‘unorganised worker’ to be used that includes gig workers, platform workers, self-employed workers etc. However, the author believes this can be ironed out during the implementation of the Act because the generality of the definition caters to the objective of inclusivity, thereby ensuring that workers receive social benefits. Issues with regards to their status can be dealt with at a later stage based on the operation of the Code and its impact on the labour market of the country.

Conclusion

While it is clear from the above that there is a concerted effort on part of the Ministry to ensure that the Code conforms to social realities and accounts for practical considerations to be made for its operation, the Standing Committee has adopted a more long-term vision with idealistic goals such as universalization of social security. It is the author’s opinion that in this situation it is imperative that the reforms in the Code be introduced with the scheme provided by the Ministry so that its implementation phase can begin and related issues may be addressed. It is only after this that the goals mentioned by the Committee can begin to be addressed through incremental changes in policy as well as legislation.

What are your views on the draft Code on Social Security? Do you think universalization is a measure that is practically feasible in the current economic scenario?

Drop your thoughts in the comments below.

Disclaimer: This blog is meant for informational purposes and discussion only. It contains only general information about legal matters. The information provided is not legal advice and should not be acted upon without seeking proper legal advice from a practicing attorney. Simpliance makes no representations or warranties in relation to the information on this article.